COVID-19 and the state of bank branches
By Nicholas Larseninternational banker
Oith the COVID-19 pandemic that has plagued the world for about two years, it is now clearer than ever that bank branches are closing at a record pace. Of course, this probably shouldn’t come as a surprise given the social distancing restrictions that have been imposed by countries around the world during this time, keeping customers and bank employees at home for the most part. And with permanent and temporary branch closures continuing in earnest already this year, 2022 could well be an important year to spell the end of traditional branch banking as we know it today.
Indeed, the pandemic continues to rage across much of the world thanks in large part to Omicron, the most recent variant of COVID-19 to have caused concern in the global banking industry. “Many of our sites may have reduced hours, alternate days of operation, or may have been temporarily closed,” Bank of America (BoA) told customers on its website earlier this year, adding that some sites may well be closed for long periods of time. periods. Chase Bank, meanwhile, has closed more than three dozen branches in New York to deal with the surge.
Of course, the likely transitory nature of Omicron would suggest that while a large number of branches have been permanently closed since the outbreak of the pandemic two years ago, some are only temporarily closed until the number of cases begins. to decline and is likely to resume operations at some point in the future. A recent spike in the number of variant COVID cases in the San Francisco Bay Area, for example, forced banks to temporarily close some of their branches while staff stayed home. “Our temporarily closed sites will resume operations as soon as possible,” a Wells Fargo spokesperson said Jan. 8. “We are sorry to inconvenience customers who may be banking at one of our temporarily closed branches.”
To make matters worse, banking consumers have turned to digital banking services during the pandemic at a faster rate than at any time before. And as banks themselves have either begun their digital transformation journey or accelerated existing transformations in response to this shift in demand, the need to keep physical bank branches open appears to be diminishing as the weeks go by. TSB Bank provides just one example of many of these trends. With 475 branches to its name at the end of 2020, the UK bank announced in November 2021 that it would close a further 70 permanent branches across the country by June 2022, explicitly due to the acceleration in use digital by customers. the bank as a preferred alternative during the pandemic.
“COVID-19 has forced many banks to innovate rapidly and digitalize on the fly, which has caused difficult situations,” according to Capgemini and Efma’s “World Retail Banking Report 2021” (WRBR), released in March. 2021. “Consider that 42% of bank executives we surveyed said they don’t know how to effectively integrate and streamline middle, back, and front office functions, and 46% said they don’t know how to embrace open banking, orchestrate the ecosystem and become a truly data-driven organization. The report also revealed that more than 40% of executives said they were unconvinced about going beyond digital to deliver a superior customer experience and were conflicted over the future role of branches. banking.
Predictably, bank branches closed at unusually high rates during the COVID-19 crisis. A recent analysis by the US Federal Reserve (the Fed) in December, for example, found that the total number of branch closures in 2020 alone – at 3,700 in the US – exceeded both the total number of closures during the most recent recession (2009 as well as the total for any year between 2011 and 2019). As far as the United States is concerned, moreover, the overwhelming majority of these closures surfaced in busy metropolitan areas, with Fed analysis revealing that 80% of branches were located in metropolitan areas as of the end. of 2019, and 87% of branch closures. occurred in metropolitan areas during the pandemic.
“COVID-19 represents a unique circumstance in that people may be unwilling or unable to do business face-to-face. As a result, consumers may have an increased interest in mobile or online banking options, and banks may subsequently be more inclined to offer these services,” Fed data scientist Kimberley Kreiss explained shortly after the announcement. publication of figures. “This is in line with trends in recent years, where consumers report increasing use of online or mobile banking and banks have regularly closed branches. Given the unique nature of COVID-19, these trends may be even more pronounced as banks and consumers are more incentivized to adopt online or mobile banking.
