Bank Branches are Closing and Moving Digital – What’s next?

In the face of a pandemic and modernization, banks are switching their business model. Financial institutions are following the trend of lowering their “branch footprint.” The benefits are multifold. For large banks, this means closing their branches and merging with smaller banks, helping fintech investment. Too often, though, has the media ignored the consequences. 

Plummeting in-person bank popularity facilitated a surge in merger and acquisition deals, reaching $77 billion in 2021. Put simply, big banks bought their smaller counterparts. Besides monopolizing the industry, this removed an essential component of banking: accessibility. Because of constricted accessibility, rural areas and poorer individuals lacking the internet were barred from banking. The economic implications soar further though. 

Nearly 2,927 bank branches closed last year. However, a survey revealed that most consumers prefer in-person places over digital channels to open bank accounts. With more banks closing, this decelerates savings, account growth, and bank usage. Traditionally, branch banking yields higher customer satisfaction as well. Whether due to urgency, problem-resolving mechanisms, or trustable in-person bank representatives, branches seem to be almost always more successful. 

All hope should not be lost. According to the Federal Reserve, most bank closures were concentrated in upper-income neighborhoods meaning a lower cost for the poor. Meanwhile, hundreds of thousands of bank branches are still alive and are yet to be closed. Fintech is in paradise, with banks pouring excess money into it that they would’ve towards closed branches. Put simply, financial technology is becoming more widespread and advanced, but at the expense of physical facilities. 

The solution is simple: mesh complex technology with human touch. By maintaining branches, bank employees can train and practice technological support while retaining the in-person tradition. Furthermore, they can implement digital devices throughout their facilities to design a more modern experience. If necessary, banks should prioritize shutting down facilities in higher-class neighborhoods to limit the financial impact on poorer individuals. Concrete banks are also used to facilitate cash and check transfers. Thus, if they are shut down, it strips a crucial sector of the population of financial tools. The pragmatic solution is to increase ATMs in place of shutting down branches, thereby preserving access to cash tools.

What Does This Mean for the Future:

As banks consider the prospect of digitalization, they shouldn’t turn a blind eye toward their branches. In the words of Paulo Coehlo, it’s best to combine the best of both worlds.