Bank of America Branch Closures and Channel Evolution

Is it finally happening? Is the industry actually approaching that long-sought "critical mass" where self-service channels make a dent in the use of full service branches?Maybe the news of Bank of America's plans to close 10 percent of its branches is the first signal of this transformation. According to The Wall Street Journal, BofA intends to shrink its 6,100-strong branch network. The main driver-the movement of consumers to the online and mobile channels. The move will help the bank invest more in upgrading these self-service channels, including the installation of more image-enabled ATMs, to better serve customers, according to the article.

TowerGroup says use of online banking alone will grow at a compound annual growth rate of 20 percent through 2012 globally. With changing demographics-a tech-savvy younger generation and uptake in electronic channels in developing economies-banks will have to look more to these remote channels to meet customers' needs.

"In this competitive market, banks must actively seek customers' business-and online banking is the means for which institutions can aggressively expand their services and product offerings to gain a competitive edge," said Nicole Sturgill, research director in the delivery channels service at TowerGroup, in a release. "Whether it's the mundane daily tasks of paying bills, or the management of long-term financial goals, banks must position their online banking channel to become the epicenter of customers' financial lives. Every bank should be channeling investments and resources to make its website the financial home page for consumers."

Perhaps Bank of America is one traditional bank that's starting to see the results of this shift early on.

Aite Group analyst Kate Monahan isn't surprised by the announcement, given the size of the branch network and BofA's work in growing other channels.

"Bank of America's announcement that it plans to shrink the banking giant's branch network by about 10 percent is not surprising, given Bank of America has one of the largest branch networks in the country and we continue to see Bank of America investing significantly in other banking channels including online, mobile, and the ATM channel," Monahan said in a statement. "Among their initiatives, Bank of America has already upgraded the majority of its ATM network to image-enabled machines, allowing for envelope-free check and cash deposits. The bank plans to have its entire ATM network upgraded to image-enabled machines by the end of 2009, an undertaking that is extremely rare in today's environment and comes with significant costs. However, initiatives like this, will allow customers to still be supported in locations where branches may be eliminated."

All finance-related issues aside, Bank of America, like many financial institutions, understands the need to adapt to changing customer dynamics. Therefore, downsizing its already-huge branch infrastructure probably makes sense in the larger scheme of things. After all, BofA already has 2.5 million customers using its m-banking service. It seems the idea will be to move away from the transaction-oriented model of the branch to a more sales-oriented, high-value level of service, something widely discussed in the industry for years. It's a slow evolution, but that transformation is starting to happen.