Bank branch bubble may be about to burst

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Fewer, smaller branches will have to serve skittish small-biz customers

By Claude Solnik
Dolan Media Newswires
Financial industry experts expect to see more bank branches — during the short term.
Nationwide, there were 99,456 bank branches as of June, 10,000 more than during 2004, according to the Federal Deposit Insurance Corp.
In Colorado Springs, in-store branches have flourished.
“People still want that face-to-face contact,” said American Bankers Association spokeswoman Carol Kaplan. “Not everybody is comfortable dealing with computers.”
Back to basics works: brick-and-mortar branches offer a commodity banks have long offered and which is more in demand than ever — security.
Customers gravitate to branches, seeking not just attention, but advice as they refinance mortgages or plan for retirement.
“Because of the crisis we went through, people are going to be in a branch much more than they were before. They like to talk to people because that’s almost as good as touching the money itself,” said Arthur Loomis, president of Albany, N.Y.-based Northeast Capital. “Web pages and automated responses don’t cut it when you have a question like, ‘How much of my deposit is actually insured?’ You’re going to go into the branch to have a conversation.”

The long-term outlook

Even if counts climb next year, bankers and experts believe online banking in the long run will overtake branch business. The branch count will come down, they say, although no one knows when.
“Over time, the number of branches will decline,” Loomis said. “But it’s a delivery channel that’s important.”
And more basic transactions are done online — one sign of less reliance on branches.
This year, for the first time, online banking ranked as the preferred means of transactions, according to ABA’s annual survey.
Many banking transactions can be done online, and, of course, for basic transactions, it’s usually faster and more convenient.
Locally, there are signs that bank branching expansion is beginning to slow. During 2009, Colorado’s branch count declined by four, compared to an increase of 53 during 2008 and 73 during 2007.

Small is beautiful

When new branches are opened, they are smaller than their counterparts of yesteryear, employing fewer people per unit.
“They don’t have to be that big,” Loomis said. “They can have five people in a branch and have it be 1,000 to 1,500 square feet and be a wonderful delivery platform.”
Banks are using branches to sell sophisticated services such as insurance, investment advice and mortgages — even as more simple transactions are done online.
“Most of our growth in Colorado within the last 10 years has been primarily in-store branches,” said Tom Naughton, U.S. Bank southern Colorado regional president.
The popularity of U.S. Bank’s in-store branches, in Safeway and King Soopers, has been their accessibility, convenience and extended hours of operation, he said. Consumers realize that smaller or in-store branches can do most things that larger branches can do — consumer and small business loans and mortgages.
“It’s a different delivery model, but it’s proven to be effective,” Naughton said, adding that people like the extended evening hours, Monday through Friday, and Saturday/Sunday hours.
In addition to grocery stores, banks are moving toward on-site locations at corporate headquarters and medical centers.
“Places like these have a higher density of employees, and it’s a great benefit for employees to have on-site branches,” he said.
That function of the bank as retail center, rather than simply transaction site, is prompting a new look. Branches are designed to feel personalized, more like a boutique than a stark lobby surrounded by tellers.
But even if consumers migrate online, bankers say small companies will stand behind branches.
Small business owners tend to make deposits daily, and have more questions about cash flow, products or insurance.
People cannot handle all of their banking needs via Internet and phone, said Don Childears, president of the Colorado Bankers Association. “Nationwide, banks are reporting that branches have become popular again.”
And for “capturing new business, people need the face-to-face interaction,” Childears said.
The mergers and acquisitions of several national banks resulted in the closure of some branches — but others are planning “fairly aggressive branch expansion.”
And while the number of banks chartered in Colorado has decreased from 175 during 2005 to 148 this year — that number doesn’t account for the 47 banks operating in Colorado that have offices in at least one other state and are increasing their footprint locally.
“Adams Bank & Trust has multiple operations along the front range,” Childears said. “They and other banks have one or two operations in their home state, but have decided that for future viability they need to be in a growing market — like Colorado.”
Banks chartered outside the state are almost equal in assets — $50 billion — and employees as those headquartered in Colorado.
Rebecca Tonn contributed to this story.

One Response to Bank branch bubble may be about to burst

  1. Even if the numbers keep going up, and more and more consumers start doing their banking online, there are still a number of things consumers can’t do online. While it may be more convenient, there is something about that personal feeling you share with your bank, kind of like an extended family, that can’t be replaced with convenience.

    December 21, 2009 at 2:13 pm