Going extinct?

Photographer: Photographer: Patrick T. Fallon/Bloomberg

No Need to Go to the Bank

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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Americans are becoming increasingly willing to hand their checks -- even big checks -- over to machines.

That's from a survey of U.S. adults by Mercator Advisory Group, a payments and banking research firm. The share who preferred a teller for a $1,000 deposit was down to 57 percent in 2015 from 68 percent in 2012. Remote deposit via smartphones and computers has been the big gainer, up to 16 percent in 2015 from 9 percent in 2012. When it comes to smaller checks, respondents are even more comfortable relying on machines, with only 45 percent preferring a teller for a $50 deposit.

It's hard to decide what's more interesting here -- that Americans are getting more comfortable with automated banking, or that about half of them still prefer to deposit checks with tellers. Maybe what's most surprising is that checks continue to exist at all.

Money is a means of exchange, not a tangible product, so you'd think moving it around and storing it and lending it out -- i.e. banking -- would be ripe for digitization. The appeal of automation in consumer banking has been apparent since at least 1977, when Citibank blanketed New York City with automated teller machines. Yet even as ATMs took over the job of dispensing cash and, later, the Internet made it easy to do transactions without human intervention, banking remained stubbornly tangible.

The clearest evidence of this was that banks kept on opening new branch offices for most of the 1990s and 2000s.

I've heard two main theories for the long brick-and-mortar boom. One is that the lifting of state and federal geographical restrictions on banking opened up a nationwide battle for market share, with banks effectively using new branches as billboards. The other is that as regulators and lawmakers allowed banks to move into new lines of business, branches -- "stores" as former Wells Fargo Chief Executive Officer Richard Kovacevich called them -- became hubs for cross-selling insurance, credit cards, wealth management and other financial services to banking customers.

The resulting bank-branch frenzy, which was especially pronounced in high-traffic, high-wealth areas such as Manhattan, finally abated after 2008. How significant is the subsequent decline in the number of branches? In a report last year, two Federal Deposit Insurance Corporation analysts pointed out that there was also a decline in the number of branches during and after the savings and loan crisis of the 1980s -- implying that the decline since 2008 might just be a post-financial-crisis lull. They concluded:

New technologies have certainly created convenient new ways for bank customers to conduct business, yet there is little evidence that these new channels have done much to replace traditional brick-and-mortar offices where banking relationships are built. Convenient, online services are here to stay, but as long as personal service and relationships remain important, bankers and their customers will likely continue to do business face-to-face.

There surely is evidence that many bank customers like having brick-and-mortar bank branches around. A survey last year by Glory Global Solutions, a cash-management technology provider, found that 61 percent of Americans visit a bank branch at least once a month and 56 percent "think a face-to-face transaction is safer for their account information than online banking."

On the other hand, there's also evidence that this attachment to branch banking is weakening as customers warm to mobile banking apps. Another 2015 survey -- by Javelin Strategy & Research, a subsidiary of the financial research firm Greenwich Associates -- found that 30 percent of U.S. adults with bank accounts use a mobile banking service weekly, compared with 24 percent who visit a branch that often. In 2010 those numbers were 9 percent and 40 percent, respectively.

People like having bank branches around, then, but they're visiting them ever less frequently. Which makes me suspect that maybe, finally, we're reaching the tipping point away from physical banking. Banks are finding it harder to justify maintaining gigantic branch networks, and retrenching. As branches become fewer, the online alternatives to visiting them will start looking even more convenient. Which will presumably lead to more branch closings. And the cycle will continue. 

As for the checks discussed at the beginning of this column, yes, lots of people still prefer going to a teller when they have a check to deposit. But there are fewer and fewer checks to deposit. Here's the Federal Reserve's most recent accounting of how Americans pay for stuff, other than with cash:

Source: 2013 Federal Reserve Payments Study

From the looks of it, checks are indeed on a path to extinction. When that finally happens, there will be one less reason to ever visit the bank.

  1. In 1979, branch banking was banned in 12 states; by 1991, all those bans had been lifted, according to this FDIC study (the same one I cite in the next paragraph). Then, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 removed many restrictions on expanding across state lines.

  2. The Gramm-Leach-Bliley Act of 1999 -- which removed the Glass-Steagall Act ban on combining banking, investment banking and insurance -- was the landmark change, but banking regulators had actually begun relaxing the restrictions before then.

  3. The Fed study also counted the number (and value) of ATM cash withdrawals, which went from 5.9 billion withdrawals and $500 billion in 2003 to 5.8 billion withdrawals and $687 billion in 2012. The next Fed payments study is being conducted now. Finally, ACH stands for automated clearing house, used for direct deposit of paychecks, electronic bill payments and the like.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor responsible for this story:
Zara Kessler at zkessler@bloomberg.net