If you're the type who likes to do your banking in person, there's not much good news for you in the Federal Deposit Insurance Corporation's latest data.
The FDIC's annual Summary of Deposits data dump shows the number of branches nationwide declined by 1.5% between June 2014 and June 2015. Overall, the number of branches nationwide has declined by 6.3% since 2009, according to the data.
Even huge banks that have historically depended on having large networks of national branches to drum up business are cutting back. In 2012, Bank of America had 5,656 U.S. branches; now it has 4,861 branches. In 2013, JPMorgan Chase had 5,694 bank branches in the U.S.; now it has 5,545.
Watch out, branch lovers
Are there going to be huge lines at branches and millions of people driving billions of miles to reach a branch because of a 6% overall decline in branches? Of course not.
But broad-based technology-driven shifts in industries tend to start exactly this way -- with a small decline after years of seemingly inevitable growth. Customers move away from the legacy technology (full-service gas stations, newspapers, cable TV) and toward the tech-enabled solution (self-service gas stations, online news, streaming video) slowly at first. Then, the tech-enabled solutions improve and customer preferences shift more rapidly toward what has become a more convenient or cost-effective way of getting services. After that, the bottom falls out of the legacy technology pretty quickly.
In 5 or 10 years, it seems pretty likely that branch networks will start to become significantly smaller, and people who like to bank in person will need to either switch to a bank that has prioritized keeping physical branches in their area, or just bank online like everyone else.
Other interesting stuff from the FDIC data
Last week, I wrote about the stable of banks that have set up shop in Wal-Mart Supercenters across the country and are making way more money off overdrafts than banks many times their size.
Those same banks jumped out again in the FDIC data this week.
It turns out that Wal-Mart-affiliated banks have huge branch networks relative to the amount of deposits they hold. First National Bank Texas, for example, has 320 branches holding a total of around $1.2 billion in customer deposits. The bank closest to First National Bank Texas in terms the size of its branch network is Umpqua Bank. Umpqua Bank's 334 branches hold $17.2 billion in deposits -- more than 14 times as much as ol' First National Bank Texas.
When is a bank not a bank?
For a normal bank, First National Bank Texas' situation would be a problem. It costs money to run branches, after all, and when you make a big chunk of your revenue from taking account holders' deposits and lending them out to consumers and businesses, you want to maximize the amount of deposits you take in per branch so that you can run your accounts, and fund your loans, cheaply.
But say you had a different business model. Instead of taking deposits and lending them out to make money off the spread, you made your money by signing up as many low-income customers as you could and then charging them $34 every time they overdrew their account. Whether they're doing it by accident or to cover their bills until payday doesn't really matter to you, as long as you get your fee. If that's what you were doing, you'd only need a relatively small amount of deposits -- just enough to help cover these short-term loans you're making to tide people over until payday.
Suppose you took the idea even further and built as many branches as possible, locating them in places where low-income consumers tend to congregate, such as inside a Wal-Mart. Then, you could structure your business around trying to extract as much in fees from them as you could before they were either broke or forced out of the banking system altogether.
That's a good way to make a lot of money, sure. But it raises some tough questions. Are you still in the banking business, then? Or are you a payday lender, since your main function seems to be offering short-term credit to struggling people in exchange for extremely high finance charges?
And, last but not least, are regulators going to wake up one day and realize that thousands of Wal-Marts now have payday lenders embedded inside, and shut the whole thing down? Who knows, but the truth about what these institutions are is right there in the numbers for anyone to see.
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