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RFQ: Why Do Banks Still Have Branches?

Other than the time the house painter asked me to pay him in a giant load of cash that he could dispense to his workers, I don't think I've used the services of a bank teller in at least 14 years. So when the local listserv filled with angry and exasperated comments about the news that the site of a demolished movie theater would soon be home to yet another bank branch, I joined my neighbors in puzzlement.

Today's Random Friday Question: In this era of online bill payment, direct deposit of paychecks and ATMs at every turn, what is the lingering function or attraction of a physical bank branch?

Throughout the nation, residents, community planners and retailers are wondering why there seems to be no limit to the desire and ability of banks to snap up retail spaces that used to house all manner of shops.

An American Bankers Association survey this summer found that only 36 percent of U.S. consumers use branches as their primary banking method--but that's still the largest group clustered around one method. Online banking came in second at 23 percent, followed by ATMs at 21 percent, mail at eight percent and telephone banking at five percent.

The survey found that those who cling to the notion of going to a bank office are generally older folks; this is one of those generational splits that you see a lot in studies of how we live these days. But still, a substantial 25 percent of those under the age of 34 side with the older crowd and prefer to do their banking in person.

Why? Money's a funny thing, and apparently there are still lots of folks who just don't trust the machines and the Interweb when it comes to their hard-earned dollars. A majority of Americans are just fine with viewing statements and paying bills online, but when it comes to depositing checks--well, for that, we seem to put more trust in the old idea of handing the paper over to another human being.

For me, the opposite holds true--I far prefer the mechanical incorruptibility of the machine to the fallibility of my fellow man. Plus, I don't understand the attraction of waiting in line for the chance to attempt communication through a thick plate of bulletproof glass. If I crave that experience, I'll go get some lousy fried food at a bad carryout.

A huge majority of Americans still visit a bank branch at least once a month. What do they do there? Loans, ok--but that's not an every-week activity. For the normal exchanges of paychecks and bill payments, what allure is there to visiting the teller?

I think security and comfort play a large role here--the same holds true for the continued widespread use of paper checks when electronic bill payments make vastly more sense. Somehow, many, if not most, of us believe there's something unreliable or fishy about taking care of our personal finances here on the typing machine.

Still, this is one weird phenomenon: According to several reports, the enormous expansion of banks into every retail nook and cranny isn't even profitable for the banks, which are stretched thin. Retailers in other businesses tend to resent the banks' expansion into ever more branches because banks pay high rents and drive up rental rates for everyone else.

I'd love to hear your theories on why we cling to bank branches, and your thoughts on whether this will continue as generations more comfortable with online life assert themselves.

(P.S.: A decade ago, there were seven movie theaters within a few blocks of my house; today, there are but two. During those same years, the number of bank branches in the same area has nearly doubled, to about a dozen. That probably tells us more about the consolidation and decline of the movie theater business than it does about anything else, but the fact that cinemas die while banks proliferate has to mean something. What?)

By Marc Fisher |  September 14, 2007; 7:33 AM ET
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"Still, this is one weird phenomenon: According to several reports, the enormous expansion of banks into every retail nook and cranny isn't even profitable for the banks, which are stretched thin. Retailers in other businesses tend to resent the banks' expansion into ever more branches because banks pay high rents and drive up rental rates for everyone else."

That's why BofA had to raise it's ATM fees to $3/transaction.

Posted by: Anonymous | September 14, 2007 8:01 AM

In my area, most of the new branches seem to be Chevy Chase Bank. There is one being built less than a mile from one that was opened last month.

Posted by: Anonymous | September 14, 2007 8:02 AM

I imagine they actually open and stay open because the loan business is so incredibly profitable for them. But for me? I have a credit union account, and I like the ability to go into any of hundreds of branches across the country and can get more cash than is available at an ATM, and/or in smaller/different denominations than the ubiquitous ATM $20. Other than that? I use the change machines at Chevy Chase Bank, though I don't have an account there.

Posted by: Dan | September 14, 2007 8:17 AM

the branch has free coffee (and it's the 'pod' type - pretty good). Once the ATM spits out a cup of coffee, too, maybe I'll move all of my transactions there

on a more serious note, people are still uncomfortable or unable to transact inflow business with an ATM. I do a lot of electronic funds management (direct deposit, online banking & billpay), but when I have cash or checks to deposit, the traditional branch set-up feels most right.

