Banks investing less in branches & ATMs and more in digital

Decline in physical bank branches continues

In what promises to be a boon for fintech, the number of bank branches in the world’s developed countries is projected to drop 10% to 30% by the end of 2021, a fintech analyst said in a recent webinar.

Shailendra Soni, a principal consultant at Frost & Sullivan who follows fintech, shared that forecast during a webinar hosted by the consulting and research company. The forecast accompanies Frost & Sullivan’s prediction that staffing at bank branches will drop 20% to 30% by 2025 as banks increasingly shift in-person transactions to self-service kiosks and as they shrink the size of their brick-and-mortar locations.

An analysis by the Quartz news site of federal data shows the number of bank branches in the U.S. sank from almost 95,000 in 2010 to just over 83,000 in 2019. That’s a 12% decrease. Experts say the coronavirus pandemic should accelerate the branch-closing trend as more consumers embrace digital banking. One banking analyst conservatively estimates that in the post-pandemic era, the U.S. could lose another 20% to 30% of its bank branches.

However, an article published in June by the ABA Banking Journal suggests that we shouldn’t count out bank branches just yet.

Despite the explosion of digital banking, “a local physical presence remains an important consideration for many bank customers when choosing a financial institution,” the article says. “Customers want the option to see a live person, particularly when they have more complex questions involving their financial future. This allows banks to use branches to create more meaningful relationships.”

Meanwhile, the number of ATMs around the world is expected to remain steady through 2024, at a little over 3.2 million, Soni said. He envisions banks will step up cashless transactions and cardless withdrawals at ATMs as they try to extract more value from the machines.

Data from fintech giant Diebold Nixdorf cited by Soni helps explain banks’ incentive to de-emphasize branches and ATMs. The average transaction at a branch costs a bank $5, compared with 60 cents for an ATM, 17 cents for the internet and 8 cents for mobile.

It’s no surprise, then, that among 300 executives at midsize U.S. banks and credit unions surveyed by Cornerstone Advisors, 65% of banks and 76% of credit unions indicated fintech partnerships would be a key part of their strategies in 2020. The survey was taken in December, three months before the coronavirus outbreak was declared a global pandemic.

Soni said that in line with less reliance on bank branches, digital banks “have got a great future,” thanks in part to their comparatively higher interest rates for their accounts.

“They are really doing well. They are able to get more and more customers. Consumers are liking [them],” he said.

Soni did note, though, that digital banks continue to struggle with profitability. Indeed, a 2018 report from consulting firm McKinsey & Co. pointed out that although some digital banks have signed up millions of customers and have accumulated assets surpassing $1 billion, “success for most of these digital banks has been elusive.”

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