The Briefing
- In the last decade, 27,943 bank branches have closed in the U.S.
- The increasing prominence of mobile and digital banking is leading to lighter demand for in-person banking services
Branch Banking Is Dying
The 2008-09 financial crisis was triggered by reckless banking practices that dominoed into the global economic system.
Though the world has since recovered and moved on from the crash, the banking system that ignited such damage has in some ways never been the same.
Take U.S. branch bank net openings, which is undergoing a notable trend reversal. According to the Federal Deposit Insurance Corporation (FDIC), for 11 years and counting, the number of U.S. bank branch closings has exceeded the number of branch openings.
| Year | Openings | Closings | Net |
|---|---|---|---|
| 2020 | 1,251 | 2,788 | -1,537 |
| 2019 | 1,460 | 3,090 | -1,630 |
| 2018 | 1,563 | 3,134 | -1,571 |
| 2017 | 1,065 | 2,986 | -1,921 |
| 2016 | 1,084 | 2,826 | -1,742 |
| 2015 | 1,209 | 2,689 | -1,480 |
| 2014 | 1,351 | 2,996 | -1,645 |
| 2013 | 1,470 | 2,500 | -1,030 |
| 2012 | 1,623 | 2,570 | -947 |
| 2011 | 1,901 | 2,364 | -463 |
| 2010 | 1,897 | 2,892 | -995 |
| 2009 | 3,457 | 2,877 | +580 |
| 2008 | 3,562 | 2,300 | +1,262 |
| 2007 | 5,168 | 2,024 | +3,144 |
| 2006 | 3,759 | 1,609 | +2,150 |
| 2005 | 3,947 | 2,026 | +1,921 |
| 2004 | 4,095 | 2,217 | +1,878 |
| 2003 | 3,404 | 2,271 | +1,133 |
| 2002 | 2,556 | 2,469 | +87 |
| 2001 | 3,193 | 2,982 | +211 |
| 2000 | 3,274 | 3,826 | -552 |
There are fewer banks in America with every passing year—in 2020 alone, a deficit of 1,537 branches was recorded, almost 2% of the roughly 85,000 branches in the country.
Branching Towards Digital
Unsurprisingly, the fall in branch banking coincides with the adoption of digital activity in the banking space. And this is especially true for younger, tech-savvy generations.
Undoubtedly, convenience is a big factor, as now nearly 50% of traditional branch banking activity can be conducted online. As a result, mobile banking activity occurs most frequently on one’s couch or bed.
The Good Ol’ Days
The decline in the number of branch banks also reflects the overall downturn of the broader banking industry. In that, the industry faces a slew of challenges including:
1. Contracting net interest margins
Net interest margins are the difference between the interest income generated for financial institutions and the amount they pay to lenders.
2. Fintech industry disruption
Fintech is bridging the gap between finance and digitization, sleek modern technologies enable firms to optimize financial services and the customer experience.
3. More stringent reserve ratio regulations
Reserve ratios are a portion of reserves that a financial institution must hold onto rather than invest or lend.
Investors are fleeing to other avenues as is evident in the stock price performance of the big U.S. banks. As a result, underperformance has been a common theme in the last decade.
| Number of U.S. Branches | Stock Price Performance (Jan 2011 – Jan 2021) |
Change Relative to S&P 500 | |
|---|---|---|---|
| JPMorgan Chase | 5,016 | 208% | +17% |
| S&P 500 | 191% | ||
| Bank of America | 4,265 | 116% | -75% |
| U.S. Bancorp | 3,067 | 76% | -115% |
| Citigroup | 704 | 25% | -160% |
| Wells Fargo | 5,195 | -2% | -193% |
What Lies Ahead
Yet, despite the progress towards digital banking, the U.S. is still a laggard. For instance, large cohorts of Americans still use cash as a frequent transaction method, while the country’s mobile payment penetration rates are lower than most developed nations.
As a percentage of smartphone users, 29% of Americans have adopted mobile payments. A tepid figure relative to Denmark at 41%, and India at 37%.
America’s fierce economic rival, China, has a whopping 81% of smartphone users that have adopted mobile payments. That’s 801 million people, compared to America’s 69 million. Adjusting for population disparities, China still has 2.7x more mobile payment users.
If the U.S. follows on the path of other more fintech savvy countries, visiting a bank branch and using physical cash may become as increasingly antiquated as writing a check is today.
Where does this data come from?
Source: Federal Deposit Insurance Corporation
Notes: This data was updated last on January 8, 2021
