The Neighborhood
Bank branches are closing. People are using digital banking services more. But the need for in-person contact will drive new models for neighborhood banking.
Photo by Jacob Culp on Unsplash
Before I moved to Philadelphia, I didn’t really understand neighborhoods. Sure, I’d lived in cities, even suburbs, with neighborhoods. Growing up and as an adult, I easily navigated the neighborhoods in each of the 4 quadrants of Washington, DC. But when I moved to Philadelphia, I learned that neighborhoods could define you, create your habits. In Philadelphia, I met people who lived their entire lives in one neighborhood, say South Philly or the Northeast. They might work outside their neighborhood, but did everything else inside the neighborhood. Your favorite bar or cheesesteak place? The one in your neighborhood. This routine is replicated throughout Philadelphia.
Photo by Tyler Rutherford on Unsplash
Then it happened to me. When I moved to Philadelphia, I lived in an apartment 4 blocks from my job. I could buy fruits and vegetables at the neighborhood store, eat in a diner or restaurant, buy coffee, clothes, fresh pasta & cheese, books, birthday cards, hammer & nails, and a futon bed frame. All without leaving 4 or 5 blocks. I even met my husband in my neighborhood. For months, I had no reason to leave my neighborhood. To ensure that I left my neighborhood for something, I made a special effort to get my hair cut in a salon in another neighborhood across the city. In fact, I didn’t really get to know the city until I took a job in a bank that sat on the edge of Olde City neighborhood. I walked across the city every day.Then, I started venturing out of my neighborhood into the Italian Market, South Street, Fairmount.
This neighborhood-centricity persists. Even though I live in a different neighborhood, I still tend to stay in my neighborhood. While there has been a surge in new independent bookstores in Philadelphia, I still patronize the same bookstore I always have. Why? It’s in my neighborhood. So, of course I bank in my neighborhood. Because I’m a banking geek, I’ve noticed something interesting about my neighborhood and surrounding neighborhoods: In my neighborhood there are a local credit union, a large regional bank, and a community bank. If you go to the neighborhood to the north, you’ll find branches of several national banks, a large regional bank, and a regional credit union. More banks than in my neighborhood. They don’t have branches in my neighborhood. If you go to the neighborhood to the south, there are even fewer bank branches. You are more likely to find check cashing shops. Yet, there are people who do use banks in this neighborhood. They just don’t have easy access to neighborhood service.
Closing Branches: The End of Neighborhood Banking?
It’s not news that banks everywhere have been and continue to close branches -- and that the pandemic has accelerated both customer use of mobile apps and branch closures. In the US:
“Given the shelter-in-place orders, the COVID-19 pandemic has accelerated mobile adoption,” with teller transactions down “30 to 40 percent” this year, according to a report to clients by Michael Perito, regional bank analyst for Keefe Bruyette & Woods, a New York investment bank.
Americans have been banking by phone since the early 2000s, and by smartphone since 2014. The number of bank branches peaked at 100,000 in 2009, falling below 88,000 last year, according to the FDIC. The virus restrictions have taken hold just as banks face record-low interest rates and higher loan losses. Which means even more pressure on branches and staff.
“Another 20% to 30% of branch consolidation is likely needed — and that’s a conservative estimate,” Perito told investors.
Since March, “banks have proven to themselves that they have the capabilities to have employees work remotely and handle customer transactions digitally,” he added. Keeping branches that attract fewer customers means that “banks’ occupancy costs and other physical infrastructure costs are too high.”
Banks that could afford to give up a lot of space and still make big profits include PNC, the biggest bank based in Pennsylvania, according to KBW analysts, who are recommending the stock.
Indeed, PNC has closed 24 of its 2,300 branches since March 31 and plans to close 30 more by the end of August, and 39 more in September, said spokeswoman Marcey Zwiebel.
And the UK:
TSB is cutting almost 1,000 high street banking jobs and closing 164 branches around the UK, as it blamed the declining number of customers visiting their local bank.
The number of UK bank branches has dropped from at least 9,803 in January 2015 to below 6,500 in July, before the latest announcements, according to the consumer group Which?
The Co-operative Bank announced similar plans to close 18 branches in August…
Re-emergence of Local
While tens of thousands of local and small businesses will or are closing, “local” has become even more important – as people try even harder to support local restaurants, salons, bookstores and each other to help them stay healthy and in business through the pandemic/economic hard times. As I wrote in a previous issue , support for local neighborhoods and businesses is happening at several levels and scale:
Young people volunteer to help home-bound. While there are so many food delivery apps, young people organized to shop and deliver food to the elderly and home-bound in their communities.
Communities supporting local small businesses. In the communities outside Philadelphia, signs have gone up urging people to patronize local small businesses – starting of course with restaurants and other businesses as they re-open.
