Megan Brooks
The rise of digital banking has led to a decline in physical bank branches. Banks are increasingly investing in digital platforms and trimming their physical presence to cut costs and improve efficiency. This trend is expected to continue, with more customers opting for digital services over in-person transactions. While this may lead to the closure of some bank branches, it is unlikely that banks will completely shut down. However, there have been instances of bank accounts being shut down due to regulatory decisions or as a result of M&A activity.
| Characteristics | Values |
|---|---|
| Reason for closing down | Cost-saving, reducing physical footprint, M&A activity, deal-related cost-cutting, shifting investments to digital platforms |
| Banks with most closures | Bank of America, Wells Fargo, Toronto-Dominion Bank, U.S. Bank, Citibank, Banc of California, First Bank, Fulton Bank, TD Bank |
| Number of closures | 41 (Bank of America), 40 (Wells Fargo), 39 (Toronto-Dominion Bank), 48 (U.S. Bank), 35 (Major American Banks in November 2024) |
| People involved | Michael Jamesson (bank consulting firm Jamesson Associates), Chairman and CEO Brian Moynihan (Bank of America), Kedia |
| Regulatory bodies | Federal Reserve Board of Governors, Senate Banking Chairman, Federal Reserve Chair Jerome Powell |
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What You'll Learn
- Banks are closing physical branches and moving to digital platforms
- Bank of America led the industry with 41 net closings in the third quarter
- Wells Fargo and Toronto-Dominion Bank followed with 40 and 39 net branch closings
- Banks are closing branches to save costs and focus on growth through deals
- Banking regulators have the power to shut down bank accounts
Banks are closing physical branches and moving to digital platforms
Banks are increasingly closing their physical branches and shifting their focus to digital platforms. This trend is driven by several factors, including cost-cutting measures, changing customer preferences, and the growing adoption of digital technologies.
In recent years, there has been a significant rise in the number of bank branch closures. According to S&P Global Market Intelligence, U.S. banks closed 2,118 branch locations between January and October 2023, contributing to a 14-year consecutive decline in the total number of active branches across the country. Mega banks, such as JPMorgan Chase & Co., Bank of America, and Wells Fargo, have led the way in downsizing their physical presence.
Cost-cutting is a primary motivator for this shift. By closing physical branches, banks can reduce their expenses and reinvest their savings into digital capabilities. For example, Provident Financial Services closed more than 20 overlapping branches to meet cost-saving goals following an acquisition. Additionally, banks can streamline their operations, reduce risks, and improve customer service through digital transformation.
Changing customer preferences also play a significant role in this transition. With the increasing adoption of smartphones and online payment systems, younger, tech-savvy customers are comfortable conducting transactions digitally and see less need to visit physical bank branches. Over 76% of American customers now use mobile banking apps.
Furthermore, the COVID-19 pandemic accelerated the trend towards digital banking. Social distancing measures and lockdowns drove customers to adopt digital products and services, reducing foot traffic in bank branches. As a result, banks are investing more in their online platforms to meet customers' changing expectations and preferences for digital services.
While banks are closing physical branches, it is important to note that they are not completely eliminating their physical presence. Banks continue to open new branches in high-growth areas and high-traffic locations, carefully strategizing their physical presence while expanding their digital capabilities.
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Bank of America led the industry with 41 net closings in the third quarter
The banking industry is undergoing a significant transformation, with a shift towards digital platforms and a decrease in physical branches. This trend has been accelerated by the coronavirus pandemic and the increasing preference for online banking among customers. As a result, banks are closing down branches and investing in their online services.
In this context, Bank of America's announcement to open around 165 new financial centres by the end of 2026 may seem contradictory. However, the bank's strategy is to focus on growth markets and downsize its physical presence in underperforming areas. This is evident from its leading position in net closings in the third quarter of 2024, with 41 branches shut down.
Bank of America's decision to close 41 branches in the third quarter of 2024 is part of its overall strategy to streamline its physical locations and improve efficiency. The bank intends to focus on high-growth areas and utilise its strong digital capabilities to deliver services nationally. By closing underperforming branches, Bank of America can reduce costs and reinvest savings into evolving technology and expanding its reach.
While Bank of America leads the industry in net closings, it is not the only bank trimming its physical footprint. Wells Fargo closely follows with 40 net branch closings, and Toronto-Dominion Bank has 39. Additionally, U.S. Bancorp booked 23 net closings in the same quarter, and Banc of California Inc. closed 10 branches. This trend is prevalent among banks of all sizes, with a strategic focus on creating density in high-growth areas and leveraging digital capabilities.
The rise in net closings in the third quarter of 2024 indicates a broader shift in the banking industry. With the increasing demand for digital services, banks are re-evaluating their physical presence and prioritising investments in online platforms. This transformation allows banks to reduce costs, improve efficiency, and better serve their customers through evolving technology. As a result, we can expect to see a continued decline in physical branches and a more digitally focused banking industry in the future.