Posted by: dc | September 14, 2007 8:22 AM

Marc - Banks see their branches as an effective form of advertising. It's not as prevalant here as in New York, but there, the theory is that the bank with more branches (and more and brighter ATM's) will be seen as financially more sound, larger, and a better bank with which to do business. I'm not saying this makes sense, but it is part of their calculus.

Also, interesting to note that Chevy Chase almost always owns their branches, versus every other bank that primarily leases. Perhaps this is because of the Saul family's long-term real estate interests, who knows.

Posted by: TMD | September 14, 2007 8:24 AM

I don't go into the bank except to use the change machine, or to get a cashier's check (car payoff). That said, I wouldn't want my bank branch to go away. I'll definitely need it one day when it's time to get a home loan, and sometimes things just come (i.e. finding that old savings bond from the high school essay contest, needing a money order, wanting to deposit the tuition refund check, ordering new checks, change of address) that are best and/or only conducted inside the bank.

Posted by: YourStrawberry23 | September 14, 2007 8:32 AM

I have direct deposit and do most simple deposits/withdrawals at the ATM, but any other transactions I still do at the branch. Plus if you want to specify how you want your cash, you still need to go to the teller. Finally, I can count and roll my own coins, I'm not paying any fees for that (luckily there are plenty of Chevy Chase branches that do it for free, actually).

Posted by: dgc | September 14, 2007 8:35 AM

Banking is a highly competitive industry with very thin margins. The banking industry is in the midst of a long-term consolidation that has been induced by deregulation of the industry. Eventually, we will have no more than eight or ten national banks.

In the meantime, branches are necessary to compete. With consolidation, there will be fewer branches.

The movie industry is much less competitive and requires economies of scale -- multi screen theaters that use a lot of land. You live in an area where the cost of land prohibits opening new theaters. That's actually a good thing for you -- your land is very valuable. Would you really want to live in a neighborhood close to a multi-plex?

Posted by: KK | September 14, 2007 8:46 AM

This is stupid. People use banks.

Posted by: next topic please | September 14, 2007 8:55 AM

The day my bank of 27 years doesn't have a nearby branch is the day I will move all of my accounts. Brick and mortar branches with real people serve vital functions, especially for business owners who make daily deposits. In addition to loan, and in recent years, investment services perhaps one of the most important attributes is a physical vault with safe deposit boxes. Every homeowner should have a bank safe deposit box for the safe keeping of important papers, wills, insurance policies, etc.

Posted by: LAWPOOL | September 14, 2007 8:58 AM

I live in an area that is mostly populated by immigrants and lower-income citizens. While online banking is more convenient for me, very few people in my area have the internet easily accesible. I wouldn't recommend using a public computer to access bank accounts and pay bills, particularly if you are new to this country and are uncomfortable with daily life. Also, many of the branches are staffed entirely with bilingual employees who can explain each transaction to someone new to our banking system and provide a sense of confort that this bank won't spontaneously disappear with all their money. I can imagine that is a concern in the third world. Since 1 and 3 counties now have a minority of white-native born residents, (see previous WP article), this is likely true across the entire country. Whenever I go to the bank there is always a long line of hispanics, often with children along who speak english and can help facilitate filling out forms etc. For now, physical banks still serve an important function and don't have much incentive to give up their real estate.

I also agree that it is an excellent form of advertising.

Posted by: Anonymous | September 14, 2007 9:00 AM

Recently I participated a survey about banking. The numerous questions about this-bank's or that-bank's "place in the community" lead me to agree with TMD - advertising is the purpose of branches. "Look at us, we're right here where you live". But my 84-year-old mother turned me on to ING, and I'll never go back to bricks-and-mortar banking (I'd converted to on-line shopping years ago and haven't been in a mall since the 90s).

Posted by: Karen | September 14, 2007 9:02 AM

Why a bank branch? Because the line at the ATM is too long because one of the machines is broken and there is this techno geek in front of me trying to make a deposit, check his balance and get a car loan or something through the ATM and he forgot his PIN number and I just want 40 bucks to go to the daggone movies! That's why.

Posted by: C-dog | September 14, 2007 9:04 AM

I very rarely go into the bank branch. Direct deposit, ATM's and online banking are my standard. However, I only use my bank's ATM's, and they are located at the bank branch. So, I am happy when a new branch opens, so that I can use that ATM.

As a side note, I worked at a bank back in the early 90's when ATM's were just taking off. Theory was, they were so much cheaper than an actual person, that it would save tons of money because they could staff less people. So, now it really burns me that the fees are so high. But, I guess it does cover for rents and such.

