Mueller Jackson
Jackson Mueller
Associate Director, Center for Financial Markets
Jackson Mueller is an associate director at the Milken Institute's Center for Financial Markets. He focuses on fintech, capital formation policy and financial markets education initiatives. Prior to joining the Institute, Mueller was an assistant vice president at the Securities Industry and Financial Markets Association (SIFMA), where he focused on...
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FinTech: Branchless banking or banking redefined?

By: Jackson Mueller
April 15, 2015

So first I must admit that I am a millennial. Even though that information may make some of you close your browser or, if you really dislike my generation, throw the iPad out the window, it is important to note because a lot of the changes we are witnessing at the intersection of finance and technology is and will be driven by us – now the largest demographic group in the United States.

Case in point: I cannot remember the last time I visited a bank branch. I have plenty of bank branches around me, from Wells Fargo to Bank of America to a variety of credit unions, all within a few blocks in either direction. I also cannot remember the last time I visited a branch to cash a check or pull cash out of an ATM, thanks to the creators of the cash-back option at grocery stores. In fact, I rarely carry cash at all, instead favoring my debit or credit cards and the reliable and secure networks that each swipe of the card depends on.

Now I don’t have amnesia (at least, I don’t believe I do), but I do have a mobile phone that’s capable of performing routine banking tasks digitally and that has replaced the inconvenience of having to travel by foot, wait in line, and interact with bank tellers. In addition, multiple payment applications such as Venmo, PayPal, and Square Cash allow me to transfer money quickly without having to go to an ATM.

As I described in a recent article, millennials love automation, speed, and efficiency, and the digital revolution occurring in finance is dramatically uprooting traditional norms, including the way we formerly approached traditional banking services. Millennials have largely adopted and incorporated this new financial technology into their daily lives, with more than 80 percent of Millennials owning a smartphone and more than 70 percent of Millennials of the belief that mobile banking is important to them. Not surprisingly, the amount of paper checks entering the banking system continues its remarkable decline, according to the Federal Reserve, with checks paid falling to 18.3 billion in 2012 – nearly a 50 percent decline from the number of checks paid in 2003, despite the growth in the nation’s population.

Banks are increasingly aware of the changes in consumer attitudes and continue to make considerable investments in digital technology to update legacy systems that cannot adequately address the surge in the number of transactions associated with “instant” banking. At the same time, banks are coming to terms with the fact that the traditional brick and mortar branch model must evolve, since roughly 85 percent of retail banking transactions are now digital. This digital strategy shift makes sense when the average cost of a transaction to a lender via mobile ($0.10) and desktop computer ($0.20) are dramatically smaller than in-branch deposit ($4.25).

Even with the much higher transaction costs associated with branch banking and rapidly shifting consumer habits, the prevalence of the branch model stubbornly persists, for now at least. As of June 2014 roughly 6,700 banks and thrifts operated approximately 95,000 branches in the United States, according to the Federal Deposit Insurance Corporation (FDIC). From the mid-1990s to 2009, bank branches increased 22.9 percent, but have declined nearly 5 percent since. While the total number of bank branches is the lowest reported figure since 2005, there are more branches per capita today than in 1970. Additionally, nearly one-third of respondents to the 2013 FDIC National Survey of Unbanked and Underbanked Households reported using a teller as the primary means of access to one’s bank account. According to the study, “electronic means of access continue to be a supplement rather than a wholesale substitute for tellers.”

As the FDIC wrote in its recent report, brick and mortar banking “remains prevalent”, and there are no indications at this point that large depository institutions are interested in the wholesale culling of their branches and adoption of a digital-only strategy. That being said, large financial institutions in particular are looking for ways to evolve the traditional branch to make it more suited for the 21st Century and the digital demands imposed on the bank from its customers, including millennials.

While their overall numbers are not shrinking fast, bank branches, particularly in urban areas, are becoming smaller and following a more digital-focused layout. Last November, Citi shared its blueprint for a more digital banking experience at a Money 20/20 conference. Its plan called for smaller branches – nearly half the size of Citi’s traditional branches – with roughly one-third the staff required. Along similar lines, JPMorgan Chase notified investors that it is looking to create the branch of the future that is much smaller in size, with a more streamlined and automated customer experience. Wells Fargo unveiled its concept branch back in 2013; the model relies heavily on digital technology and completely does away with the notion of “bigger is better”. PNC Bank went as far as to open up the first portable pop-up branch in the U.S.

All of these examples highlight the fact that branches aren’t going the way of the dinosaurs, but are evolving to meet the demands from Americans who are becoming digital connoisseurs. Technological innovations are driving banks to rethink traditional approaches to branch banking and adapt to a more digitally-savvy consumer, allowing banks to become more efficient in the process.


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