With increasing adoption of internet-banking and mobile-banking, an extensive network of branches is no longer necessary for banks. Are bank branches headed for extinction?
Changing Face of Banking
Change is inevitable. Before the invention of ATMs, the teller was an important person at the bank. Now verifying your account balance, counting your money and handing it to you is done by machines.
Machines do this more quickly, more accurately and at a lower cost compared to your tellers. A similar paradigm shift seems to be happening within bank branches. Increased adoption of internet-banking and mobile-banking have reduced the competitive advantage that an extensive network of branches can provide.
The South Korean Example
Banks are risk averse and typically slower than firms in other sectors when implementing new technology.
However, nothing can stop the march of technology, resulting in changes to how firms across the world, including banks, conduct business.
According to Techcrunch, more than 55% of South Koreans use mobile banking. This has resulted in banks shutting down branches and ATMs.
Global Trend toward Fewer Branches
The trend towards lower numbers of bank branches is global. According to Reuters, the number of branches operated by major UK banks has halved in the last 20 years.
UK banks, including HSBC, RBS and Barclays plan to shut down another 400 branches this year. Deutsche Bank plans to shut down 200 branches, while investing in mobile and online services.
Changing customer usage pattern has resulted in the opening of internet-only or “direct” banks.
Banks such as Ally Bank and Discover Bank offer better services including high interest and low fees, by keeping overheads low.
While this was considered a niche segment a decade ago, the increasing number of sign ups to internet-only banks indicate that the bank branch and teller are dispensable.
Bitcoin – Be Your Own Bank
Bitcoin could take over the traditional role of an online payment bank – your wallet can be considered an online account which can be used to make payments.
While banks pay interest on your deposits, inflation can often result in the real return on your money being negative. With Bitcoin, this is not the case as it is a deflationary currency.
A changing consumer mindset has resulted in increasing openness to the use of internet/mobiles to transfer value. This could help ease the way for increased adoption of cryptocurrencies, including Bitcoin.