Pressure from the increasingly popular digital banking model has pushed legacy banks to cut costs and faze out physical branch networks. From Barclays and Lloyds, to J.P. Morgan and Wells Fargo, some of the largest banks in the world are significantly curtailing operating costs, resulting in the proliferation of so-called ‘cash deserts’, particularly in the U.K.
Despite this trend, however, the U.S. has been less affected than most other areas. This is due in large part to the fact that of the roughly 470,000 ATMs in the U.S., only 191,000 are held by banks and other financial institutions. To analyze how and when this is likely to change in the U.S., as well as market solutions for cash-dependent communities, NewtonX recently conducted a global survey with 200 executives at both digital-only and legacy financial services institutions. The data and insights in this article are informed by the results of this survey.
The New Independent ATM Market
Between 2016 and 2017 over 1,700 bank branches closed in the U.S. 80% of the physical financial services companies surveyed by NewtonX indicated plans to downsize and/or phase out physical branches in 2019. Over four years, JPMorgan Chase closed 9% of its branches; Bank of America closed 15%; and Wells Fargo shuttered 2% (and plans to close 250 branches in 2019).
Many of these closures have been in low-income neighborhoods, which has provoked public outrage. But the U.S. is unique from its overseas banking counterparts in that closing branches — while certainly creating issues with loans and mortgages for those areas — does not result in ‘cash deserts’. The U.S. has a large market and demand for independent terminals, which can be found in convenience stores, grocery stores, malls, coffee shops, and even restaurants and bars.
Over 50% of the NewtonX survey respondents indicated that they expect the independent ATM operator market to grow significantly as a result of branch closures. However, while this growth does prevent cash desserts in the U.S., it hasn’t been a solution in many other areas of the world.
Banks on Wheels: The Problematic Solutions to Cash-Dependent Towns
The number of free-to-use ATMs in the UK dropped by 1,300 between February and July of 2018, to a total of 53,200. In Scotland, the ATM scene is even bleaker: over the course of 2018, 460 ATMs disappeared every single month, resulting in 1,500 towns completely bank-less. The country now has fewer than 8,000 bank branches total, down 10,000 from 1989. Banks’ eagerness to move into digital alternatives to cash has belied the reality of cash usage: 38% of the UK’s population are still cash-dependent.
Despite these issues, from a financial perspective physical bank branches make less and less sense: only a third of transactions in both the UK and the US use physical money, and by 2035 this figure is expected to fall to a mere 10%. In an effort to reach a happy medium between customer needs and financial concerns, banks in the UK have employed several unorthodox solutions, the oddest of which is mobile ATMs.
These trucks stop in cash deserts once per week or month for around a half hour in order to provide a local venue for taking out physical money. However, the trucks have been met with extreme ire: in Castlebay RBS had to suspend its mobile branches because of hostility toward workers.
Catch-22: Banks Want to Customers Loyal While Still Competing in a Digital Landscape
Fast-growing digital only banks in Britain such as Monzo and Revolut, as well as thriving American fintech companies such as Chime are expected to contribute to a $160B loss for the top 10 largest banks over the next year. However, the majority of this loss will come from young, wealthy demographics. Older clients — those who have banked with legacy companies for 20+ years — are unlikely to abandon their banking traditions.
While cash use is expected to decline significantly over the next ten years, legacy banks still need to find sustainable solutions for their cash-dependent loyal customers. After all, the physicality, availability, and size of legacy banks are what draws customers to them in the first place.