While the branch numbers for the moment aren't likely to show as precipitous a decline as total banks—down 26 percent in the past 10 years and 61 percent from the historical peak in 1994—underlying changes in the way the institutions operate will be dramatic.
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"This modest decline (in branches) pales in comparison to the technological change in banking and payment processing and raises the question of whether or not banks are transforming their delivery systems fast enough to accommodate changing client needs," KBW wrote. "We believe that the wide adoption of the smartphone, with its enhanced payments capacity, is transforming retail banking and will accelerate branch reductions."
Customers increasingly are doing their banking either online or with apps. The future for branches, then, likely will be more for sales than actual customer transactions.
Surveys have shown, in fact, that younger people are highly geared toward how well institutions provide mobile services, indicating a willingness to switch banks based solely on smartphone applications.
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"We do not believe that shrinking branch numbers can be a simple cost savings for banks as it reduces the presence of the institutions to consumers even if consumers are not going into the branches," KBW said. "Therefore, we believe that successful banks must reinvest some of the savings into branch enhancing measures, including advertising, marketing and technology."
Customers also increasingly are shifting retail banking operations to credit unions. The numbers for that industry are impressive, with the National Association of Federal Credit Unions reporting 101 million members as of the second quarter, an increase of 3 million on a yearly basis.
Auto loans at credit unions, for instance, grew 15.4 percent to just more than $248 billion total, according to SNL Financial, which also reported that total income for credit unions hit $2.42 billion for the quarter, a six-year high.
How quickly the trend to branch-cutting evolves likely will depend on technology as much as the bottom line.
"Branch numbers are only going to decline if bankers believe that the branches aren't profitable," KBW said. "When the industry was highly profitable, branch numbers expanded despite changing technology. We believe that bankers will increasingly realize that branches are not critical to attracting deposits, but brand identity is."