A recent analysis by S&P Global Market Intelligence paints an equally bleak picture for US bank branches, with data revealing that banks closed 2,927 net branches in 2020, closing nearly 4,000 branches and opening more than 1,000 branches. “Banks accelerated their plans to consolidate their branch footprints as the COVID-19 pandemic spurred consumer adoption of mobile and digital channels,” S&P explained. “Additionally, banks have faced a challenging operating environment with low interest rates putting pressure on margins and forcing a reconsideration of spending.”
Part of the blame for the branch closures also appears to lie with the ramping up of consolidation activity across the banking sector. Figures from S&P revealed that merger and acquisition (M&A) deals in the sector topped $77 billion in 2021, the highest level in 15 years.
“On an absolute basis, Wells Fargo & Co. reported the most net closures last year with 267, followed closely by US Bancorp with 257 net closures,” S&P revealed Jan. 20. “But on a relative basis, Huntington Bancshares Inc. had the most net closures among banks with at least 1,000 branches, with the Ohio-based region closing 221 net branches, reducing its footprint by more than 16%. JPMorgan Chase, meanwhile, was the sixth-largest net branch to close last year, but the company also opened the most branches in 2021 with 169 new locations as it expands into new markets. .
And similar trends have been recorded elsewhere in the world. Consumer Advocacy Publication Who?, for example, wrote in December 2021 that the rate of bank branch closures in the UK had jumped, with 736 branches closing throughout the year at an average of 61 per month, representing an increase 17% compared to the rate of closures in the previous six years while an average of 52 branches closed each month. Perhaps most disturbing is that Who? found that more than 220 branches were already set to close in 2022, including those of Barclays, Halifax, HSBC, Lloyds Bank, NatWest (National Westminster Bank), Virgin Money and TSB Bank.
And more recently, in Manila, Benjamin Diokno, the governor of the central bank of the Philippines, Bangko Sentral ng Pilipinas, revealed that a fifth of the branches of the Philippine universal banks in the capital region had been closed to protect against Omicron , which has made its way through the Southeast Asian archipelago nation and generated a record number of daily COVID-19 cases. “Most of the transactions you can do digitally, so that’s not a problem,” Governor Diokno said. Bloomberg January 11. “There is no dysfunction in the delivery of services.”
And therein lies the bank-branch conundrum, as Mr. Diokno said. If customers can meet most of their banking needs digitally, what good is the bank branch, even when conditions return to normal? And with that in mind, one wonders if branch banking can make a comeback in the post-COVID era. “We expect the downward trend in branches to continue for several years … as more and more of the transaction-oriented aspects of banking are done digitally,” said Gerard Cassidy, head of US banking equity strategy at RBC Capital Markets, at CNBC in January. 21, adding that further consolidation would also mean that it would not be necessary to have “two branches on Main Street”.
At the same time, the death of the bank branch has been heralded for many years, but the need for a formal physical space to perform a multitude of banking tasks remains greater than ever. What may change in the near future, however, is the essence of the bank branch and the facilities it offers. While digitization is expected to continue apace, reimagining the bank branch as a place that is flexible and responsive to the needs of modern, digitally savvy customers could prevent its extinction.
Again, TSB Bank provides just one example of this potential metamorphosis. “Closing branches is an incredibly difficult decision to make,” TSB chief executive Robin Bulloch said when the branch closures were announced in November. “These changes allow us to maintain an extensive presence in branches across the country. They are accompanied by a major investment program to modernize the branches in order to better meet customer needs. And, where it takes longer to get to the nearest branch, we will introduce more pop-up services in communities. According to reports, these pop-up services, based in town halls, libraries and community centers, will allow customers to perform more basic banking tasks while allowing them to receive digital assistance.
The World Retail Banking Report, meanwhile, observed that banks will begin to reinvent branches to perform different functions from what was traditionally the case, in which digital transformations go beyond digital channels and banks reorganize branches into “experience centres”. This would purportedly entail branches being more connected to society and more in sync with digital channels to provide customers with a “cohesive omnichannel experience with a focus on financial inclusion”. The report also recommended that banks deploy smart assistants and self-service kiosks to support bank staff and free them up to work on value-added services rather than transactional activities.