This Month in Retail Banking
Here’s a trend that many industry observers may find surprising: Even after accelerated closures during the pandemic, branch office closings for the past year are 29% below the five-year pre-pandemic average. Throw out the closures associated with the Truist (BB&T/SunTrust) and U.S. Bank/Union mergers and the gap widens to 39%. (See Figure 1.) This is based on FDIC Events & Changes data, and while they may lag a month or two due to the collection of data from other regulatory agencies, we expect the trend to hold up.
Figure 1: Branch Closings By Quarter
A tempting explanation for the reduction is that banks right-sized their networks during the pandemic, thereby obviating the need for further closures now, but Curinos believes that this is not the case. With customer behavior continuing to shift away from physical to digital delivery, the industry continues to exhibit a surfeit of branches. Over the past 12 months, teller transactions per branch have been down by more than 5%, which is similar to the transactional declines before the pandemic. And while new branch accounts have risen modestly this year, it’s entirely the result of increased CD sales. New-customer acquisition continues to be more than 20% below pre-pandemic levels.
In Curinos’ view, the primary reason banks curtailed closing branches was because of expanding net interest margin (NIM) as the Fed rapidly raised interest rates. Expanding margins reduced the focus on expense management, which led to fewer branch closures.
As interest rates stabilize and NIM begins to contract, we expect to see a renewed focus on expense management and accelerated branch closures. But because branch closures can adversely affect long-term customer growth, expense management needs to include reinvesting a portion of the savings in other drivers of growth such as marketing, digital and the salesforce. All of this should be done in the context of market-based strategies in which reinvestment needn’t be deployed in the same market but can be applied to markets with greater need and/or opportunity.
