Why is there still a need for physical bank branches?

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Auditor Paul Jones from South Portland, Maine, asked:

So many banking transactions can be done online, so why are there 40 credit unions and 30 banks in my area? Each year, large brand new branches are opened.

Now you can deposit a check, transfer cash and pay your bills with the click of a button.

Yet despite the rise of online banking, physical banks remain present in some communities. There are still a lot of people (especially those who are aging) who are not used to managing their finances electronically, while some of the services provided by banks still require face-to-face interaction, according to Jaime Peters, Dean. assistant and assistant professor. of Finance at Maryville University in St. Louis.

“Plus, we’re still a fairly large payments company and you need to have a branch, especially if you’re a small business dealing with cash inflows and outflows,” Peters said.

In 2020, there was nearly 75,000 branches in the United States, up from about 85,600 in 2009, according to data from the Federal Deposit Insurance Corporation.

But as Jones of South Portland pointed out, some areas still have many banks and credit unions, and some are even planning to expand.

American Banker, reporting data from the National Credit Union Administration, said that as of the end of September 2020, 745 credit unions intended to add branches or expand their facilities, and that there were a total of 21,000 branches of credit unions in the USA

Paul Legutko, senior director of financial consultancy firm Aité-Novarica, said many financial institutions do not want to close their branches because they believe that integration into the local community is “a selling point”.

Legutko said that cases where banks have tried to enter a digital-only market (i.e. by increasing the amount they spend on digital marketing in a certain area) tend to have mixed results. . He thinks it’s because having a financial center, where you can go to solve all the problems, brings convenience to consumers.

“These are stressful times,” said Legutko. “If I’m applying for a mortgage, I don’t want to just apply online. ”

Legutko said that a study conducted by Aité-Novarica last year found that 9 in 10 consumers say it is important for them to have a branch nearby, even though only 3 in 10 go to the branch.

Reynold Byers, clinical professor of supply chain management at Arizona State University, said managing your finances can get confusing, which is why it can be helpful to have someone explain the process.

“A lot of times if you’re trying to find a way to get a good explanation of a detailed or complex loan or account, it’s hard to find that information on the website or mobile app,” Byers said. .

You’ll usually find physical bank branches near shopping areas or industrial areas, Peters explained. (Although Peters noted that those in industrial estates are more declining.) And when it comes to credit unions, Peters said they are usually found near the employers who sponsor them.

Some banks, like Capital One, have tried to reinvent the concept of banking to attract customers. Starting in 2015, the bank mixed credit cards with coffee in launch of a series of cafes, some of which are still open.

And earlier this year, Citigroup Inc.’s chief executive, Jane Fraser, said the company plans to add more branches in the United States, while Chase announced in October that it was already open more than 220 branches since announcing an expansion plan in 2018. By the end of 2022, Chase aims to open 400 new branches.

Byers said banks like Chase are opening up in places where they don’t have an established presence.

While banks can be ubiquitous in some areas, not everyone has access.

“You have some communities where you have a lot, a lot of banks, and then you have other communities where there are no banks,” Legutko said, noting that these were generally rural, socio -economic or under-represented.

The unbanked rate for black households in 2019 was 13.8% and 12.2% for Latinx households compared to 2.5% for white households, Marketplace reported last year.

Byers said that in banking deserts, consumers are often forced to use less secure and more expensive financial services, like payday loans.

Experts agree that in the future it is necessary to have physical banking services in one form or another.

Elisabeth Honka, associate professor of marketing at the University of California, Los Angeles, said that not only do some financial services need to be dealt with in person, but there are areas where the internet infrastructure they have is not. particularly robust.

“So online banking doesn’t quite work for consumers,” she said.

And Peters said she believes physical banking will continue to play a role in the banking system for many years to come.

“There’s always a certain comfort when you talk about something as sensitive as your own money, see the person face to face, feel like you know your banker,” Peters said.

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