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Technology Won’t Replace Branches

By: Bill Poquette

Ever since the Internet, smartphones and remote deposit capture emerged as mainstream bank service channels, the demise of brick and mortar branches has been predicted. The rationale: Who needs them? Somebody does, because the demise is not happening. If there is a trend toward fewer branches, it is moving at a glacial pace.

According to FDIC data, the number of branches of U.S. commercial banks has been rising more or less steadily since at least the 1960s. From the year 2000 through 2010, the number has grown from 64,900 to 82,641, a nearly 30 percent gain. There was a slight dip last year from 2009, when the total was 83,010. That is a drop of about 0.44 percent, hardly enough to confirm a trend.

Granted, there are too many branches in some areas. In large cities, competing banks have branches on every corner of busy intersections. Some attrition is occurring with mergers, but less-ambitious expansion plans or more targeted strategies might be healthy in some cases.

Not that community bankers look to him for inspiration, but early this year Jamie Dimon, CEO of JPMorgan Chase Bank, already the nation’s second-largest by deposits, announced plans to add as many as 2,000 new branches over the next five years to its current count of more than 5,000 locations. Dimon, of course, is considered one of the industry’s smartest bankers — on Wall Street, anyway — after steering his bank through the recent financial crisis relatively unscathed.

Some analysts are skeptical of Dimon’s plan. But according to Bloomberg, the theory is that having more branches will help the bank attract cheap deposits, sell investment products to individuals and provide banking services for businesses. The expansion is targeted, with most of the new locations destined for Florida and California, which have seen more than their share of bank failures.

U.S. Bank CEO Richard K. Davis would probably agree with Dimon. In a recent interview with the ABA Banking Journal, he said, “It’s location, location, location. If you want to be where people need you to be and attract them to your company, it matters that you have a physical location. You’ve got to have it there as an entry point, a portal for new relationships.”

The importance of relationships was emphasized by Kansas community banker Kent Needham in an interview for this issue of BankNews (beginning on page 20). From his vantage point as chairman, president and CEO of First Security Bank in Overbrook, with assets of $36 million in a town of less than 1,000 population, he suggested that technology will continue to enhance what banks do. But in both small towns and bigger cities, people are going to want the individual attention only a branch provides. “They may have to go across town to get it, but for the relationship they will,” he said.

Community bankers will tell you their craft — and their success — is all about relationships. How does one cultivate a relationship with a computer keyboard or smartphone keypad — the kind of relationship that will get the customer a business or mortgage loan? Except for introductions, Facebook or Twitter won’t get it.

Bill Poquette is editor-in-chief of BankNews.

Copyright © July 2011 BankNews Media