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Study: 'Branch Boom Gone Bust'

May 14, 2013

Growing numbers of bank customers are migrating to digital alternatives to the walk-in branch, but banks have yet to address this fact in their retail banking branch networks. This is the conclusion of a new study, "Branch Boom Gone Bust: Predicting a Steep Decline in U.S. Branch Density," by financial industry research and advisory firm, Celent.

Since 1970, the U.S. has seen 281 percent growth in the number of FDIC-insured bank branches, a compound annual growth rate of 3 percent — a rate that dramatically exceeded U.S. population growth, Celent said. In 1970, there were approximately 107 branches per million individuals. By 2011, the ratio was 270 branches per million.

"There is every reason to suggest branch densities would be substantially lower now than 30 years ago, but just the opposite has occurred," said Bob Meara, senior analyst with the Celent banking group and co-author or the report. "Given this trend, a slow, but inexorable reduction in U.S. branch density seems unavoidable. Beyond simply reducing the number of operating branches, what is needed is a fundamental redesign of retail operating models. Rather than resisting the trend, banks should welcome it and reinvest the savings."

The report examines the U.S. branch boom phenomenon, showing how the big banks account for the historic overinvestment. It also examines multiple U.S. retail market segments and developed market retail banking demographics to show that the U.S. branch boom is an anomaly.

In the report, Celent presents arguments for the inevitability of U.S. branch channel "right-sizing" based on global changes in consumer preference. And finally, Celent provides a look forward, examining how FIs are acting in response to the decline in branch traffic.

Meara's co-author on the report, Celent banking group analyst Stephen Greer, said he expected that FIs would find branch transformation "neither cheap nor easy," but that it was essential to maintaining competitiveness. "If banks don't align their multichannel strategies with this seismic shift in consumer preference, they'll be at a significant competitive disadvantage," he said. 

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