The Weekly Extract from Extractable is a condensed roundup of digital experience news for financial services institutions, and our take from San Francisco.
This week we look at branch closings throughout the US and possible acceleration following the pandemic. Also, we examine trends that are impacting banks and fintech this year, including acquisitions by LendingClub, SoFi, and Walmart.
Branch Closings are Accelerating
2021 or 1965? Tales of a branchless future
In July 2020 during an earnings call, US Bancorp said that they were accelerating planned branch closings “beyond the 10% to 15% targeted range it set in early 2019,” as reported by American Banker. Between October and December 2020, the bank had closed around 400 branches.
According to another article in American Banker,
“U.S. Bank had more (than) 3,000 branches in mid-2019 but by September 2020 that figure was down to 2,700. It had just over 2,400 by the end of the year, according to U.S. Bank’s financial filings, and has continued eliminating branches in January. The bank has said it expects to see up to $150 million in savings from the cuts.”
The same article notes that all “banks closed a record 3,099 branches across the country last year.”
Recently, the National Community Reinvestment Coalition (NCRC) published a report on branch closings that says that “since 2008, banks have closed 13,432 bank branches across the United States. That’s a loss of over 14% of all branches that were in operation at that time.”
While it is too early to tell what impact COVID will have, the immediate result has been mixed, with many banks halting closings while they define the impact of the pandemic, while other banks have taken the opportunity to accelerate their plans, like US Bank.
In an article last week, Bill Streeter, Editor at The Financial Brand, reports that a recent study from Statista and Self Financial projects that there will be only 15,666 across the country by 2030. Compare that to the nearly 83,000 branches in 1982.
“That would put the number of branches at that point at 1965’s level. From there it’s just a short statistical step to zero.”
The value of physical institutions
While this is a troubling finding for legacy banks and credit unions, will the near future really be branchless? The Statista/Self report does have some good news for branches from a survey of US consumers. Streeter writes,
“When asked how much they trust the current banking system versus online-only banks 70% of consumers say they trust institutions that still have a physical presence while less than half (47%) say they trust online-only institutions.”
The report also “sought the reasons why U.S. consumers continue to use branches. It asked what advantages branches have over online-only banks. Even though the survey was conducted in mid pandemic, the top advantage cited was ‘easier access to cash,’ followed by ‘access to in-person advice’.” As use of cash diminishes and financial advice increasingly moves to the digital or remote sphere, will these branch “advantages” still be relevant?
Regardless, we expect that branch closures will continue to accelerate, putting more pressure on legacy banks and credit unions to invest into digital and remote experiences.
What 2021 Brings to Finserv
Challenges and opportunities
While we are squarely in 2021, industry observers are still defining what this year brings to both legacy financial service companies and fintech firms. Dmitry Dolgorukov, CEO of GiniMachine, writes in Finextra:
“On the one hand, the Covid-19 pandemic has paralyzed much of our day-to-day lives, with billions experiencing its health effects directly or indirectly… On the other hand, things are looking up. The predicted recession is turning out not to be as bad as previously estimated, and last year’s innovations are coming to fruition. This year is paving the way to a brighter future, and fintech is at the forefront.”
Dolgorukov writes positively about digital banks rising to meet the demand of a populace social distancing, while at the same time branches are looking to close. Eli Rosner, Chief Product and Technology Officer at Finastra, writing in Forbes, agrees:
“In 2021, banks must anticipate that the ripple effects of the pandemic will continue to shape how consumers bank. Thus, digitizing the front office will become a priority in order to cater to consumers of all ages.”
Rosner sees responsible and sustainable banking turning “into action among investment banks as they roll out indices that track how green investments are, and corporate loans could also become more tightly integrated with how ‘green’ a borrower is.” Interest in social responsibility is also driving more focus on financial literacy, as noted by Dolgorukov.
He writes, “for far too long, the financial sphere has been incomprehensible to a large portion of the world’s population. With the trend in autonomous finance growing, there is an added drive to ensure financial service providers are making their offerings understandable to their clients.”
The push towards innovation
Rosner highlights endless disruption in payments which has attracted Big Tech firms, like Apple, Google, and Facebook. He notes,
“Financial institutions that are only now starting the digital transformation will need to catch up quickly, as the expectations for a strong digital experience are only increasing. Digital leaders in the year ahead will be those that better leverage banking-as-a-service (BaaS) and banking-as-a-platform (BaaP) advantages, and those that innovate quickly by expanding portfolios through third-party integrations and open APIs.”
Dolgorukov agrees, noting the growth in contactless banking that has been driven by the pandemic. He adds,
“as the payments industry evolves, I expect we will continue to see innovations in the systems we use to pay. Think wearable payment technology and more mobile apps.”
None of these trends are new. However, we agree that the continuing impact of the pandemic and the emerging new normal will result in acceleration of all these trends.
Blurring Lines Between Banks, Fintech, Big Tech, and Retailers
Integration and Acquisition
Banks and credit unions who have kept Fintech firms from entering their world by relying on the regulatory moat should pay heed. Last year we saw LendingClub acquiring Boston’s Radius Bank. Last week, we saw the announcement that SoFi is acquiring California-based Golden Pacific Bank. We expect more acquisitions with some fintech firms going this route to become a bank.
SoFi wasn’t the only organization making waves with their moves. Walmart announced the hiring of two executives from Goldman Sach’s Marcus to help them run their fintech team. Given that Walmart had recently announced a partnership with Ribbit Capital to form their fintech team, it looked like Walmart may be thinking about launching their own neobank. Ron Shevlin, Managing Director of Fintech Research at Cornerstone Advisors, writes in Forbes that the notion of the bank of Wal-Mart is misguided. He sees Walmart working on a “super app.”
Shevlin writes, “Walmart’s super app opportunity is a lot bigger than just integrating and digitizing its financial services business or deploying its Connect concept…The super app opportunity includes integrating Walmart’s:
1) Shopify marketplace
2) Connect ad platform
3) health centers
4) existing investments in eCommerce, logistics, supply chain, and inventory management
5) other product and services not currently affiliated with Walmart.”
In the case of LendingClub, the acquisition isn’t just becoming another neobank. According to an article in The Financial Brand by Steve Cocheo, Executive Editor, “LendingClub plans to blend elements of both its marketplace lending model that relies on investors with the Radius deposit-funded lending model to create a ‘marketplace bank’.”
Embracing the Competitive Edge
“we study all competitor moves, whether it’s the fintech disruptors or major players. We look at what they could peel away…We just crossed 40 million digital banking customers… I respect every competitor, I don’t fear any competitor.”
I wonder if our readers can speak with such confidence. If you do fear these competitors because you don’t think you have the right digital strategy, contact us and we’ll help.