Reverse psychology is a persuasion tactic used to get people to do things they may not otherwise be willing to do by asking them to do the opposite of what you would like. Officially introduced in 1966 as the “theory of reactance,” psychologist Jack Brehm postulated that stubborn people can often be manipulated by playing on their need for autonomy. Pressuring such individuals to do something you’d like them to do will often trigger “reactance,” where they rebel against pressure by doing the opposite of what they are asked. Therefore, asking a willful individual to do the opposite of what you would want them to do will often yield the result you initially desired — a tactic long employed by parents of young children.Counterintuitive actions are not unique to parents hoping to sway toddlers to eat vegetables. Though the US has seen an average of more than 1,600 bank branches closed each year since 2018, and there are predictions that bank branches could essentially disappear by 2041, the industry’s largest financial institutions (FIs) are actually opening new branches. A Method to the MadnessIn an increasingly digital world where mobile banking has become the go-to option for many people — particularly younger generations — the fact that the industry’s largest FIs are opening new branches seems perplexing. However, there is a simple driver behind the new branch openings: financial institutions are chasing deposits. At a time when the Federal Reserve is trying to fight inflation through quantitative tightening, major FIs are using new branch openings to attract federally insured deposits that are a low-cost source of funding for lending. Deposits are also attractive because they bring in new customers that FIs can market additional products and services to, creating opportunities for loan and non-interest income.While there are significant differences in the approaches that the industry’s largest players are taking to acquire deposits, a handful of specific institutions are aggressively opening branches. Collectively, Bank of America, JPMorgan Chase, and PNC Financial Services Group have plans to open 870 new branches by 2030. PNC alone has earmarked roughly $1.5B to open 220 new branches during that period, targeting roughly a dozen areas within the southeastern region known as the Sun Belt. Commenting on the trend last summer, Bill Demchak, PNC’s CEO, said, “There’s a race for retail deposits.” Meanwhile, JPMorgan Chase has indicated its desire to capture 15% of US consumer deposits. On the flip side, some of these same banks are closing branches in markets that are contracting. How FIs Choose New Branch MarketsNot only are big banks chasing deposits, but they are chasing growing populations as well. When it comes to choosing locations for new branches, major FIs are monitoring client migration patterns and focusing on towns and cities experiencing the highest population and business growth. Other factors used to determine branch locations include widespread accessibility. In the case of JPMorgan Chase, the bank is striving to have physical branches within an hour’s drive of 75% of its customer base. Just as convenience is a major factor in branch locations, ease of access is important as well. In cases where branches are being placed in heavily trafficked areas, FIs are incorporating as many as four drive-thru lanes for customers who want the option for in-person contact with tellers without the need to physically go into a branch. While the industry’s biggest FIs have been the most aggressive in new branch openings, they are not the only ones recognizing the value of branch openings. Regional institutions such as Cincinnati-based Fifth Third Bank are following suit — and they aren’t doing so merely based on wishful thinking. According to Fifth Third Bank, branches that the company built between 2022 and 2024 exceeded their expectations, averaging more than $25MM in deposit balances within a year of opening.CFIs Opening BranchesSome CFIs are prioritizing a bigger physical footprint as part of their growth strategy, even in unlikely places. Here are a few examples:
- Premier Community Bank in Marion, Wisconsin has opened six new branches since 2013 — and the institution has nearly doubled in asset size along the way. The secret? Moving into communities that other financial institutions had fled from, purchasing existing buildings, and becoming the only banking provider in town.
- Community Bank, N.A. is in the process of expanding its branch network massively. Not only is the bank acquiring branches from Santander Bank, but it’s also building brand new locations, entering new markets across the Northeast.
The Enduring Value of BranchesFIs’ motivations for opening new branches extend beyond chasing deposits, with enhanced customer service being another major motivator. Despite people’s increasing dependence on mobile banking, consumers still value the human touch at their FIs and the ability to walk into a branch and speak with someone face to face when things go wrong or when they need specialized help or attention. Physical branches continue to be one of the most popular starting points for people’s relationships with a new FI and provide the opportunity for staff to create personal relationships with the companies and individuals behind the accounts. That includes gleaning insights on what products and services would best serve them at their particular stage in life and in business. As banking customers do an increasing amount of their banking online and through apps, community financial institutions will want to continue efforts to constantly enhance these offerings. However, it is important to remember that branches still add value — enough so that the industry’s largest players are devoting a massive amount of money and attention to using them to acquire new deposits. While some smaller institutions may want to follow suit and add new branches of their own, it’s critical that those decisions are based on the ability to gain a large depositor base with that new physical location. Making the right branch decision at the right time can make all the difference in today’s fierce deposit competition.
