Retail Banking Will Suffer The Same Fate As Retail Shopping
The banking industry is going to follow the retail shopping industry. No one wants to say it out loud, or think it, but it’s going to happen. Banks are purchasing and merging with other banks to help increase revenue and decrease expenses. It's simple economies of scale. In 1994, the FDIC reported 10,452 commercial banks in the United States. As of August 2018, there are 4,833. For your math majors that is a greater than 50% decline. While there are several reasons why the number of banks is declining, it’s likely to continue. Brick and mortar locations are starving for customers, but people aren’t walking through the door anymore. Why? Because they don’t have too.
Let’s compare banking to the retail shopping industry. I live in a Midwest town with a metro area of around 250,000 people. We have a large mall that has been the shopping center for decades. Just in the last year, 2 of the 4 major corner stores in the mall are out of business and another is likely right behind. Shopping is done all online now. The selection of products is endless, and you don’t have to even put pants on to buy pants. You can blame whomever you want for this shift in commerce, but if you think this can’t happen to banking, you’re in for a reckoning. Most shopping is now done online, and customers aren't going into stores anymore. Sound familiar?
Banking is following the same path. I can pay bills, deposit a check, get a loan, open a checking account, get a mortgage, and transfer money to anyone I want all from my phone. I’ve taken out a bank loan for the last 5 cars I’ve purchased, all without setting foot in a bank. I do everything online or in the dealership. While the banking industry is lagging behind retail shopping, it will follow the same path. I'm not saying brick and mortar will disappear, but it will become increasing less utilized.
My town is loaded with bank branches, yet there are three new branch buildings going up within miles of my house. Is that money well spent? Banks will always be necessary, but the way people conduct their banking is evolving. What is a wiser decision: spending millions expanding brick and mortar operations that no one will visit, or spending thousands on a better mobile and internet banking platform where all of your customers are? The banking industry may be owned by Baby Boomers and ran by Gen-Xers, but it's fate is in the hand of Millennials. You know what's in their other hand? A phone with a banking app...