Banks Cut Branches as Digital Banking Drives Growth 

Many of the nation’s largest banks are reducing their branch systems, and smaller banks are also trimming their networks. U.S. banks closed 2,118 branch locations between January and the end of October 2023, according to S&P Global Market Intelligence. It’s part of a broader strategic effort to shift expenses from traditional brick-and-mortar offices to digital delivery solutions that can meet customers’ changing expectations.

Across the industry, the total number of branches fell for the 14th straight year in 2023, dropping from 79,000 branches at the end of 2022 to 77,690 active bank branches nationwide at the end of October 2023.

The megabanks have led the way. JPMorgan Chase & Co. has opened 157 branches and closed 163 in the past 12 months, for a net decline of six locations. Bank of America closed about 100 branches in 2023, according to data from the Office of the Comptroller of Currency, while Wells Fargo closed almost 300 branches. According to MoneyWise, the San Francisco-based bank  closed more than 1,200 branches between 2018 and 2022.

Super-regional banks have been actively trimming their branch counts, as well. Both PNC Financial Services Group and U.S. Bancorp shuttered about 10% of their branches last year, according to the American Banker. PNC’s CEO  Bill Demchak told shareholders last April that branch traffic has declined steadily over the last 10 years, and that he expects the trend to continue. Following its 2022 acquisition of MUFG Union Bank, U.S. Bank closed branches, and CEO Andy Cecere said the bank typically closes branches when there are two within a mile of each other.

Similarly, Truist Financial closed 119 branches between January and October 2023 and has trimmed its network every year since the SunTrust Banks and BB&T Corp. merger in 2019.

There are several reasons why banks have been rapidly reducing their branch counts:

• Cost-Cutting: In response to changing market conditions, banks have looked for ways to cut costs.
• Mergers and Acquisitions: M&A activities often result in redundancies that lead acquirers to shutter less profitable branches and close others to avoid geographic overlap.
• Regulatory Changes: Regulations requiring banks to maintain higher capital reserves can limit their lending capacity and hinder profitability, pushing them to look for cost savings.
• Macroeconomic Factors: The overall economy influences the size and health of banks. Higher interest rates, as we have experienced in the past two years, can lead to reduced demand for loans and lower profitability, prompting banks to scale back their operations.
• Digital Transformation: Many banks are investing in digital technologies to streamline operations, reduce risk and improve customer service. Digitalization has also powered a significant shift in how banking services, such as consumer banking and small business lending, are delivered. When transactions and services move online, branch closures and staff reductions are sure to follow.
• Customer Preferences: Changing customer preferences are also spurring investments in financial technology. Younger, tech-savvy customers are comfortable making transactions using their smartphones; they don’t see the need to visit a bank branch. As the general population becomes more comfortable with online payments and the digital loan application process, the need for physical bank branches will lessen.

Banks have been closing branches, reducing their expenses and reinvesting some of their savings into digital capabilities. The larger players have the resources to develop their own systems, while regional banks and community banks often leverage fintech partners to address the growing numbers of consumers and small business owners that want to conduct banking digitally. This is the reality of 21^st century banking, and the sophistication and growth of digital banking is destined to keep expanding.