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 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.
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:
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.
As the U.S. economic recovery picked up speed in the third quarter of 2021, the decline in commercial line utilization that had taken place throughout the pandemic started to bottom out. Even though commercial loans continue to decline on a year-over-year (y/y) basis, banks are reporting very strong growth in their commercial loan pipelines. In the expectation that economic growth will continue to recover and this will translate to growth in commercial loans, banks are already starting to position themselves to capture their share of this growth.
With this in mind, the following is a list of five commercial banking initiatives that banks pursued in the third quarter of 2021:
Revisiting commercial banking capabilities. In a commercial banking environment characterized by changing customer priorities, the advent of innovative financial technologies and the emergence of new competitors, many banks are revisiting their commercial banking value proposition. This is seen in the articulation of new commercial banking strategies in recent company filings and investor presentations as well as in recent commercial banking videos from banks like Truist and Citi.
Publishing industry-specific thought leadership. By focusing resources on industries that have strong growth potential and/or that are under-served, banks can improve ROI. One of the best ways to build engagement within these sectors is by publishing industry-specific content (e.g., articles, blogs, newsletters, reports, podcasts and webinars). Many banks also look to turn this content into a prospect generation tool by listing relevant executives (often with email and direct phone numbers) in these publications.
Developing a series of branded content, which both increases awareness of this content and facilitates promotion across multiple platforms. Examples of branded content series include:
Providing value-added treasury management and commercial payment tools. With businesses increasingly comfortable with applying new technology solutions to enhance business efficiency and productivity, banks have launched a number of treasury management and commercial payment tools, including:
Increasing focus on ESG. In addition to annual ESG and CSR reports, many banks are publishing ESG-related content for their commercial clients. Examples in 3Q21 included Bank of the West’s Means & Matters Stories of Money and Sustainability and the BMO Harris Sustainability Leaders podcast. Citizens went even further by launching Green Deposits for its corporate clients.