Is the United States Overbranched? (NetBanker)

Well, not so much when compared with other Western countries; however, the bigger question is whether they are all overbranched. Only Singapore, with 111 branches per million inhabitants, is in a good position cost-wise. Italy and Switzerland, with more than 700 branches per million, have their work cut out for them as they reduce the number of branches from a level twice as high per capita as the U.S. total of 372 per million.

At our sister publication Online Banking Report, we've predicted that the total number of branches in the United States will fall by about 40% during the next 20 years (see note 1). Given expected population growth, that equates to about half the number of branches per million (using the BIS baseline, our projection is that the U.S. would have fewer than 200 branches per million in 2025). The reason for the decline is the rise of the out-of-branch channels: phone, online, ATM, and soon mobile (see note 2).

Here's some interesting data from the Bank for International Settlements <bis.org>. Click on the table below to read the five-year data trend. The 270-page PDF is located here.

Interestingly, of the 13 countries covered in the report, only Hong Kong, Singapore, Sweden and The Netherlands have fewer branches per capita than the United States. We have almost 25% less than the 13-country average. Only two countries showed an increase in the 2001-2005 period: Italy which added 1,500 branches and the United States which grew about 6,000 (see note 2).

Here's the list in order of most branches to fewest per million inhabitants:

1. Italy                 >>> 762
2. Switzerland   >>> 701
3. France            >>> 649
4. Belgium          >>> 566
5. Germany        >>> 561
6. UK                     >>> 472
<< <AVERAGE >>> 471
7. Japan               >>> 459
8. Canada             >>> 441
9. U.S.                    >>> 372
10. Sweden          >>> 295
11. Netherlands >>> 270
12. Hong Kong   >>> 249
13. Singapore     >>> 111

Notes:

1. See Online Banking Report's Decline of the Branch (#128), published May 2006.

2. Tom Brown's been writing about the trouble some banking chains have been having with the performance of their new de novo branches (see here).

3. In 2001 and 2002, the U.S. branch total in the BIS data-set excluded credit unions.

Comments (1)

Ron Shevlin:

The industry can't answer the question "is the US overbranched?" by simply comparing cross-national stats. The ROLE of the branch differs country to country -- in the US it's primarily for transactions, while in Canada there's a lot more "relationship-building" type of interactions going on in branches.

I'll tell you this, though -- bankers won't stop building branches as long they believe that the reason people open up the majority of new accounts in branches is because they "want to open them up in branches."

Granted, that accounts for many people (today), but there are many more people -- and even more in the near future -- who would PREFER to NOT open accounts in the branch, but do so because the online experience is cumbersome, not helpful (in terms of getting help making product choices), and because people have security fears regarding the online channel.

Posted by Ron Shevlin | February 8, 2007 10:22 AM

Posted on February 8, 2007 10:22