Dive Brief:

• The popularity of digital banking has surged in recent years, and many banks have responded by permanently downsizing their physical footprint, according to a research paper published by tax services provider Ryan.
• Branch transaction volume has declined an average of 7% over the past seven years, while mobile payments are forecasted to grow 25% per year through 2026, according to the study, which cites data from management consulting company Novantas.
• Larger retail locations may be more difficult for banks to offload than smaller ones, according to real estate market data Ryan collected. Bank branches under 4,000 square feet are selling at a higher price than 2015, whereas branches larger than 4,000 feet are selling at their 2015 level or lower, as fewer retail tenants seek out larger spaces. 

Dive Insight:

The COVID-19 pandemic exacerbated growth in digital banking, as physical branches were forced to temporarily shut their doors. But it is likely the pandemic accelerated an underlying trend, rather than kick-starting a new one, Ryan found. 

“Most millennials and younger generations prefer fintech companies and neobanks (online or internet-only banks) offering digital payments and higher interest rates on deposits,” the company wrote.

The number of full-service bank branches in the U.S. jumped more than 40% between 1995 and 2010, and peaked in 2011 at 93,000. Such rapid growth constituted overbranching, and bank closures have outstripped bank openings every year since 2012, according to the paper.

The number of bank branches in the U.S. is down 12.8% from the all-time peak, due in large part to bank mergers, branch consolidations and the increasing popularity of mobile banking. On average, there have been 1,300 bank closures every year since 2012, Ryan found. 

The research paper references a March 2021 study, commissioned by Self Financial, which predicts bank branches in the U.S. will be extinct by 2034. 

The doomsaying is supported, at least in part, by a general trend in the industry toward bank branch divestiture. 

The study references research by BAI, which found that 87% of consumers “are planning to maintain their digital usage even after regular operations resume.”

As a result, many banks are looking to downsize their physical retail footprint. Ryan found there are now more than 1 million square feet of single-tenant bank branches vacant, available for lease or sublet or for sale. The amount of vacant square footage in bank branches has increased by 38% per year since 2011.

New research by Ryan found that larger bank branch retail locations are more difficult to repurpose to new use.

Bank branches that are larger than 4,000 square feet are selling at the same price point, or at a discount, when compared to 2015 levels, Ryan found. However, bank branches with less than 4,000 square feet are selling at a higher price today than in 2015. 

But in an effort to stave off obsolescence, operations handled by bank branches are likely to evolve before physical banking ever goes the way of the dodo. 

Ryan expects activity at bank branches will become centered around “value-add services and less transaction activities,” as digital workstations supplant tellers and meeting rooms are added for customers to receive financial and digital assistance, according to the paper.