The loss of more than 2,000 bank branches last year represents one way financial institutions are adjusting to the changing landscape of banking.
According to the Wall Street Journal, 2012 saw the closure of 2,267 bank and thrift branches, with the total number of branches expected to drop from the current 93,000 to around 80,000 over the next ten years.
On one hand, the declining availability of bank branches may seem a major inconvenience to Americans, for whom a bank is a critical partner to ensuring financial stability. On the other, with technological innovation creating new ways for consumers to withdraw funds, make transfers and even deposit physical paychecks, speaking with a teller has become nearly obsolete.
The perks of banking in the Internet age
Advances in mobile banking now allow many consumers to never have to set foot in an actual branch. Online account access enables bank customers to check statements, transfer funds and even apply for loans without ever leaving the house. Many actions that were once in-bank only affairs are now achievable from whatever Internet-enabled device is nearest.
For many, especially those more embracing of the Internet age, the benefits of online banking are obvious. Being able to access accounts from anywhere, and having control over your own banking actions, rather than handing them over to a teller, is empowering.
Mobile banking cuts out trips to a branch, which equates to saving time and money, on gas or bus fares. It also saves time for those looking to make quick transactions, as funds can be transferred online, and smartphone check deposits offer the same convenience that direct-deposit checking has offered for years.
Online bill-pay offers the bonus of not having to write as many checks, a money-saving perk for those who get charged by their bank for checks.
For banks themselves, the benefits are even greater. Online banking allows institutions to cut overhead and staffing costs, and could theoretically allow banks to pass savings on to customers in the form of higher CD rates or lower fees. This promise has been a major force in the push toward online and mobile banking.
Some financial institutions started incentivizing ATM use years ago as a means to cut staffing expenses, and have continued to apply such incentives to online banking. Bank of America offers perks such as waived checking fees for those who who choose to use only online banking and ATMs for all transactions. Many banks also offer cash back or rewards programs that are free to online banking customers, but not those who make branch visits.
While the convenience has grown for some, however, the effects of new banking technologies are making banking a much different, and sometimes more arduous, task for others.
Banking in the small business world
While online and mobile banking may be the new wave, it is one many small business owners are not yet ready to ride. The Financial Brand reports that less than 25% of small business owners surveyed for a BAI Research study use mobile banking, with just 8% taking advantage of mobile bill pay.
Where the number of individual banking customers switching to online services has been on the rise in recent years, small business owners have been more hesitant to entrust their financial endeavors to a faceless service.
Having a location to visit to discuss their needs is crucial to many business owners, as is being able to make cash deposits in person. Losing such institutions nearby could put many businesses at a great disadvantage, giving them less access to loans and other business services.
As Financial Brand points out, factors like accessibility to live advice and account resolution make being in close proximity to a brick-and-mortar branch an important factor for many business owners choosing banks. Institutions that maintain a focus on their in-branch service may well see an advantage in the market with small businesses.
Branch loss in small towns
In a sort of ripple effect, the risks that greater branch closures pose to small business could trickle down to affect entire communities.
In many small towns, banks are a crucial part of the “Main Street” business hub, providing a gathering place of sorts and bringing more foot traffic to neighboring businesses. As the Wall Street Journal notes, some business owners have seen sales drop after a nearby branch has closed; with no place nearby to get cash for their shopping trips, consumers take their business to where a bank is more accessible.
The U.S. is not the only place being hurt by branch closures. The UK’s Shildon, County Durham, lost the last of its standing bank branches last October, and has since seen its local businesses suffer the consequences, according to Moneywise. Aside from ATMs located inside stores, which are only accessible during limited store hours, there is nowhere for shoppers in Shildon to access their cash, meaning a decrease in local business that has already led to many closures, including the town’s co-operative supermarket.
Residents in these communities who do not use online banking are left without resources to access their accounts or discuss financial decisions, forcing them to travel greater distances to reach a real branch. The elderly in particular are affected by branch closures, as unfamiliarity with mobile banking (as well as distrust of managing finances online) will keep many from being able to handle their finances independently.
Like all transitions, online banking has been embraced by some and feared by others. The side effect of branch closures, and the resulting job loss and threat to smaller communities, however, present real problems in an economy still struggling back to its feet.