The precise origin of the Easter Bunny is not known, nor is it known why the Bunny brings children candy and colored eggs. That is ok, since we love to eat jelly beans of all varieties, so how they appear or why they appear is much less important. After all, don't you also have a few fond memories as a child of running around the grass picking up plastic eggs filled with jelly beans? Things were so festive in fact, that even your parents would let you gorge yourself on jelly beans. What a great reminder of one of the tastiest things in life.
Like the millions of jelly beans that spill out of an open candy bag that tips over, banks used to have thousands of branches strewn throughout the country. In fact, banks were on a tear, building branches like crazy in the U.S. from 1990 to 2006, roughly doubling the number and taking it to one branch for every 2,200 adults in the country. While there are still 98,192 offices at last count (June 2011), quietly and almost imperceptibly the total has fallen in the past 2Ys by 1,348. That makes sense when you consider the level of bank closures, the burden of new government regulations, the shifting behavior of depositors (to internet, ATM and mobile) and the overall difficulty of generating profitability throughout the entire branch network.
Large banks have begun to close or explore closing branches, as can be seen with the recent announcement by Bank of America (closing 10% of its branches) and comments by JP Morgan (said about 70% of customers with less than $100k in deposits would be unprofitable given legislation that cap fees). BofA said it captures about 40% of all the deposits people make with the bank through its network of ATMs. Further, JP Morgan said that even after excluding overhead (such as branch rent expenses), 1 in 7 retail customers would still not generate enough revenue to cover the $300 it costs the bank just to maintain their accounts. As such, banks are expected to pull out of some markets where they just can't make a go of things and focus energies elsewhere.
Still other analysis, including one by real estate firm Jones Long LaSalle, estimates banks will reduce their footage per office worker from 200 square feet ("sf") to 50sf by 2015. That makes sense when you consider that according to research by Moebs, operating a checking account costs large banks $350 to $450 per year, while community bank costs are in the range of $250 to $350 per year.
Overall, branches just matter less to people, so banks are taking a hard look at the cost-benefit of each one. Analysis by the FDIC indicates the typical bank branch may cost upward of $2mm to open, while still others estimate the approximate cost to open a 3,500sf branch costs $2mm to $2.5mm (and another $350k to $400k per year to operate). In addition, research by MarkeTech finds location is critical to success, as traffic patterns and the ability of consumers to access a branch explain 45% to 55% of the deposits it captures. This is yet another reason why closures are likely, as banks deal with the up to 16,000 branches nationwide that consulting firm Novantas says are unprofitable.
Finally, consider a recent survey by the ABA. It found that 62% of people prefer to bank online vs. all other methods now (up from only 36% in 2010) and only 20% still prefer using a branch. Given there are 4x the number of branches around the country than there were before the advent of ATMs, online and mobile banking, further consolidation in this area is expected.
As you ponder the branch network, changes driven by the iPad, the ATM or online banking, don't forget to take time out to grab a handful of jelly beans. We don't know about you, but a few brightly colored beans go a long way in clearing the mind.