Also, I completely trust the ATM to get my deposit correct over an actual person. I remember the people I worked with. Bank tellers are not paid well at all (at least back then), so it's not like they are the cream of the crop!

Posted by: prarie dog | September 14, 2007 9:05 AM

Once again Marc views the world through his own eyes and anything that doesn't fit his views is either wrong or foolish. I may not use a bank branch for anything more than an ATM these days but there are others that need branches daily. Small businesses for instance have large amounts of cash that need depositing daily. When I managed a restaurant I made a daily run to the nearest branch to deposit the previous day's cash.

Why do newspapers employ writers such as yourself? They could easily reprint wire stories and eliminate your job. Bank branches have employees that make a living to support their families. What would you have them do if branches were eliminated? Will you support them?

Posted by: Self-centered Fisher | September 14, 2007 9:09 AM

The only reason I go into a bank is to turn in my coin rolls for cash and if I need more than $300 cash, period.

Posted by: Paul | September 14, 2007 9:10 AM

Three words: Safe Deposit Boxes

Posted by: Stick | September 14, 2007 9:11 AM


Great question and one I've wondered myself as I see small businesses on my daily commute go out only to be replaced by a new bank branch. As someone who rarely goes to banks, I share your confusion, but there's clearly a good business case for banks to spend the $$$. I guess there are fewer people "like us" than I thought!

Posted by: DCLawyer | September 14, 2007 9:13 AM

I would guess that a large number of bank customers are businesses making cash deposits; you can't do that electronically. And for small businesses, it's often the manager stopping at a bank on the way home from work, which is why they are in residential areas.

Even if you are just depositing checks, ATMs aren't totally trustworthy, so I always make large deposits in person, so I can get a receipt as proof I made a deposit. I started doing this after I tried to deposit a check at an ATM, and the ATM took my check but then told me it was "unable to process my transaction," but wouldn't give the check back. So I had no check and no receipt.

I had to wait several days for them to "find" the paper check amongst the ATM contents, which are apparently sent to some central location and not processed right away. If I had needed the money right away for rent or whatever, I would have been out of luck.

Posted by: Clarissa | September 14, 2007 9:28 AM

I have worked with banks and in banking for a long time. It's because cranky old people don't know how to use technology. As this cohort has the greatest amount of its wealth in bank deposits, they provide the most stable source of funding for banks, which is why banks indulge them even though they must sacrifice efficiency.

There are also certain responsibilities delegated to banks by the Treasury that, stupidly, have to happen in person, like redeeming savings bonds. The Federal Reserve used to do this directly, along with a lot of other things that it was more efficient for it to do directly. This is just one example. So--is anyone surprised?--obsolete government procedures are part of the reason.

Posted by: JoeSchmoe | September 14, 2007 9:38 AM

It is interesting that the second poster brought up Chevy Chase bank, an institution I am intimately familiar with. Chevy Chase not only builds branches everywhere, but, because it is privately held, indulges its owner's whim, to turn historic buildings into bank branches. So you have double inefficiency of an unnecessarily large branch network constructed in an extremely inefficient manor. So don't sratch your head about CC's having some of the highest user fees.

Chevy Chase's survival amazes me, because first of all, it is not a nationally chartered commercial bank, but a savings bank (a variant of an S&L), it has a pathetically small national presence, has hard-working, but not particularly brilliant corporate management, but is currently the largest banking institution based in the Washington DC area. I cannot fathom how in the Nation's Capital, the dominant local bank is essentially a mom and pop outfit. But that does not seem to be that unusual for DC, does it?

Posted by: JoeSchmoe | September 14, 2007 9:46 AM

I am not so much opposed to another bank coming into the neighborhood, but a bank whose design features a suburban style drive through business model is what gets my goat.

In an era when even Loudon County is drifting away from such zoning design, it is odd that it would be proposed in an urban metro corridor.

Put some inclusionary housing on top of it, take away the curb cuts and call it a day.

Posted by: Marc's Neighbor, apparently | September 14, 2007 9:49 AM

Branch banks persist for 2 main reasons:

1. One-third of US adults are functionally illiterate, even many with comfortable incomes from craft skills and small businesses, so they are uncomfortable with both on-line and ATM services; and

2. The government removed the fire-wall between savings and investments, and banks now front for brokerage houses. Branch banks have employees who shill for brokers who, despite mandated warning notices, are physically located in bank facilities.

Posted by: Mike Licht | September 14, 2007 9:54 AM

Of course banks still need branches, for all the reasons listed above, but I think the question was, why do we need so many more branches than in the past?

