The Future of Banking

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The Future of Banking

It wasn’t long ago that it would have been nearly impossible to drive down a major street in any American city, town, or suburb without passing several video stores, bookstores, and music stores. Today, nearly all of those bricks-and-mortar businesses are gone, having been obliterated by online disrupters like Netflix, Amazon, and Pandora.

What has taken the place of all that vacant real estate? Bank branches. There are now 94,752 bank branches in the United States, and based on the U.S. population of 318.9 million, there is a bank branch for every 3,366 people.

However, within ten years—and perhaps even sooner—80 percent of those branches will disappear.

That’s because—just like books, music, movies, and retail of all kinds—bricks-and-mortar banking is about to be vaporized, transformed from a transaction performed in the physical world to one that is accomplished with a swipe on a smartphone.

The crucial point to realize is that financial transactions are no longer about dollars. They’re about bits.

Depositing a paycheck in a savings account, withdrawing money from a checking account, making a mortgage payment, or paying off a business loan no longer requires pushing piles of cash across a counter. Instead, bits of information are exchanged, and those bits can be swapped just as easily—in fact, much easier—when a customer uses a mobile app on a smartphone to connect to a server in a remote facility, versus sliding pieces of paper across a teller’s window.

Those bits can also be transmitted a lot cheaper over the app: In a Wall Street Journal article, William Demchak, president of PNC Financial Services Group, which has 2,900 bank branches, revealed that every time a PNC customer deposits a check by taking a picture on her smartphone instead of going to a teller, the bank saves $3.88.1 Multiply that by millions of transactions per bank per year, and the size of the opportunity becomes clear.

Despite the fact that the thirty largest U.S. banks spend $50 billion per year to keep their branches open and fully staffed, according to research by AlixPartners only 14 percent of U.S. banking transactions are now conducted at branches, while the rest are completed through Internet banking or mobile banking.

What this means is that the American banking industry no longer needs—and certainly cannot afford—nearly 100,000 branches. Over the past two years, according to, despite thousands of new branch openings per year, banks have closed nearly 3,000 more branches in the U.S. than they have opened.2

More importantly, it also means that business models that are based on serving banking customers virtually (with no branches at all) enjoy a competitive advantage...

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