Close my branch? That’s fine, I’ll Choose Another!

Consumers are deciding the value of the branch.

When it comes to the longevity and value of branches, opinions really do vary. Depending on our own stories, experiences, communities and allegiances, the branch’s importance will ebb and flow. However, when we look at evidence, the opinions fade and the demands of consumers ring loud and clear.

Millennials and the Branch – A recent Bain & Co. study of 137,000 consumers found that 90% of participants visited a branch in the last 3 months, including 86% of Millennials (25 to 34 years old). The same study revealed Millennials desire human interactions in a branch because mobile & web solutions provided by financial institutions (FIs) are inadequate to solve all their needs. Furthermore, the study found that Millennials are the most likely consumer to apply for and receive loans.

The same study by Bain reported that mobile banking adoption is leveling off at 55% – growing from 52% a year earlier. And though digital solutions can provide tremendous scale to FIs – they have not closed the gap enough to provide a sustainable revenue source i.e. loans for FIs to outpace the need for branches.

Sales and Humans – According to a study produced by Ernst & Young (not PWC for all you Oscar fans) over 65% of consumer sales occur in a branch and over 72% occur with a human interaction. When it comes to the financial engine for banks and credit unions,  sales = loans.

Branch Preference – A 2016 TimeTrade report found that nearly 57% of consumers prefer the branch as their primary way to interact with their bank or credit union. A recent FiServ study said 44% of consumers still prefer the branch as their primary connection point to their FI. JD Power reports that 77% of all new accounts for banks and credit unions walk through the front door,  compared to 82% five years ago. Today, 19% of accounts come through mobile channels, compared to 14% five years ago. Obviously digital is closing the gap but very slowly and many consumers prefer the branch…especially in the community-scaled model.

Are Community FIs Closing Branches? Consumer-based banking has been primed for disruption for a decade. However, less than 3% of all community bank branches have closed during that period. This is in large part because for the community bank, consumer banking is not their primary customer. Yet, Credit Unions who by nature serve the underserved, and are all consumer – are not closing branches either.

The Bain study also discovered that nearly 40% of consumers will switch to a competitor, if their local branch closes. No wonder FIs don’t close branches.

It would seem that much of the fuel for closing branches is aimed at the Mega Banks. After all, they have closed about 10% of their branches in the last decade.  But even after all this churn, there are still over 90,000 branches in circulation. Much of this because Mega Banks keep opening branches too. Bank of America recently announced they are opening 60 more in 2017 – double what they opened last year.

The Case for the Branch – The ongoing case for the branch lies with the value that consumers place on the human interaction. That interaction at present drives lending, which continues to be another human interaction. And lending drives the financial engine of banks and credit unions.

Therefore, value is decided by the market and consumers. And today consumers value, the branch.

The Business Case for the Branch in a FinTech World is no longer a mystery. New research shows the ROI for branching.

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