The exponential future of finance

Retail bank branch is doomed, and banks don't know it

Big banks are rolling out futuristic branches to keep up with the technology cutting-edge, but according to financial technology experts, it's a major waste of time and money. Within a decade the retail bank branch model will be dead.

"Finance will be the most disrupted industry in the next 10 years," said Peter Diamandis, executive chairman and co-founder of Singularity University, at the Exponential Finance conference in New York City on Tuesday.

The most obvious loser, according to experts, is at the level of the retail branches. "Bank branches will most be gone ... this decade," Diamandis said.

A prototype of a Diebold bank branch of the future.
Source: Diebold

Brett King, founder of mobile banking app Moven, said the banking industry will experience more disruption in the next 10 years than in the previous 300 years.

"Bank tellers will be the telegraph operators of 21st century when we look back in 100 years, the most-impacted job," King said. "This will hurt."

Last year saw the highest level of bank branch closures in the U.S. in history, according to FDIC data.

The number of people expected to come online in the near future across the globe is a primary reason for the pessimism about the branch model's future.

By 2020 at least 66 percent of the global population will be online, according to a conservative estimate from PHD Ventures. That would mean an additional 3 billion global consumers. Diamandis thinks that number will come in even higher—as many as 5 billion new consumers—backed by Internet-expansion projects like Mark Zuckerberg's and Google's Project Loon.

"That's 3 to 5 billion new customers not accounted for in the global economy today entering it. I don't know why financial services companies don't get it," Diamandis said.

The biggest banks in the world in 2025 will be technology companies, and banks that grew through branch acquisitions in the '80s and '90s, that grew by physical bank presence, will have a real problem.
Brett King
founder of Moven

Jay Sidhu, chairman and CEO of Customers Bancorp, which owns the BankMobile app, said in the U.S. alone there are 68 million individuals who are unbanked or underbanked. Forty percent of millennials would consider banking without a branch, according to Accenture.

Meanwhile, 70 percent of the unbanked in Africa would have to spend their entire life savings to get to a branch.

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Banks' biggest mistake is still thinking of communities as geographic markets, Sidhu said. "I was walking today, and there were 20 bank branches in six blocks on Madison Avenue. That's $30 million in rent," Sidhu said. "Putting screens in branches ... Why, when we all have screens in our pockets? Citibank's 'bank of the future' in Union Square ... It was built in [2010] and looks like a bank of the '60s to me," he said, adding, "Bank branches are mausoleums."

Since 2011, 700 million global consumers have begun banking on their phone. The U.S. bank branch model, which peaks at a total of roughly 95,000 branches, is now down to 86,000 branches. Sidhu expects that number to come down over the next three to five years, but there may still be as many as 75,000 bank branches because "the banks don't get it. Banks are like Kodak," he said.

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A stampede of fintech unicorns

A big reason for the bold predictions about the divergent fortunes of banking apps and branches: There are 8,000 fintech start-ups in the U.S. today, more than the number of savings and loans with charters. There is also more venture capital investment in fintech than traditional banking industry investment in bank transformation. A total of 36 fintech unicorns now exist globally, by King's count, and another 32 fintech start-ups are on their way to a unicorn valuation soon.

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"The biggest banks in the world in 2025 will be technology companies, and banks that grew through branch acquisitions in the '80s and '90s, that grew by physical bank presence, will have a real problem," King said. "They may have to give away the retail business."

Yet he said right now the big-bank thinking is the opposite: Many banks continue to make the mistake of spending significant sums on bank branches that look more like Apple stores thinking the consumers will return. "It's not a design issue. It's not branches not being pretty enough. It's a behavior problem," King said, adding, "People just don't need branches, and this decline will speed up." He added: "In 2020 more people will be banking on their mobile phones than have ever banked before, and that's just five years away."