Banking & Finance Roundtable Discussion

Finance Professionals Consider Bank Branch Closings, Fintech

Salt Lake City—The Economist reports that, nationally, banks have closed over 10,000 branches in the past decade. In the first six months of 2017, 869 branches closed across the U.S. That trend, however, is not as prevalent in Utah, according to a group of financial professionals that gathered Tuesday morning at Holland & Hart’s downtown offices at Utah Business’ annual banking and finance roundtable.

“My impression is that the growth in the state continues to make that branching network a profitable way to do business and have a good and effective customer relationship experience,” said G. Edward Leary, commissioner of the Utah Department of Financial Institutions.

While financial technology—or fintech—companies like payment processors Square and Venmo have begun to disrupt the way traditional financial institutions do business, those same institutions still have a leg up when it comes to customer service, said Rick Anderson, president of the Bank of American Fork.

“People want the convenience of the electronic benefits in banking, but they also want to know something’s close if they need it,” said Anderson. “They may never go in there, but they want to know that something’s close.”

Those branches, said Anderson, no longer have to have the same footprint as they once did, as usage of bank deposit boxes and the like have declined. But having a visible branch gives credibility to your institution, he said, even if your customers do not utilize it as frequently. Fintech companies—like Square and SoFi—have seen that potential as well, as they, too, turn in applications for bank charters. While SoFi has withdrawn their application for the time being, Square’s bank charter (which would be headquartered in Salt Lake City) is considered stronger.

Mobile banking apps on phones have become the new ‘branches’ even as some brick-and-mortars have shuttered, continued Roger Shumway, EVP of Bank of Utah. “I don’t think branches have declined, they’re just in your hand,” he said. “For community banks, the niche you see in Utah is that they can talk to a real decision-[making] person. If they get into an issue, there’s a face, and [an app on] a phone that they love.”

The shuttering of some brick-and-mortars shouldn’t really be considered alarming, according to Mark Zupon, EVP of First Utah Bank. The nature of how people interact with banks is simply shifting as technology makes the daily minutiae of banking more effortless.

“We see overall that there’s been a 30 percent drop in branch transactions, but if you look at the overall transactions including electronic, transactions are actually up,” said Zupon. “People are doing more electronically than they are in branch. The services provided in-branch are going to have to change. But in terms of contact points with the bank, they’re actually increasing.”

What brick-and-mortars are going to have to pivot into is becoming more of a “concierge” service, said Ed Sanches, VP at Central Bank. As fewer people come in to branches to, say, cash checks—why bother when you can just snap a photo of it on your phone—branches and bank tellers will have to have a whole new expertise for customer service.

“You’re going to see teller lines move away to more concierge desks, one employee that can do whatever that customer needs at the time,” said Sanches. “… Fintech is forcing banks to think differently than they have in a certain capacity.”

Traditional financial institutions, however, are expected to play by certain regulatory rules, while fintech companies simply jump in with solutions to problems they perceive in the marketplace. Some banks bridle at what might be perceived as a retarding weight on innovation, but Leary stresses that regulations exist to foster stability in the financial world.

“That’s the biggest challenge. How do regulators maintain their role of overseeing the institutions, ensuring their safety and soundness, and yet allow innovation somewhere? The expectation is that the regulators will stop innovation, and unfortunately, I probably have to agree with that,” said Leary. “They slow it down. That’s not always good. But on the other hand, banking has always had this stable, consistent expectation and history. … The dynamic going forward will be technology versus stability.”

Juliette Tennert, director of economic and public policy research at the University of Utah’s Kem C. Gardner Policy Institute, moderated the discussion. Read the full conversation in the January issue of Utah Business.