Shopping local even if it’s not a digital experience. Independent bookstores, some of whom did not offer any online ordering before March 2020, are a good example of local patronage. Many independent bookstores have seen local people and others seek to order and pick up books – much as they do their dinner. What is interesting to me is the desire to shop at these bookstores – despite the availability of cheaper, faster and much better digital experiences such as Amazon. (Again, I don’t want to paint a rosy picture here; independent bookstores are not “beating” Amazon. It’s still very hard to make a profit owning a bookstore.)
Large scale empathy. World Central Kitchen which already feeds people affected by disasters worldwide, set up shop to feed passengers on the Grand Princess, a cruise ship off the US West coast and the Diamond Princess off the coast of Japan. During the pandemic, WCF distributed (and continues to distribute) meals in in big and small cities around the world.
New small businesses will start. Some of them will start up again in homes, in small storefronts, on Instagram. How will I find a new hair cutter when the salons in my neighborhood have gone out of business? The way news about small businesses has always spread: word-of-mouth. How will the word spread? Through the neighborhood. But in 2020, and soon 2021, the definition of neighborhood is different. In traditional, pre-digital society, neighborhoods were only physical, tangible, the place defined by where you lived. Today, everything is digital, including word-of-mouth – sharing a link through a text or Messenger or WhatsApp, re-tweeting a post, reposting an Instagram post, sharing photos or videos through snapchat or tik-tok. Or some newer app I’m not aware that my kids are using...
How does this focus on local and neighborhoods affect banks – especially in a world where physical footprints are shrinking dramatically?
Persistence of In-Person, Human Contact
It’s true: banks are closing branches and the pandemic pushed more people to use mobile and other digital options even more for shopping and delivery. They are using digital more and branches even less for banking transactions.
The pandemic sent millions of workers into “work from home” and forced kids into remote learning. Millions of people starting using Zoom and other video tools their primary means of working with, seeing and talking to friends, family, colleagues, customers, doctors and teachers. Yet, the need for in person contact persists. Of course it does. We are, in fact, humans. Lack of in-person , face-to-fact contact – whatever you want to call it has given rise to a whole new concept: pandemic fatigue.
Neighborhood banking will be more important than ever. But not in the ways it was before.
Citizens Bank recently published the results of a survey they did during the pandemic. I found these results very revealing of the need for in-person banking for consumers, small business owners, and CEOs of larger corporations.
While 69% of consumers already prefer banking online some or all of the time and 64% agree that technology will completely change banking as they know it, a similar number (65%) agree that they prefer human expertise when receiving financial advice.
Customers with investable assets of more than $2 million are significantly more likely than others to strongly agree that they need to be able to speak to an in-person representative in order to trust a business/organization.
Similarly, 71% of business leaders perform at least some banking activities online and 85% agree that technology will completely change banking as they know it. Still, 74% see at least some need for in person banking.
The preference for in-person banking is especially seen amongst smaller companies (those with revenues under $25 million). Business leaders who do all of their banking in person cited safety/security, accuracy/accountability and personal service as the top reasons why they preferred to do so.
And how will banks deliver the level of sophisticated advice that customers need as they go through all of the important moments on their financial journey? Will it be in-person or virtual? Turns out there won’t be a single path, channel, device or workflow.
The answer lies somewhere in the middle. As such, successful banks will need to have a digital-first mindset that provides end-to-end digitization in customer journeys – while not neglecting the need of customers and clients to be able to engage with a human advisor for more complex transactions and sophisticated problems/concerns.
The survey shows that the majority of respondents already prefer banking online some or all of the time. However, slightly less than half (47%) agree that banking in the future will be done entirely online.
While consumers have said that they prefer human expertise when receiving financial advice, 85% of those who prefer online banking agree that the ability to serve all their needs online has a positive impact on their impression of a bank or credit union. While consumers overall agree that technology will completely change banking as we know it, smart banks are aggressively thinking about how best to ensure that the customer experience is seamless and consistent across all channels whether virtual or in person.
Business leaders still prefer to speak with their banker in person, especially when getting advice or executing complex transactions. However, the pandemic has forced a shift with 63% of business leaders now interacting virtually with their bank, with only 44% who said they did so in the pre-COVID-19 environment.
This data does not deny the increased use of digital banking services nor does it point the way back for customers to use the branch, to the extent that they did, for every day transactions and activities. While customers across all types of banking expressed need for in-person banking — they cite very different reasons for needing it. Which does point towards the possibility for new models for neighborhood banking.
If the bank — and digital banking vendors — think digital everywhere.
I’ll tackle those new models in the next issue…
Who publishes this newsletter?
I’m a former Gartner analyst, now an independent analyst & consultant. I’ve worked in and covered the banking industry for 27 years. I think & write about digital banking — but also indulge my other interests, women in tech, startups - especially those in the US Midwest & South Eastern Europe), leadership & change, and AgTech.
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