I live in tiny Oakton, Virginia, whose 'downtown' consists of two traffic lights (ok three if you include the new one next to the Giant), and we have five banks, with two more under construction! That's ridiculous!

When the Ski Chalet was torn down a few years ago, I was excited to see what would take its place. A much-needed neighborhood bar? No. Something interesting? No. THe land sat empty forever, and now they're almost done with a boooring bank.

When the (landmark) Appalachian Outfitters at Hunter Mill Road and Chain Bridge closed down and was razed, I remember thinking to myself 'Self, wouldn't it be great if we got a cool new store of some kind on the most visible corner in our little town?'

Instead we got another bank - a neoclassical, totally unoriginal, uninspired bank. What a let-down!

So the question isn't should banks have branches. The question is, why do the banks need so many branches? My guess is that it's a reaction to the slow migration of traditional bank services to ATMs and the Web. The bank must believe that if they get in front us where ever we are, that we're more likely to use their services.

Personally, I'm with Marc Fisher on this one. I can count on one hand the number of times I've had to go into my branch in the last ten years. And in more and more situations, I prefer the predictability of computers and machines to subjecting myself to the (all-too-often incompetent) human touch.

Posted by: TonyO | September 14, 2007 9:55 AM

I imagine they actually open and stay open because the loan business is so incredibly profitable for them.

almost no one gets traditional bank loans anymore. Do you know anyone who does? I don't know a single person who got a normal mortgage in the last few years and that ain't necessarily good.

Posted by: Anonymous | September 14, 2007 10:10 AM

Bank branches have employees that make a living to support their families. What would you have them do if branches were eliminated? Will you support them?

We are supporting them right now you fool, who pays their salaries? The customers. what's your glitch?

Posted by: Anonymous | September 14, 2007 10:12 AM

Having done speechwriting for a major financial services organization (not a bank, but a corporation that has many bank customers), I have learned that one reason branches are proliferating is because U.S. banks are scared to death of inroads into the market by foreign banks, principally British ones, so they open more and more branches both to raise their profiles and lock out the competition.

Both HSBC and RBS (Royal Bank of Scotland) are increasing their footprint in the U.S. either under their own names (HSBC has a branch on Connecticut Avenue) or by buying up U.S. banks, as RBS has done. The British banks are driven to deliver comprehensive services.

If you go to an American bank and ask a teller, "Hey, what about a MasterCard or Visa," you will most likely be handed a brochure with an 800 number. British banks, on the other hand, train their tellers and other personnel to ask you if you want a credit card and then they will walk you through the application process personally.

American banks have largely remained "siloed" in their operations--loans, credit cards, deposits, etc. all operate as separate lines of business. The UK banks look at from the point of view of "It's all money," and structure their services accordingly.

But what I want to know come every plot of land that doesn't become a bank becomes a drug store? How many CVSs, Walgreens, or Rite Aids do we need?

Posted by: Jack | September 14, 2007 10:16 AM

What is true to you, does not apply to all. My parents do not and I repeat DO NOT use ATM cards for anything. I can almost count how many times my mom ever pulled out her credit card in my lifetime. She wrote checks and made her note in the ledger right then and there too. There are many folks, though maybe not the modern majority, that handle their transactions the old fashion way. They are debt free and not worried about somebody in China hacking their accounts either.

Posted by: RobGreg | September 14, 2007 10:38 AM

Been with USAA for banking for almost 2 years now - had insurance with them before. They don't have any branches or any ATMs (10 free withdrawals a month with up to $15 a month in fee refunds) and I either mail my deposits in or scan them in on my scanner at home to make the deposit.

I write so few checks and have so few reasons to actually go into a branch (direct deposit, online banking, atms) that it's the perfect solution for me.

Posted by: Q | September 14, 2007 11:02 AM

The reason Chevy Chase has held the lead in the local banking market for so long, is because they're EVERYWHERE. I think you can find at least a CC ATM within 10 minutes of where you are right now. There is something to be said for having Chevy Chase ATMs everywhere. They even advertise themselves as having the most ATMs in the region lol. And being the first bank to actually build a partnership with yet another local 'Giant' (har, har) really makes them ubiquitous around here.

Posted by: Longtime Chevy Chase Customer | September 14, 2007 11:13 AM

10:10- then you must not know any small business owners, or people who use banks to make quarterly tax payments.

