The FDIC recently published detailed branch and deposit data for different geographic levels for all U.S. banks. EMI’s analysis of this data revealed the following trends:
There is a continued (but slowing) decline in the number of bank branches. Over the past 10 years, the total number of domestic branches for FDIC-insured institutions declined by almost 24% to fewer than 78,000 branches. This equates to an annual average decline of 2.1%. In 2Q21 and 2Q22, the y/y rate of decline exceeded 3%, but this slowed to 1.7% y/y to the end of June 2023.
Some of the largest banks had the strongest percentage declines in branches. Our detailed analysis of 30 leading banks (see below) found a 3.1% y/y decline in branches (from 35,039 to 33,920) at the end of 2Q23. However four banks with networks of more than 2,000 branches reported declines of more than 4%: Wells Fargo (-4.4%); PNC (-6.7%); Truist (-5.4%) and U.S. Bank (-8.1%). Santander Bank reported the largest percentage decline (-8.9%).
Some banks are growing their branch networks. While the overall trend has been for banks to trim their networks, some banks are maintaining or even growing their commitment to this channel. TD Bank grew its network by 11 branches, adding branches in 8 existing markets, as well as opening its first branch in The Villages, FL. Following the collapse of its planned merger with First Horizon earlier this year, TD announced plans to open 150 U.S. branches by 2027 with a focus on Southeast markets.
Banks are maintaining their presence in the vast majority of their markets. While banks are reducing branch density in their existing markets, few are completely leaving these markets. Seven of the 30 banks exited a market over the past year, but only one left more than one market: City National Bank closed its branches in both Reno and Carson City, NV.
Branch closures were spread across many existing markets. Overall, the 30 banks closed branches in 22% of their existing markets, through several had higher percentages of existing markets impacted by closures, including Santander Bank (56%), Truist (39%) and PNC (32%).
Banks concentrated their reductions on markets with the largest branch networks. Banks reduced branch densities in many of their main markets, enabling them to cut costs while maintaining a significant presence. Although more than a third of Wells Fargo’s branch reductions took place in just 8 markets, each of those markets continues to have more than 100 branches.
Some banks are opening new branches in existing markets. The 30 banks increased branch numbers in 4% of existing markets, led by TD Bank (increased branch numbers in 14% of their existing markets) and Fifth Third (13%), who are both expanding their presence in key southeastern U.S. markets. JPMorgan Chase increased branch numbers in 22 markets (10% of its existing markets), including Washington (+11 branches), Minneapolis (+9), Kansas City (+7) and St. Louis (+7).
J.P. Morgan Chase is leading the way in market expansion. Over the past year, the bank opened branches in 10 new markets, including Buffalo and Virginia Beach (4 new branches in each market). This is part of a longer-term strategy to grow its branch footprint: the bank reported at its 2023 Investor Day that its population coverage rose from c. 60% in 2017 to c. 80% in 2022, with the bank now aiming for 85% population coverage.
As consumers turn to digital banking channels for everyday banking – and for an increasing range of more complex banking interactions – the battle between digital challengers looking to enter and grab a share of the market and traditional banks seeking to optimize customer retention and engagement has intensified. With this in mind, the following are five key trends that emerged in the digital banking space during the 3rd quarter:
Existing digital challengers are expanding their product portfolios and raising funding for further growth.
Established digital banks are continuing to report strong customer growth. They are looking to enhance existing customer relationships by introducing new products.
Digital banks who raised funding in 3Q21 included Revolut and Varo (raised $510 million, valuing the company at $2.5 billion).
New digital challengers are emerging. With relatively low barriers to entry, new digital banks continue to emerge, with many targeting specific market niches, such as the recent launch of Nerve, a challenger bank for musicians.
Traditional banks are investing to build strong digital engagement. Banks have responded to the challenge posed by digital challengers by directing increased resources to develop features and tools that enhance the digital experience. To show progress on this, many banks are now publishing metrics not only on (digital/mobile) usage, but also on growing digital engagement:
Bank of America reported Zelle P2P payment users rose 24% y/y to 15.1 million in 3Q21 and Zelle payment volume jumped by 54% to $60 billion.
