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Juggling Bricks and Apps

Bricks and mortar banking is not exactly dissolving into digital in Alabama. But branch offices are being streamlined, and one of the fastest growing of Alabama banks thinks branches are the “pay phone” of the industry.

Are branch banks becoming an endangered species? Soon to rest in peace with downtown movie theaters, record shops, video rental stores and gas stations where attendants fill your tank, wash your windshield and check under the hood?

According to SNL Financial and other sources, there’s a nationwide trend for branch banks to shut their doors and teller windows as a way to cut costs and encourage customers to bank online. While analysts doubt the banking industry will ever be completely branch free, a recent SNL Financial report found that U.S. banks closed 2,267 branches in 2012, while opening only 1,149. Government regulation and consolidation also are considered factors in the rise of branch closings.

Yet some large banks are bucking the trend. During the first quarter of 2013, for example, JPMorgan Chase & Co. opened 34 branches and closed 16. In Alabama, the number of branch banks for the most part is holding steady, says Scott Latham, president and CEO of Alabama Bankers Association, noting that branch location decisions are generally based on a strategic plan for growth coupled with local market demand for banking services.

“While a nationwide trend points to fewer branches overall as compared to five years ago, the largest banks in Alabama have seen fewer branch locations closed than many,” says Latham. According to FDIC data, the total number of domestic offices held by BBVA Compass and Regions is down slightly since 2008, although relatively unchanged during the past two years. PNC and Wells Fargo show significant increases in total domestic offices during the same period due primarily to acquisitions. 

According to Scott Peters, head of consumer services for Birmingham-based Regions Bank, about 80 percent of Region’s sales are conducted at a branch bank, and more than 60 percent of its customers stop in at least once a month. On a daily and weekly basis these customers are also using the bank’s online services, so virtual banking options are not replacing the brick-and-mortar bank, but adding to it, Peters observes. About 4 million of Region’s customers bank online and on mobile devices. 

Digital technology continues to present new ways to bank more efficiently online and on mobile devices. So whether they are closing or opening branches, banks are paying attention to customer preference for virtual banking. Among Region’s offerings are check-cashing ATMs, new mobile apps to make deposits, and My GreenInsights, which enhances online banking with additional financial management tools.

Despite seeing about an 8 percent drop each year in Region’s branch transactions, Peters believes branches are here to stay, but their role will change. Branches will be more guidance oriented, helping customers make financial decisions or offering help with more complex banking matters, rather than handling transactions as tellers now do.

What about cyber attacks in this new wave of virtual banking?

Peters says they often result in a hassle rather than serious harm, flooding internet lines and slowing service, much like the delay from a long line at the teller window. Nevertheless, Regions and other banks take computer network attacks seriously, and mitigation strategies are in place to keep virtual banking secure.

Banks are using threat detectors that identify and stop harmful transactions. Alabama’s second largest bank, BBVA Compass, is launching One Time PIN, which sends a personal identification number to a customer’s mobile device or e-mail inbox for each new transaction.

Like other banks, BBVA Compass also is expanding digital banking services while retaining its branch banks. Although about half of BBVA Compass customers use online and mobile banking, during the past 10 years seven new banking locations have opened in Alabama and only five have closed, says BBVA Compass East Region Retail Executive Rosilyn Houston. Every segment of their customer base is using their online and mobile services. 

“We believe that in order to succeed, we must innovate in both the physical and virtual channels,” Houston says. “Increasingly, our bank branches are becoming a place where customers go to seek advice and assistance with more complex banking needs. While these changing customer dynamics have led to modification in branch staffing models in the past, closures have been minimal.”

Wells Fargo operates 139 bank locations in Alabama, and this number has stayed about the same since the Wachovia merger in 2009, says the bank’s Mid-South Region President Leigh Collier. “When you have a banker who knows your name when you walk in the door, nothing can replace that.”

Wells Fargo is also covering both bases — maintaining its physical locations while expanding virtual services. Collier says Wells Fargo has 22.5 million active online customers and more than 80 percent do business using the bank’s self-service channels. “Mobile banking is the fastest growing channel in Wells Fargo history. It’s growing twice as fast as the online channel, and we now have 10.1 million active mobile customers as of February 2013, up 32 percent year over year.”

A new neighborhood-banking concept recently was launched that features paperless workflow and wireless technology in a 1,000-square-foot building instead of the traditional 3,000 to 4,000-square-foot site. Collier says this new format is best suited for urban areas and the first one opened in Washington, D.C. in April.

PNC entered the Alabama market in 2012 with the acquisition of RBC’s (Royal Bank of Canada) branches in north and south Alabama. Scott Stafford, market manager for PNC in Alabama, says their customers increasingly show interest in banking through online channels, and, as a result, PNC closed six of its 80 Alabama locations. These closings also occurred because certain branches were located within two miles of each other.

“Recent data shows us that 18 percent of our customers use the branch network as their primary banking channel, and 45 percent prefer multichannel banking,” says Stafford. “Mobile banking, advanced ATMs, mobile deposit, online banking and live chat are the new normal.”

In 2008, PNC Bank introduced its Virtual Wallet, a visual online banking tool that combines a traditional checking account with long-term and short-term savings accounts. Last year, PNC added a mobile deposit feature that allows customers to deposit checks using the camera on their smart phone. 

PNC has seen an 11 percent increase in customer use of online banking since 2012. Mobile and ATM deposits represented 20 percent of deposits in the first quarter of 2013, up from 14 percent, and 37 percent now use the Virtual Wallet. Only 5 percent of PNC’s deposits in Alabama are made through its existing ATM network. So PNC also is upgrading existing ATM machines, making it easier to make deposits and cash checks through ATMs.

“At the end of the day, banking is about relationships,” Stafford says. “We have to think of our network in terms of online, mobile, ATM and traditional types of branches. It’s a rapidly changing business, and we plan to change with our customers at the center. We need to do business the way our customers want to do business and not force them into channels.”

Birmingham-based ServisFirst Bank opened in 2005 with a business model that included limited physical branching as a major part of its strategy. “Consequently, we only have 12 locations, despite being approximately $3 billion in assets,” notes Executive Vice President and Commercial Sales Manager Paul Schabacker. 

“We view our model as a validation of the premise that a bank branch is no longer necessary for the vast majority of bank clients, and we believe the bank branch is the ‘pay phone booth’ of our industry. We are able to operate at an efficiency ratio of 37.47 percent as of March 31, in part because we operate very few brick and mortar locations.”

ServisFirst has more than 5,000 retail and 2,500 corporate clients using its online banking services. About 50 percent of deposit transactions in 2012 were performed via remote deposit service. Twelve offices opened during the past eight years and all remain open. New locations will open as ServisFirst expands, but there are no plans to open new locations in established markets. 

“The decline in brick and mortar, however, does not signal a decrease in the value of and need for face-to-face interaction with a banker in relation to business decision making, only in relation to convenience deposits,” Schabacker adds. “Clients’ need for face-to-face interactions with a knowledgeable banker only increases as the complexity of the world increases, and this part of our business will never change because of alternative delivery vehicles.”

Jessica Armstrong is a freelance writer for Business Alabama. She lives in Auburn.

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