Exactly what are banks up to? This is a very timely question because many are closing branches, customers are getting little or no notice, and this is happening all around the country. And it’s happening overseas, too.
Although banks have become an essential part of our lives, they’re among the least popular businesses. Many people don’t understand the services they provide and resent the high rates they charge for loans; at the same time, they are angry and sometimes even offended when turned down for one. To put it bluntly: Many people simply don’t trust banks.
And that’s why they are trying to figure out why so many branches are being shuttered. Are the banks consolidating to cut costs? Is this the beginning of a new way of doing banking? Or are banks really preparing for a change of a much greater magnitude such as an impending financial crisis? The rapidity with which branches are closing are fueling these and other questions like them.
In 2021, US banks closed a record number of branches -- 2,927, according to S&P Global Market Intelligence data. Wells Fargo led the pack by shuttering 267 branches, and numerous also-rans followed. The New York Post reported that JP Morgan shut dozens of branches in New York City, and Bank of America, TD Bank, PNC, Community Bank, and Dime are among the many others on this list.
So why is this happening? One reason is because banking online has caught on and banks don’t need as many branches as they did in the past. In addition, because of COVID, many people, including bank customers, avoid crowds when possible. Moreover, the shortage of employees in many industries extends to banks, adding to the pressure to shut some branches.
However, logical as these explanations are, they don’t satisfactorily explain this trend. In the UK, for example, more than 4,000 bank branches have closed in the past six years according to S&P Global Market Intelligence -- many of them long before COVID and labor shortages came on the scene; clearly, it’s more than a stretch to blame them for all the bank closures.
And since 2012, the number of bank branches across the US has declined by 6.5%, the equivalent of 902 per year, so this is not exactly a new phenomenon here, either. One research firm predicts that bank branches as we know them today may become extinct by 2034.
Visiting Your Bank
Until several years ago, most people went to banks in person for a variety of reasons: to sign documents, discuss details about new or existing loans, or correct mistakes in their accounts. Retirees wanted to break up their day, have some social interaction, or get some exercise. Unfortunately, computers have changed these simple activities, and they are becoming a thing of the past.
According to the banking website BCG, “advances in technology, big data, and AI are leading customers to change old habits” of how they do their banking, “and empowering tech companies and startups to challenge banks on their home turf.... If they are to survive, banks must start acting more like digital giants before digital giants — including Amazon, Facebook, and Google — start acting like banks.” Translation: Going forward, there will be less people-to-people interaction in banking and more transactions made on computers.
More Important Changes
Some industry observers believe even more significant changes are coming to the banking industry and that bank closures are setting the stage for them. One of these is the widespread use of digital currency. Sen. Rand Paul (R-KY) is one of the many who believe cryptocurrencies could replace the US dollar as the world’s reserve currency. Paul said he was “amazed” by the growth of cryptos
Estimates of when a cashless society will become a reality vary, but generally they are in the 2025-2030 time frame. Global consultant A.T. Kearney believes it could come as soon as 2023. However, even those who think this forecast is overly optimistic would have to acknowledge that digital currencies are being analyzed much more than they were just a few years ago.
In addition, ATMs will morph into “24-hours-a-day machines,” that will be capable of handling more functions traditionally done by tellers; they will also offer customized, quick-cash options, according to The Financial Brand, as well as other personalized offers. In fact, ATMs will be more like a tablet and bank customers will be able to use them with an app on their phones.
So Long. It’s Been Fun
Eswar Prasad, a senior fellow at the Brookings Institution and the former head of the International Monetary Fund’s China division, says that “the era of cash is drawing to an end and that of central bank digital currencies (CBDCs) has begun.” A CBDC is a digital form of money.
China, Japan, and Sweden are among the many countries that have started trials of CBDCs, and the Bank of England and the European Central Bank are conducting others. Numerous multinationals are considering offering their own digital currencies including Facebook, JP Morgan, Walmart, Amazon, Tencent, Google, and McDonald’s. Even the Fed is reportedly considering issuing a “FedCoin.”
With debt at the highest level in history and growing rapidly, the government wants new sources of revenues, and digital currency would certainly provide that, as every transaction made with it would be recorded -- and taxed.
It may not seem like a big deal when banks close overlapping branches, but in a subtle way it just may be a step toward the era of a cashless society, digital currency, and the introduction of new technologies that would help make tellers and even some banks obsolete.
Despite the obvious benefits these changes bring, not everyone is on board. In fact, there are those who prefer to turn back the clock and do their banking the same way their parents and grandparents did: stashing their money under their mattresses.
Maybe this is not as crazy as it seems. True, it’s not the most sophisticated way of handling money, but it would still be usable if there were a cyber-attack or other event that would cause bank closures; it also eliminates the need to wait on lines and fill out forms. If only there were some way to get a free toaster.
Sources: bcg.com; cnbc.com; fintechmagazine.com; forbes.com; paymentscardsandmobile.com; thefinancialbrand.com; YouTube: A Very Disturbing New Trend Is Happening With Banks Everywhere