Over the past few years, banks have been closing thousands of branches while opening ATMs and expanding mobile and online platforms. (click to enlarge)
The banking industry is rapidly changing. In the past year, only 2 states saw positive gains in bank branches. The other 48 states all saw banks closing branches with a total closure to openings of -1343 banks in the past year. The above image portrays this trend perfectly.
This is a win-win scenario for banks since they save tremendous amounts of money per transaction while statistics show customers prefer to go to an ATM or bank online for most transactions, favoring the ease of use combined with the convenience. As younger generations age and become regular bankers, these trends will accelerate as mobile/online banking is just beginning to blossom.
Online banking is peaking at around 60% for the time being while mobile banking is gaining significantly more traction as more customers get smartphones and companies expand mobile platforms.
The profit margins for banks stand to be greater than ever, as ATMs and online banking are replacing the traditional bank teller. Companies such as Bank of America (BAC) are looking to stop expanding the traditional bank branch. Instead, they are replacing those branches with automated teller machines and online banking. While there are obvious disadvantages being at the mercy of a machine, from the banks' perspective, the advantages vastly outweigh the disadvantages.
Advantages (in no particular order)
1.) Ryan Mclnerney, Chase CEO of consumer banking, claims 90% of banking can be done at an ATM.
2.) The machines can be used 24/7.
3.) ATMs/online banking do not close for holidays or weather.
4.) Little to no room for error.
5.) No need to pay salaries on employees.
6.) No training.
7.) Real Estate for an ATM is incredibly cheaper than a full fledged bank.
8.) Online Banking now allows customers to shop for loans.
9.) ATMs and online banking are now offering a monitor that connects the customer to a live bank teller if the customer has any questions/problems.
10.) Online banking uses no paper or ink, which costs banks billions annually.
11.) Overall, in the long run, profits will be greater as costs will be greatly reduced.
1.) Easier to rob.
2.) Requires refills with cash, paper.
3.) Can malfunction which equates to no business.
4.) Cannot store precious materials in a ATM or online vault (at least not yet).
Banks will benefit but will the customer?
It is obvious banks will greatly benefit from closing branches, but how much will the customer benefit? Many reading this may think no, there is no benefit to closing bank branches. You may be thinking if your local branch closes, it will be a longer drive to the closest branch. While it may be true it would be a longer drive to the closest branch, banks are working to bring the total banking experience to your home, mobile device, or local ATM, thus eliminating ever having to go to the bank in the first place.
For example, let's say a customer is looking to get a loan. What they might not be aware of is shopping for loans online will yield more cost saving results as it is possible to compare hundreds of loan options online through different banks. Once the customer has found a loan they can video chat over their computer with a financial advisor, finalizing the loan. All of this can be done from the comfort of home, without having to wait in line or fill out lengthy paperwork.
A large percent of the older generation will likely resist non-personal transactions and will continue to travel to bank branches for all their banking needs. Over the next 10 years though, experts predict that 50% of bank branches in the US will close with most being replaced by ATMs or significantly smaller bank branches.
Although most banks are closing branches, a few banks are going against the trend and opening more branches than they are closing. The most notable is JPMorgan Chase & Co. (JPM), which may see this as an opportunity to scoop up extra customers as it opened 129 new branches in the past year while closing 67 branches. On the other hand, Bank of America opened 11 new branches while closing 194 branches. It is likely banks will continue to add branches into markets they have yet to penetrate while closing branches in areas that they have over saturated.
Until I began researching for this article, I was unaware of how many banks were closing their doors. My lack of awareness was likely due to the fact I go months without entering into a bank branch as I do all my banking online or at an ATM. Going forward, I do not anticipate feeling any negative effects from bank branch closures. Instead I would expect to see online banking and ATMs get more efficient to the point where I forget entirely why I would ever want to step foot into a bank branch.
Chances are bank branches will be around for years to come, with the difference being these bank branches will be smaller, less staffed and less common. Instead, ATM's will dot the streets while online banking will connect the world allowing for seamless transactions on the go.
Surely some will argue closing bank branches is a step in the wrong direction as banks currently fight to win over the hearts of millions after the last recession. It could also be argued this is a chance for banks to roll out new software and wow the world with the newfound convenience of online banking. Whether you love it or hate it, branch closures are occurring at an exponential pace.
Bank closures could prove beneficial to investors as profit margins could see large increases in the years to come, potentially bringing banks stock prices back to pre-recession prices. These increases in profits may not be immediately evident as it will cost money to close banks, open more ATMs and expand online banking. In the long run though, companies such as Bank of America could see there margins greatly increase.