American retail #banking: As #internet and #mobile banking take off, the #branch is evolving – The Economist

When interest rates are low, as they are today, the appeal for banks of online deposits grows relative to those harvested in the branch, points out Aaron Fine of Oliver Wyman, a consultancy. The reason is that traditional banks hold a lot more non-interest-bearing and low-interest deposits than direct banks typically do, and the profitmaking opportunities from reinvesting these in wholesale markets shrinks dramatically as rates fall. Indeed, most retail banks will suffer more from this lost “carry” than from more-publicised regulatory curbs on overdraft and card fees. ING Direct’s all-in costs per dollar of deposits are now slightly below those of the typical large bank—though they would jump back above if interest rates rose substantially. Online banking is “an implicit bet that rates won’t rise too far,” says one banker.

Moreover, the branch’s role is evolving. Fewer customers use it for routine services, such as withdrawing or transferring funds, but many still value it for more complicated transactions (see chart). Even as BofA trims its network, it is hiring more branch specialists in mortgages, investments and small-business banking. It announced this week that it will double the number of financial advisers in its branches by the end of 2011. Many Americans who bank predominantly online or on their iPhone still consider the density of nearby branches an important factor when choosing their provider, according to surveys.

One option for the cost-conscious bank is to replace traditional branches with cheaper mini-branches, staffed by two or three employees trained to give advice and loans as well as man the counters. Huntington Bancshares is opening 100 such outlets in Giant Eagle grocery stores across Ohio. These cost 85-90% less than normal branches to build and 50% less to run, says Stephen Steinour, the bank’s boss. But Huntington is investing heavily in internet and mobile banking, too—and thus “moving towards channel agnosticism”.


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