U.S. banks may soon be cutting down on branches and making changes to their branch networks to accommodate consumer shifts toward technology, according to a new report from ratings agency Fitch Ratings in Chicago.
Faced with rising costs, banks are expected to eliminate branches and increase their technology spending, which will initially offset their savings from branch cuts but eventually lead to improved earnings, Fitch said.
“The elevated cost structure of most banks is prompting them to re-think and rationalize expenses, particularly branch networks, which is one of the most significant expenses for the sector,” Fitch said. “As society's demographics change, younger individuals are interacting with their banks through various channels other than the traditional bank branch. The growth of internet banking, mobile banking and ATMs, to name a few, allow banks to use technology to create additional touch points with their customers.”
Fitch said larger banks with more resources will benefit the most from the transformations from a technology spending and cost savings perspective. However, increased use of technology will make it easier for consumers to move their money between institutions, which could negatively impact banks.
The agency added that the banks that can’t keep up with the industry’s anticipated branch network changes may be hit with declining market shares and customer attrition.