There are also a lot of people who do have to make large cash deposits, that don't necessarily want to do it through the ATM. Most people on this board seem to forget that a majority of people in this country do not get paid through direct deposit. As for why there are so many now, someone mentioned earlier about deregulation, that is why there has been so much growth. Sure deregulation happend a while ago, but when it started, most banks were of the opinion that all their customers were going away from branches, and thus they didn't need to have as many, it turned out, that a lot of people still wanted them, thus in the last 5 years or so, there has been a race to get branches on the ground, primarily for deposit business, not loan business as previously speculated.

Posted by: Chris | September 14, 2007 11:49 AM

This is kind of funny. I actually eschew Direct Deposit because even as it opens up an avenue to deposit funds directly into an account, it also allows them to withdraw funds. I also do a lot of online banking and bill paying, but that's mainly because I like to watch my money and to not have to deal with the rigamarole of putting bills in the mail.

I like conducting business in a bank because it allows me to ask questions, to check on loan rates, to learn more about how to manage my money. What's funny about this column to me is that I actually appreciate the fact that Fidelity has retail branchs. I love being able to go in there and get all the forms that I need to deal with my company's retirement plans (small busines, supporting local banks!).

I hear what Mark is saying. Kind of funny that Tivoli Square has a PNC, Wachovia and a Citibank right next to each other when they were able to survive with just a PNC/Riggs for so long... but folks need banking services. Not just for withdrawing and depositing cash, but safe deposit boxes, IRAs, Savings Accounts, home loans, etc. Besides that, sometimes you need to get a new ATM card. I can do that by waiting in line for 15 minutes or I can do that by waiting 3 days to get one in the mail.

Posted by: Phil in Mt.P | September 14, 2007 12:02 PM

They are debt free and not worried about somebody in China hacking their accounts either.

how does delivering your bank account number and an easily scannable copy of your signature into the hands of a sullen 19 yr old clerk protect you from hacked accounts?

Posted by: Anonymous | September 14, 2007 12:06 PM

First of all I agree w/ PPs who mention the need for safety deposit boxes.

I also use tellers when I want to deposit monies - seems simpler then dealing w/ envelops, etc. while outside at an ATM often with people waiting; and if I want specific bill denominations.

Second, I really like Chevy Chase. Primarily because, as others mentioned, they and their ATMs are everywhere...including the Metro. This makes my life easier and saves me tons in fees. Regarding fees, I'm not sure what others are talking about... so long as I don't use other banks ATMs, I never am charged fees. And I don't keep that much in my account. (Our savings accounts are elsewhere with better interest rates.) Also, I too like their change machines.

Posted by: Anonymous | September 14, 2007 12:28 PM

I use direct deposit, but like many out there, I just don't trust the ATM machines for depositing cash or checks. Yes, the teller can mess up too, but at least you have a reciept, and if you notice the transaction is wrong you can get it fixed right away.

Plus, I like that at my bank branch is open late and on weekends, and that it is able to handle almost everything in house. When I need a new ATM card, I go to the bank, and have one in 10 minutes. No waiting for 2 days for a response from the computer and another week for a card.

There are some banks I think, like Commerce, that have built their entire businesss plan on that people like to go into banks, and they've succeded with it for the most part.

Posted by: MD | September 14, 2007 12:30 PM

Re: Chevy Chase's S&L roots
Amusingly, I remember the S&L crisis days where people were panicking whether their money was safe and Chevy Chase had big ads in the Post stating something along the lines of "We're okay, we've got 1 billion in cash".

Posted by: dgc | September 14, 2007 3:48 PM

I am an avid on-line banker, I pay bills, transfer funds, all that conveniently done from one spot in front of the computer. But I have to go in person to deposit "live" checks that my company issues for bonuses, or checks that I get from utility and insurance companies as refund for overpaid bills due to cancellation of policies, etc. These are still good reasons to have branches -- and to have a lot of them - since when I have to go, I DON'T want to have to go too far to find closest branch to do one of the above-mentioned transactions. And no, the line is not so long anymore, because we do all other transactions on-line. So I stick to using both methods.

Posted by: Richmond VA | September 14, 2007 4:09 PM

Rolls of quarters. Dollars into foreign currencies. Transfer funds and get a paper trail. Cancel credit cards. Get new credit cards. Ask a question. Buy a CD.

Just a few reasons.

For those unlucky enough to have jobs that allow the luxury of time necessary to pose such questions as "why do banks still have branches" the fact that there's a branch around the corner is a huge help. But I'll agree with you about the frustration of banks snapping up prime real estate. Maybe they're just bench warmers for the next unaffordable condominium.

Posted by: Washingtonian | September 14, 2007 8:43 PM

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