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Wells Fargo and Toronto-Dominion Bank followed with 40 and 39 net branch closings
The COVID-19 pandemic accelerated a trend that began during the Great Recession: the shift from brick-and-mortar banks to digital banking platforms. In 2024, net closings rose to the highest quarterly level in nearly three years, with Bank of America leading the industry with 41 net closings. Wells Fargo followed closely with 40 net branch closings, and Toronto-Dominion Bank had 39.
Wells Fargo CEO Charles Scharf is overseeing the bank's mass closure of locations. While the US edges toward a cashless future, over 200 million Americans still deposit cash, resulting in longer lines and worse service as physical access shrinks. Despite the digital shift, a GoBankingRates survey found that 45% of Americans still prefer in-person banking. More than half of respondents expressed concern about the rising number of physical bank branch closures.
The closures reflect a broader trend in the industry: the growing dominance of digital banking. As more customers turn to mobile apps and online platforms, banks are reevaluating the costs and benefits of maintaining physical locations. While the shift makes sense from an efficiency standpoint, it also raises concerns about accessibility and financial inclusion, especially for those who depend on face-to-face service.
Large national and regional banks have led the downsizing charge, mostly because they have the largest branch networks. However, banks of all sizes are shifting investments away from physical locations and toward digital platforms. As banks try to save costs while growing through deals, M&A activity has surged. In recent years, closing branches has proven integral to deal-related cost-cutting.
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Banks are closing branches to save costs and focus on growth through deals
Banks are closing branches to cut costs and focus on growth through mergers and acquisitions (M&A). In 2021, M&A activity in the banking industry surged to 210 deals, up from 112 the previous year, according to S&P Global. This trend continued into 2023, with 110 banks announcing plans to sell and the total value of deals exceeding $13 billion.
Closing branches has become integral to deal-related cost-cutting. By reducing their physical footprints, banks can eliminate overlapping staff, services, and facilities, resulting in significant savings. For example, Provident Financial Services closed more than 20 branches, nearly 15% of its physical operations, as part of its acquisition of Lakeland Bancorp.
The shift towards digital banking has also played a significant role in branch closures. As more customers turn to mobile apps and online platforms for their banking needs, the demand for physical locations decreases. Banks are responding by shifting investments from traditional brick-and-mortar offices to digital platforms, meeting customers' changing expectations and reducing expenses.
While banks are not entirely eliminating physical branches, the remaining locations are evolving. Instead of handling everyday transactions, branches are focusing on complex financial services, such as mortgage applications, small business lending, and personalized financial consultations. This shift ensures that physical branches remain relevant, even as digital banking becomes more prevalent.
Additionally, banks are exploring the use of artificial intelligence (AI) to increase efficiency and enhance customer service. AI has the potential to automate routine tasks, reduce costs, and allow employees to focus more on personalized interactions with customers. As banks continue to adapt to changing market conditions and customer preferences, the combination of strategic branch closures and investments in digital capabilities will likely remain a key focus for their growth strategies.
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Banking regulators have the power to shut down bank accounts
There is no indication that banks are going to shut down. However, banks are closing many branches and downsizing their physical footprints as customer demand for digital services overshadows in-person transactions. Large national and regional banks have led the downsizing charge, mostly because they have the largest branch networks.
The issue of "de-banking" has become more mainstream as groups from across the political spectrum have accused lenders of politically motivated discrimination. Right-leaning groups and some liberals have accused lenders of denying them bank accounts or loans for reasons unrelated to finances. Major banks have denied these accusations, saying that regulations under President Obama, Mr. Trump, and the Biden administration required them to take a hard line against potential customers who transact disproportionately in cash or operate gun-related businesses, among other categories.
In response to these concerns, President Trump signed an executive order instructing federal regulators and agencies to investigate the matter and "make reasonable efforts" to reinstate debanked customers. The order also raises the possibility of federal prosecutions of banks by instructing regulators to refer some previous debanking complaints to the attorney general's office.
To address the issue of politicized or unlawful debanking, federal banking regulators are directed to remove the use of reputation risk or equivalent concepts that could result in such debanking from their guidance documents, manuals, and other materials. Regulators are also encouraged to rescind or amend existing regulations to eliminate any regulations that could result in politicized or unlawful debanking.
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Frequently asked questions
Yes, banks are shutting down physical branches and shifting their focus to digital platforms.
Banks are closing physical branches due to a decrease in in-person transactions and a shift towards digital services. Additionally, banks are also cutting costs by reducing overlapping staff, services, and facilities through acquisitions and mergers.
Yes, banks have been known to close specific customer accounts. This is often influenced by government regulations and the fear of repercussions from doing business with bad actors.
Banking regulators and federal agencies have significant influence over the banking industry and can effectively decide which banks get shut down or are forced to shut down specific customer accounts.
