Bank branches are not going away even if consumers mostly use apps

By Steve Gelsi

Lenders see need for physical presence to build relationships, but less so for routine transactions

Banks may have cut back on some of their branches, but maintaining a retail presence remains a priority even in the age of the smartphone.

That's the message from PNC Financial Services Group Inc. (PNC), JPMorgan Chase & Co. (JPM) and other banks that continue to open new branches in some areas, even as they scale back in others.

"Bank branches are more than just expensive billboards, they signal a bank's commitment to the community," said David Schiff, a senior partner with consulting firm West Monroe. "It's showing that 'we believe in the community.' It's more than just sponsoring a Little League team."

Since routine transactions such as depositing checks or payments are more frequently done from mobile banking apps, newer bank branches devote less space for tellers and more for meetings with bankers for financial advice or questions on more complex products such as mortgages.

Coffee is often available as well, or in the case of Capital One Financial Corp. (COF), branches often include cafes or lounge areas. Capital One did not respond to an email.

All told, the U.S.'s bank branch footprint fell to 69,905 in 2022 from 70,644 in 2021 and 73,107 in 2020, according to data from the Federal Deposit Insurance Co.

The four largest bank branch networks from JPMorgan Chase, Bank of America Corp. (BAC), Wells Fargo & Co (WFC) and PNC have all been reduced from where they were at the end of 2019, prior to the COVID-19 pandemic. (See chart below)

JPMorgan Chase's total has inched up in the past three years as the only bank with branches in all 48 states. The bank built about 166 branches in the past year and plans to build a similar number in 2024. It continues to close some branches, but over time the shuttering will slow down as it sees fewer profitable ways to consolidate.

The bank has reported $85 billion in deposits from the branches it's opened between 2017 and its investor day in May 2023.

"We continue to want to grow our branches in certain markets where we've either just entered them or where the opportunity is high," said Marianne Lake at an appearance in December. Last month, Lake was promoted to be the sole chief executive of JPMorgan Chase's consumer and community bank.

JPMorgan Chase said Feb. 6 it's planning to add 500 branches and 3,500 employees by the end of 2027 in Boston, Charlotte, N.C., Philadelphia Minneapolis, Washington and other areas.

For its part, PNC said it's planning to spend $1 billion on its branch network including construction of more than 100 new branches and renovating 1,200 out of its 2,300 total by 2028.

'When you have a problem or if you're going for a mortgage to buy your first home, having that human connection is really, really important and a relationship gets built around that-you have to have that. The branches are the soul of the retail banks and that's why we invest in them.'Alex Overstrom, head of PNC Retail Banking

Alex Overstrom, head of PNC Retail Banking, told MarketWatch that the bank's physical bank branches help build trust even if customers bank remotely more often.

"When people make the decision on where they want to bank whether it's a college graduate or a business owner, that branch presence is really important even if they use it a couple of times a year," Overstrom said. "The decision is often driven by that sense of convenience."

The bank is planning to add hundreds of jobs for its new branches, Overstrom said.

The bank's retail banking employees fell to 28,761 at the end of the fourth quarter from 29,692 employees on Sept. 30. The number of part-time employees in retail banking grew to 1,540 in the fourth quarter from 1,480 in the third quarter.

The cutbacks are part of PNC's effort to "optimize" its branch network. For example, it has shut down PNC branches in supermarkets in Washington because "it's a model that hasn't been particularly resonating with consumers," Overstrom said.

Instead, PNC's newer banks are designed to be more inviting.

"We're trying to create a welcoming environment for our clients to feel at home," Overstrom said.

For low-to-moderate income neighborhoods, PNC has built up a fleet of 10 mobile branches, along with its physical branch presence.

The effort at greater branch accessibility is aimed at complimenting the work that bankers do once people walk in.

"When you have a problem or if you're going for a mortgage to buy your first home, having that human connection is really, really important and a relationship gets built around that-you have to have that," Overstrom said. "The branches are the soul of the retail banks and that's why we invest in them."

West Monroe's Schiff said while banks invested heavily in apps for mobile services during the COVID-19 pandemic, the hands-off approach to banking revealed "gaps in sales" for products such as complex loans.

This accentuated the need for human interaction despite the improved mobile experience. Foot traffic to banks went up after the pandemic and banks started redesigning their branches.

"Some of the digital things were brought back into the branch by installing ATMs and ITMs (interactive teller machines), but they don't have as many teller windows," Schiff said. "Instead, they have more desks for people to come in and discuss their financial health, or for small-business counseling. No amount of digital services replaces fully the value of on-the-ground presence."

Many of the bank's target customers still remember the Global Financial Crisis, and having human contact gives them more confidence in their bank, he said.

Rowan Berridge, manager at RBR Data Services, a division of Datos Insights, said bank branch numbers have been dropping for the past 15 years due to industry consolidation as well as the rise of online and mobile banking services. The trend is expected to continue.

"Banks are investing in branch transformation initiatives aimed at cutting costs and enhancing the role of branch staff, by further automating routine everyday transactions and reorienting the traditional teller role toward more sales and advisory tasks," Berridge said.

Also read: Here's why Citi analysts think banks will avoid commercial-real-estate losses

-Steve Gelsi

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