Gui Yong Nian – stock.adobe.com

Store-based branches, a common and popular banking format well into the 2000s, appear to remain trapped in a slow, steady and stubborn downward trend.

Although statistics from the Federal Deposit Insurance Corp. indicate that about 2,500 branches remain in operation, closures have far exceeded openings in recent years. In the 12 months ended Aug. 15, banks closed 203 branches while opening just 18 branches. In the previous 12-month period, which ended Aug. 15, 2023, a total of 293 branches were closed while 18 new ones opened.

As of 2020, there were about 4,000 branch locations in stores, according to the FDIC.

Many of the recent closures have involved branches of regional banks that once specialized in branch banking but have now largely or completely exited that space. In October, Columbus, Ohio-based Huntington Bancshares announced plans to close a dozen branches in Cub supermarkets in the Minneapolis area. Similarly, Pittsburgh-based PNC Financial is closing dozens of branches in its branches in 2023.

According to Paul McAdam, senior director of banking and payments at JD Power, branches have never quite fulfilled the mission banks set for them. “Years ago, branches were designed to be sales centers, but that didn’t come to fruition,” McAdam said. “When customers opened an account or sought advice, they preferred traditional branches. Branches have evolved to primarily serve personal, transaction-oriented customers.”

Small business customers have also chosen to do most of their business in traditional branches. In fact, customers with higher balances generally “don’t want to bank in a grocery store,” says Achim Griesel, president of Lincoln, Nebraska-based consulting firm Haberfeld.

Regional banks are also closing branches at a rapid pace. Griesel does not see a reversal of the trend. The branch model, says Griesel, is “few deposits and much higher fees.”

“If I were to add branches to my network, my regulator would look at me every year and say, ‘Wow, you’re becoming more and more dependent on fees,'” Griesel said. “I don’t know many banks today that want to go down that path.”

Store-based branches grew rapidly during their heyday in the 1980s, 1990s and early 2000s because they offered customers the convenience of fitting basic banking into a normal shopping trip, says Eric Wheeler, senior director of product management at Syntellis Performance Solutions in Chicago. Their rise “was driven by demand for limited-service banking and check-cashing services,” Wheeler said.

But the sector’s largely transactional profile also proved to be its undoing. It made a course correction inevitable as online and digital banking options became more accessible and sophisticated. With the advent of mobile remote deposit capture, for example, “the notion of going to the supermarket to cash a check and make a purchase disappeared,” said Richard Winston, global financial services industry leader at Slalom Consulting in Seattle.

“I believe the same force is behind the decline in brick-and-mortar branches that is behind the decline in branches in general: digital banking services,” McAdam said. “Fewer customers need to use branches to conduct banking transactions and open new accounts. The same is true for brick-and-mortar branches.”

Griesel von Haberfeld raised the Away from dependence on overdrafts and other retail bank fees as another major reason for the decline in branch activity. “Overdrafts have been a major driver of those branch participants,” Griesel said. “To drive a model based on that transactional account with high turnover, much more fee income and more overdrafts is probably going to become increasingly difficult.”

Although some banks still value branches, they are becoming increasingly rare. “There are very few (branch) specialists left,” said Griesel. Perhaps the best known bank is Woodforest Bank, with assets of $9.2 billion and headquarters in The Woodlands near Houston, which has almost 700 branches. Woodforest had not responded to a request for comment by press time.

Griesel himself does not expect branching to disappear completely. However, apart from a handful of specialist banks, he believes it will only be limited to regional banks that maintain a small number of branches to complete their network. “Overall, I believe it will continue to shrink,” said Griesel.