This Month in Retail Banking
After two years of COVID-accelerated branch closures, financial institutions have now slowed the pace of consolidations, according to the latest FDIC Share of Deposits data (Figure 1). The closure rate for 2023 is at a level not seen since the eight-year period leading up to the pandemic.
Figure 1: Branch Count Trend
The shuttering of in-store branches, however, has continued to quicken – the 9.4% closure rate is more than four times that of traditional branches (Figure 2). In-store branches have historically been effective in acquiring customers, but they’ve long struggled to achieve the relationship depth needed for sufficient per-customer profitability. Consumers now visit branches far less often, and many have cooled on the convenience of doing their banking while buying their groceries.
Branch Count Trend - Traditional
Branch Count Trend - In-Store
Super-regional and regional banks have been disproportionately driving the overall reduction in branch counts (Figure 3), for a number of reasons. They have a larger scale point from which to thin, and overlapping territories from mergers have called for fewer branches (Truist is an example). On top of that, some of those under financial stress are focusing on further cost savings.
Figure 3: Branch Count Trend by Bank Type
With less “inventory” of super-regional and regional branches that can be closed, how does an industry that has more branches than it needs achieve the necessary scale of reductions? It’s the right question, and clearly some kind of workout is needed. But so far no paths have emerged that may lead to an appropriate balance.