Tag Archives: U.S. Bank

FDIC Publishes Detailed Branch Data: Key Takeaways

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.

5 Key Payment Trends in 4Q21

As we enter 2022, it is worthwhile to look back on the key trends in the U.S. payments space during the past quarter, as many of these trends should continue this year.

Key credit card metrics continued to improve.

  • According to the FDIC, credit card outstandings rose 1.2% y/y (to $806 billion) in 3Q21, the first y/y growth rate since the first quarter of 2020.
  • The Federal Reserve Bank of New York reported that the credit card application rate rose throughout 2021, reaching 26.5% in October 2021 (a significant change when compared to the series low of 15.7% in October 2020)
  • Purchase volume rose at a 20%+ rate for most leading issuers in 3Q21
  • Charge-off rates remained at or near at historic lows.

Leading issuers launched new credit cards to fill gaps in their product portfolios and upgraded existing cards in key categories.

  • Wells Fargo launched a low-rate card called Reflect, featuring an 18-month 0% introductory rate that will rise to 21 months for cardholders who make payments on time.
  • Capital One (Venture X), American Express (Morgan Stanley Cash Preferred) and Bank of America (Premium Rewards Elite) rolled out new premium cards.
  • U.S. Bank launched secured card versions of two existing unsecured credit cards; Altitude Go and Cash+.
  • Climate change-focused challenger bank Aspiration introduced the Aspiration Zero Card.

The Buy Now/Pay Later (BNPL) market continued to grow and evolve, with traditional payments players (e.g., Capital One, Mastercard) announcing plans to introduce BNPL options. Existing BNPL players reciprocated by launching card and pay-in-full options (e.g., Klarna announced plans to introduce a debit card and Affirm announced a pay-in-full option).

Gen Z and Millennials have emerged as key targets for both established and emerging payments firms.

  • American Express reported that spending by Gen Z and Millennials rose 38% between 2Q19 and 2Q21, while Baby Boomer spending declined over the same period. And perhaps more significantly, Gen Z and Millennials accounted for 75% of new Platinum cardmembers.
  • TransUnion reported Gen Z and Millennials accounted for 47% of total credit card originations in 2Q21, up from 39% in 2Q19.
  • However, it appears that traditional banks have not yet adapted their underwriting processes to capture this segment. A survey by Alliance Data found that 27% of Gen Zers claim to have been turned down when applying for their first credit card, a rate two times the level of any other generation.

The strong growth in digital payments (which accelerated during the pandemic) continued in 4Q21:

  • A Discover Global Network survey found that nearly half (49%) of consumers are more comfortable with making digital payments as a result of COVID-19.
  • eMarketer predicts that U.S. e-commerce sales will pass $1 trillion in 2022.
  • Leading person-to-person payments provider Zelle processed $127 billion of payments in 3Q21, up 53% y/y.

We expect that most of these payments trends will continue in 2022 as consumer behaviors and preferences continue to be reshaped by the COVID-19 pandemic, and established and emerging payments providers adapt their solutions, offers and messaging to these market dynamics.

5 Key Digital Banking Trends in 3Q21

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:

  1. 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.
    • New product launches during the quarter included Acorns Early Smart Deposit; the Albert Cash checking account; a checking account and mobile app from Atmos Financial; the Douugh Wealth robo-advisor; as well as an instant payments feature from gohenry.
    • Digital banks who raised funding in 3Q21 included Revolut and Varo (raised $510 million, valuing the company at $2.5 billion).
  2. 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.
  3. 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.
  4. 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.
  5. 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).