US banks double down on branch cutbacks

Banks pushed the number of new U.S. branches to a peak in 2009. But in the aftermath of the financial crisis, lenders say they've increasingly realized they could maintain their deposit levels with fewer locations in a digital world where customers often prefer banks' mobile apps and ATMs.

Banks are closing branches at the fastest pace in decades, as they leave less profitable regions and fewer customers use tellers for routine transactions. The number of branches in the U.S. shrank by more than 1,700 in the 12 months ended in June 2017, the biggest decline on record, according to a Wall Street Journal analysis of federal data.

Branch numbers fell again in the second half of 2017, according to related data submitted to bank regulators and reviewed by the Journal. That would add to the thousands of locations closed following the financial crisis, and is the longest stretch of closures since the Great Depression.

Many of the closings were in big cities and surrounding suburbs, where branches were consolidated largely because of falling foot traffic. Others were in rural areas, where some large regional lenders are leaving town altogether.

While banks battered during the financial crisis such as Citigroup Inc. C, -0.90% and Bank of America Corp. BAC, - 2.18% started cutting branches years ago, regional banks have only accelerated their closures more recently. From mid2012 to mid-2017, Capital One Financial Corp COF, -4.50% cut 32% of its branches, SunTrust Banks Inc. STI, - 4.58% 22% and Regions Financial Corp. RF, -4.10% 12%. For all three, the sharpest cuts came in the most recent 12-month period.

The banking industry is being disrupted by innovative fintech startups who are digitally driven, customer-centric and leveraging the cloud. With billions of dollars poured into fintech startups, traditional banks are realizing that they need to ramp up their innovation in technology in order to survive.

To discuss these and related issues, the Hong Kong Economic Journal met up with JP Nicols, managing director of FinTech Forge, an entity that helps bring bank and fintech firms together to promote innovation in the industry.

Excerpts from an interview conducted last month when Nicols visited Hong Kong to attend the 11th Asian Financial Forum: HKEJ: From microloan lending to invoice financing, fintech innovators all over the world have been competing with traditional banks in recent years. Amid this situation, what has been the attitude of the traditional banks toward innovation?

Five years ago, when I was speaking at a conference like this, I was met with skepticism from the banking executives. Two or three years ago, the reaction from the banks was: "We need to stop these fintechs, we need the regulators to put more restrictions [on the firms] to protect us."

In contrast, what I was hearing more from the bankers last year was the need to collaborate and partner.