JPMorgan Chase’s announcement this week that it plans to close 300 branches illustrates a broader trend of banks acknowledging that bricks and mortar are not the future, several experts said.
Even though Chase doesn’t have a physical footprint in Maryland, as one of the nation’s largest banks its actions foreshadow changes yet to come for many of its peers, as well as potentially for many of the midsize institutions like those that dominate the Maryland market.
As consumer habits change and technology advancements all but eliminate many individuals’ need to visit a branch, many banks are finding it harder to justify the steep expenses of an extensive physical footprint.
“This is something that all banks are struggling with right now,” said Paul Joegriner, president of Joegriner and Co., a consultant firm for small banks. “From their perspective, the cost of customer acquisition from a branch is higher than acquiring customers through the Internet or some other method.”
For example, M&T Bank Corp. has been closing or consolidating branches across its geographic footprint from New York to Virginia for years. Those closures will continue, company representatives have said, as the bank re-evaluates consumer demand for branches.
And, Baltimore’s 1st Mariner Bank is down to 16 branches in the city and county after closing 8 of them since 2010.
It’s not just about the number of branches, Joegriner said, but how those branches are used to accomplish the bank’s goals.
“There are many ways to make a branch relevant, but the reason why there’s such contraction today is that the industry is struggling with branch relevancy,” he said. “A bank has to look at why they need branches, where they need them and what they’re using them for.”
PNC Financial Services Group, which has also been closing branches over the past few years and now has about 2,700 nationwide, has been making a variety of changes to the layout and services at those locations, said spokeswoman Marcey Zwiebel.
Zwiebel said face-to-face interaction is still important to customers when making major decisions, such as mortgages, loans and investments.
“So, we are transforming our retail business — re-training our branch personnel to serve as consultants and changing the format of our branches to a more open floor plan with technology and consultants available to address the wide range of our customer’s needs,” she said.
According to SNL Financial, 2014 was a record year for branch closures, with a net loss of 1,462 branches nationwide.
However, not all banks are shunning bricks and mortar.
Some small community banks are actually adding more branches as a way to differentiate themselves and drive home their emphasis on relationships-based customer service.
Howard Bank, for instance, announced in November that it plans to open a new branch in Columbia as part of the area’s Little Patuxent Square development project, which is scheduled to be completed next year.
The Ellicott City-headquartered bank now operates 13 full service branches in the Greater Baltimore area.
“The success of Howard Bank still rests on its promise of a community bank with a growing presence in more communities,” President and CEO Mary Ann Scully said in announcing the new branch.
For large or midsize banks, the strategy has to be different — the trouble is figuring out what that strategy should be. For many banks, downsizing is the way to go.
“My take is that branches are important, but do you need a 5,000-square-foot branch or could you use a smaller branch?” Joegriner said. “And then you have to think about what goes on in that branch. Is it just about transactions — making deposits and cashing checks — or is it about a certain level of customer interaction that goes beyond that?”
For customers of community banks, he said, branches still play an important, if intangible, role.
“At the end of the day, brick and mortar is an expectation from customers,” he said. “It represents stability, it represents a place I can go when I really need to get something done.”