Fitch Predicts Decline in U.S. Bank Branches

by Mercator Advisory Group 0

From Finextra:

Ratings agency Fitch is forecasting a decline in U.S. bank branch networks amid ongoing increases in technology use and changing customer behaviors. Fitch expects both fewer numbers of branches and different types of branches to emerge as banks look to rationalise real estate expenses while investing in new online channels.

The ratings agency is forecasting increased technology spending over the near to intermediate term by the banks to improve efficiency and streamline operations. States Fitch: “While over the near term these additional technology expenses may offset cost savings from culling bank branches, longer term it should improve earnings and, therefore, returns to shareholders.”

From a credit standpoint, Fitch views the reductions in costs, and therefore improvement in earnings, as the biggest near-term positive. The firm further believes the larger banks with more resources should benefit to a greater degree from both a technology spending and cost-savings perspective.

“Banks unable to adapt their branch models quickly enough may suffer declining market share and customer attrition,” says Fitch. “Additionally, the increased use of technology makes it easier for customers to move funds from one bank to another, which could have the unintended impact of increasing customer attrition rates and decreasing the stickiness of deposits.”

Fitch’s findings mirror similar results in recent Mercator Advisory Group reports about the evolution of banking channels within today’s financial institutions.

While the number of branches is indeed decreasing at some financial institutions, we see the role of branches changing, but remaining important.

With advancements in the ATM, online banking, and mobile banking channels, the role of the branches are changing from a more transaction-oriented channel to a cross-sales-oriented channel, one that has a greater emphasis on understanding customers better and servicing them better, and ultimately dispensing more timely and relevant advice.

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