In the wake of the financial crisis, banks went on a closing spree: Between 2008 and 2016, banks closed 6,000 branches (6% of all bank branches), creating 86 new banking deserts.
During the same time, credit unions closed just 300 branches (roughly 1% of branches).
Fast forward a few years, and we find that the while banks closed 8,200 branches between 2013 and 2018 (9% of total bank branches), the number of credit union branches grew by nearly 400 during that time (a 2% increase).
The number of credit union branches has increased each of the past five years, while the number of bank branches has fallen each of the past nine years.
In an era where most consumers use online and mobile banking, some may question the importance of branches. Yet, evidence points to the continued importance of physical access to these facilities.
The Federal Reserve’s Survey of Consumer Finance, for example, finds that branch location is one of the top reasons cited for choosing checking account providers.
Additionally, the Federal Deposit Insurance Corp.’s (FDIC) 2017 “National Survey of Unbanked and Underbanked Households” finds the great majority of banked households visited a bank branch during the past year. More than one-third visited 10 or more times, and even households that primarily use online banking still visit branches.
The FDIC survey also found that one of six unbanked individuals visited a bank branch in the past 12 months.
Research shows branch location can be an important factor influencing access to affordable credit for small businesses and individuals, especially low-income borrowers.
In both cases, geographic proximity matters because it facilitates access to “soft” information gathered through frequent and personal interactions with borrowers that influences lenders’ decisions.
In the case of low-income borrowers where access to credit can be severely limited by inadequate credit scores, a 2010 paper published in the Journal of Money, Credit and Banking finds “mortgage originations increase and interest-rate spreads decline when there is a bank branch located in a low- to moderate-income neighborhood.”
The results are similar for small business lending: As small businesses drift further away from bank branches, loan originations decline and interest rates increase.
This research underscores the importance of location when it comes to providing financial services and products that respond to members’ needs. Branch locations matter to members, especially to those who aren’t wealthy.
Credit Union Magazine’s Summer 2023 issue highlights the lending outlook for the rest of the year, how credit unions leverage fintech companies to boost digital lending, the power of lending partnerships, common Bank Secrecy Act violations, and the shift board members must make when becoming chair.
