Why Bank Branches Still Matter in the Digital Age

In the race to attract new deposit and loan accounts, banks have traditionally focused on making their branches conveniently located along their customers' daily routes—essentially being everywhere consumers live, work, or play. However, with the rise of digital banking, the focus has shifted from physical convenience to the ability to bank anytime, anywhere. This shift has led to a significant reduction in the number of bank branches. According to the Federal Deposit Insurance Corporation (FDIC), the number of bank branches in the U.S. dropped from 77,786 in June 2023 to 76,742 in June 2024, a 1.3% decrease in just one year.

For some customers, branches are still the "last resort" for resolving complex issues that can't be handled through self-service channels. Access to branch employees remains important, especially for small business and affluent customers, even as the number of branch transactions declines.

Marketing value of branches

Branches continue to play a crucial role in attracting new customers. Andrew Hovet, managing director at banking consultancy Curinos, explains that while the functional need for branches is decreasing, their marketing value is growing. Branches act as giant billboards, signaling to the local community that the bank is open for business and part of the neighborhood. Although many sales are moving online, the strongest customer relationships are still formed through in-person interactions at branches.

To understand the importance of branches in acquiring new business, consider what happens when a branch closes. A study from the Haas School of Business at the University of California, Berkeley, found that small business loan originations in local markets dropped by nearly 10% after branch closures. This shows that branches still play a vital role in providing access to credit and financial services for some segments of the population.

Banks often overlook the long-term impact of branch closures on new customer acquisition. Detailed analysis of customer data can help to define the "trade area" of a branch—the geographic area that includes most of its regular patrons. Tools like Teradata’s ClearScape Analytics™ and Teradata VantageCloud can help banks analyze customer data and assess market share over time.

In my own banking career, I've analyzed hundreds of branch closures. While the increase in customer attrition due to branch closures was modest, there was a significant drop in new customer acquisition in the affected areas for several years. This decline was evident even in regions with high rates of digital account openings. The absence of a branch can signal to some customers that the bank is not fully committed to serving their market.

In summary, bank branches still play a critical role in attracting new customers, especially small businesses and affluent clients. They serve as powerful marketing tools and provide opportunities for in-depth, face-to-face consultations with bankers.