3 reasons why banks decommission branches

Financial institutions across the country are updating their branch networks in response to evolving consumer expectations. Sometimes those changes require them to shut down branches. In the last decade, banks have decommissioned 9,000 branches.

While a decommissioning event is usually triggered by reduced business or consumer traffic, the decision is never quite that simple. And sometimes, it means filtering through a variety of mixed messages in the marketplace.

For instance, while actual branch visits are down among Americans as a whole, younger consumers still visit their banks and credit unions on a regular basis. And while cash spending isn't quite as prevalent as it was, ATMs remain popular and 46% of Gen Zers plan to open a deposit account in 2019.

Here are three other scenarios that commonly prompt a decommissioning discussion.

1. An increase in online banking

Just as it has in a host of other industries, the internet has dramatically altered the consumer and retail banking space. According to a 2017 poll commissioned by the American Bankers Association, up to 40% of Americans manage their bank accounts online — more than any other channel. Further, roughly a quarter of those consumers interact with their accounts primarily through their phones or tablets.

Financial institutions are responding in kind by devoting more resources to these channels. In a 2017 news statement, Ness Feddis, senior vice president and deputy chief counsel for consumer protection and payments at American Bankers Association, said: "Since the first smartphone changed the world [over] 10 years ago, banks have leveraged mobile technology to take customer account access and convenience to the next level." He added: "Banks are also integrating new technology in the design and functionality of their branches, which are still popular with many customers."

In parts of the country where branch visits are down sharply, banks may decide decommissioning a branch is the best way to serve their customers, as it enables them to reconfigure their capital and performance priorities to focus on the digital channel.

2. Lease term expiration

When banks and credit unions rent office space and their contract expires, they have a decision to make: re-sign or sign off.

When they choose the latter, there are many working parts to ensure that the process of decommissioning is completed quickly and comprehensively.

"The processes and steps involved are often different for each institution," Linda Haig, account support manager at BranchServ, who specializes in efficiencies and decommissioning, said in a recent interview. "For example, FIs with leased sites may decide to sell their equipment rather than store it. What winds up for sale, what stays and what's removed often depends on the landlord's preference."

3. A merger or acquisition

Mergers and acquisitions literally take place every day, across all industries — with a whopping $2.5 trillion worth occurring in the first six months of 2018.

Once banks pair up, they close down some locations while opening up many others. Since 2008, when Riverview Financial Corporation was formed — the result of a union between National Bank of Marysville and Halifax National Bank — it has more than quadrupled its physical footprint, growing to 33 branches from a combined seven.

"The culture of banking has changed," Haig said. "To save on costs while at the same time better serving customers, banks will often join forces. While they may close locations as a result, they often open new ones up as well. Decommissioning is a key component in these decisions."

Quick, seamless transactions may be what banking customers have come to expect, but from the branch perspective, things are often a bit more complicated and time-consuming. Decommissioning is no exception.