Banks can hurt themselves when they close a branch

Banks that are closing branches in order to cut costs need to be careful that they’re not shooting themselves in the foot, according to a new report.

Nearly one-third of U.S. consumers, and roughly 40 percent of consumers worldwide, report that they either switched banks or started using another financial institution after a branch that they frequented closed, according to the report from management consulting firm Bain & Co. The likelihood of a U.S. consumer switching banks rises 14 percent when that consumer is affected by a branch closure.

Although banks conduct a cost-benefit analysis before closing a branch, “I’m not sure they are fully capturing the loss of clients,” said Peter Skillern, executive director of Reinvestment Partners, a consumer advocacy group in Durham.

More than 1,600 branches nationwide have closed in the past year, according to S&P Global Market Intelligence. In North Carolina, the number of full-service branches has fallen from 2,717 to 2,400 since 2009, an 11.7 percent decline, according to the latest FDIC data. The majority of those branch closures occurred in counties that the N.C. Rural Center defines as rural.

The upside for closing a branch, from the bank’s perspective, can be considerable. A mobile banking interaction costs about 10 cents, according to Bain, whereas interacting with a bank teller costs a bank about $4.

The U.S. has 32 branches per every 100,000 adults, far more than countries such as Germany and The Netherlands. Bain projects the 25 largest U.S. banks would save more than $11 billion annually if the number of branches per capita was more in line with countries such as The Netherlands.

But before banks close a branch, said report co-author Maureen Burns, they need to lay the groundwork by training customers how to use digital banking. That’s not something that banks typically do, she added.

A key problem is that although banks tout mobile banking as a ready substitute for going to a branch for many consumer needs, the survey found that the growth of mobile banking has moderated.

The percentage of customers worldwide that use a bank app jumped from 32 percent in 2012 to 52 percent last year. But this year, Bain learned, mobile users jumped just 3 percentage points to 55 percent.

“The banks were able to get the early adopters,” Burns said. “The next wave needs more work.”

The report also found that customer loyalty is fragile among some consumers. About 23 percent of U.S. consumers reported they would switch banks if it were easy.

Although the days of consumers visiting a branch every time they receive a paycheck are long gone, the study found that branches remain important.

Nearly 90 percent of the U.S. consumers surveyed visited a teller during the previous quarter, while nearly half called their bank.

“One of the big takeaways from the report is that groups of all ages use branches, and they use them frequently,” Skillern said.

This story was originally published December 8, 2016 at 5:04 PM with the headline "Banks can hurt themselves when they close a branch."