JPMorgan Chase & Co. (NYSE: JPM) will cut roughly 300 branches over the next two years. Some reasons for its decision extend to all banks that support large numbers of locations. Supporting customers via physical locations is a dying business. The J.P. Morgan decision is just the beginning.
Several banks have thousands of branches. Among the largest are America’s national banks: Wells Fargo & Co. (NYSE: WFC), Bank of America Corp. (NYSE: BAC) and Citigroup Inc. (NYSE: C). Among less well-known banks, U.S. Bancorp (NYSE: USB) and PNC Financial Services Group Inc. (NYSE: PNC) have about 3,000 locations each.
The costs to maintain branches are about the same as for any retail outlet. These include rent, people, communications systems and logistics. Shuttering a bank branch could mean dozens of employees out of work, but could also save the bank substantial money. Each of the largest banks based on number of branches need tens of thousands of people to support them.
Online banking is available universally, and ATMs are nearly ubiquitous. Many customers do not use branches at all anymore. Forcing others to do the same should not be hard, though a branch closed is a convenient location lost for many people. Even important transactions like mortgage applications do not require a physical visit. Branch services have been cut down to a few services, which include people and businesses who want to watch deposits made and want cash delivered to them in person.
The five largest banks based on retail locations have a total of over 23,000 locations. As with any retail business, some locations are more profitable than others. Some almost certainly lose money. That makes a maintaining a large branch system financially untenable. If anything, banks that continue to struggle to maintain strong earnings have only a few ways to improve margins. That means the least efficient parts of their businesses will continue to be pruned. Bank branches have to be high on those lists.