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Banking / December 11, 2019

Retail Branches Pose an Existential Threat to Banks


There’s a battle for branch expansion among banks in the U.S. today. Both J.P. Morgan and Bank of America, for example, have been duking it out to open a total of 180 new branches across the country this year alone as well as “modernizing” existing branches. This battle is completely misguided. It’s analogous to being on the cusp of the automobile taking off and deciding to double down on the horse and buggy. 

We can’t entirely fault banks here. It’s hard to let go of something that once propelled your entire business to near-monopoly status and became core to your success with consumers. But the bank branch model was created by baby boomers for baby boomers, and there’s a new generation in town that wants something very different. But instead of facing the music and offering today’s consumers what they’re really asking for, banks put together focus groups who come up with ways to draw the under-40 crowd to branches. Their uninspiring ideas included serving food and drinks, updating their furniture, and keeping advisors around to sell their products.

We saw this absurdity start to take hold in 2016 when CapitalOne refashioned several branches into cafés offering coffee and snacks. Despite these efforts, when we survey our clients under the age of 40, we see a clear behavioral trend that does not map to these modernization and expansion efforts. There is a growing trend of what we call “branch-nevers” emerging among people under 40 in the U.S. In fact, 30% of our clients are fully digital, meaning they haven’t visited a bank branch in the last year, or ever. 80% of our clients haven’t ever visited a bank branch for any type of advice or education. 

Checks are also becoming a thing of the past. We found that one-third of our clients have never written a check. This probably sounds crazy to baby boomers. 

Wealthfront is in a fortunate position as a newer entrant to the banking space — we can start with a clean slate. We don’t need to worry about legacy business models or fret about what we’re going to do with thousands of retail locations. Instead, we can listen to the modern consumer and build a new service that fits exactly what they want: making more money on all of their money. We can also steer clear of what they don’t want, like paying $200 a year to support branch locations they don’t use. We’re excited to continue building out our nextgen banking service for you. 

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About the author(s)

Dan Carroll is Wealthfront's founder and Chief Strategy Officer. Dan founded Wealthfront to bring client-centric, transparent and low cost financial advice to the retail investor. View all posts by Dan Carroll

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