U.S. Bank reported that digital transactions accounted for 80% of total transactions in 3Q21, up from 67% in 3Q19.
Huntington Bank reported that digitally-assisted mortgage applications accounted for 96% of total mortgage applications in 3Q21, up from just 9% in 3Q20.
Traditional banks are developing their own digital banks. While many traditional banks are competing with digital challengers by enhancing their digital banking functionality, some are going further by
Launching standalone digital banks: Cambridge Bank launched Ivy Bank, a digital-only division.
Adding products to the digital bank’s offering: Citizens Access, Citizens’ national digital bank, is planning to introduce mortgage lending and student refinance by the end of 2021, as well as checking, home equity, credit card and wealth in 2022.
Traditional banks remain committed to the digital-human channel model. Many banks have realized that the broad transition to digital channels for everyday banking transactions means that they can continue to serve a market with a less dense branch presence, so are cutting branches in existing markets. However, their continued reliance on branches is seen is the fact that many are opening branches in de novo markets (JPMorgan Chase is halfway through a plan to open 400 new branches by the end of 2022). Banks are also redesigning branches in existing markets to reposition them to take on new roles (e.g., advisory centers, brand beacons, community hubs, locations to showcase new innovations).
There was a popular song at
the end of World War I, “How Ya Gonna Keep ‘Em Down on the Farm,” about how
soldiers returning to rural America might be restless after having seen the
wonders of Paris (“How ya gonna keep ’em down on the farm after they’ve seen
Paree [Paris]”). We believe financial marketers should be feeling a similar
anxiety about their customers today, who during the new reality of our social
isolation have experienced very different ways of interacting with their
There’s absolutely no
question that none of us want to continue living the way we have since
mid-March, but customers’ experiences with new ways of conducting business are changing
their expectations and needs with respect to financial services companies.
Certainly, some of these experiences have been far from positive, but the
forced disruption of the status quo has opened people’s eyes to new
possibilities and has elevated new and different attributes to important and
valuable parts of their financial services relationships. For example:
Financial advisors and brokers may
not welcome as many wholesalers into their offices after finding that virtual
conversations work just fine.
Small businesses may set a higher
bar for their banks to provide digital support and services after going through
the pain of PPP.
Middle market companies may not welcome
one-on-one conversations with prospective commercial lenders.
Consumers may place even more
importance on the availability and quality of phone and online customer support
— enough to overcome their normal bank-switching inertia.
EMI is currently conducting
research, in partnership with The Gramercy Institute, among asset management
firm marketing leaders to understand how they are providing support to
socially-distanced sales teams. This research has revealed many different
approaches (which we’ll share in future blog posts), but a common thread is
that these marketing leaders believe that many of the adaptations forced by
social isolation are likely to drive greater alignment between marketing and
sales. Whether or not rose-colored glasses are playing a part in these
assessments, this positive outlook indicates that at least some of the new
approaches will carry on even when our world begins to open up.
On the one hand, it’s a good
sign that firms may be more inclined to challenge assumptions and “standard
operating procedures” in favor of new ideas that could better serve client
needs. On the other hand, there is danger in greenlighting even
well-intentioned new ideas if they aren’t subject to any more validation of
their effectiveness than the old ways of doing things. It is therefore vitally
important that financial marketers treat our current reality as a testing
opportunity, not just an exercise in making the best of a bad situation. The
key to this testing mindset will be analyzing data for answers to questions
Has the volume of sales
opportunities gone up or down?
Have salespeople had more or fewer
direct interactions with customers and prospects?
Has the quantity of inbound
inquiries increased or decreased?
Have customers and prospects
interacted more or less with digital communications?
Many or even most of the new
virtual and digital approaches have the virtue of being cheaper than their
pre-pandemic equivalents. That is why it is so important for financial
marketers to not only “feel” that a new approach has been a success, but also
quantify the increases or decreases in sales performance and customer
satisfaction. Failing to do this runs the risk of marketers waking up in a
world of lower budgets (“you proved that you don’t need to do as many expensive
things”) and even more unobtainable objectives. In short, unless marketers can provide
an alternative narrative, senior management may easily assume that marketing
really can do more with less — and make budget allocation decisions that are
disastrous for financial marketers and their companies.