The coronavirus (COVID-19) pandemic has accelerated the adoption of digital banking technologies, leading many to question the need for extensive branch networks. In fact, 2020 witnessed a record number of net bank branch closings, not including branches temporarily closed due to the pandemic.

Nonetheless, research shows that consumers continue to value physical locations and personal relationships are critical for credit unions to reach certain populations. These populations include small businesses, seniors, rural areas, low-income households, and families with unreliable broadband access or insufficient technology.

What might the future post-pandemic branch look like? How can it best cater to the needs of a more technologically savvy population while continuing to serve those who prefer personal relationships?

The decline in branch networks

First, it is important to acknowledge that the number of bank branches has been steadily declining since the 2007-2009 financial crisis. Bank branches (including headquarters) peaked at nearly 100,000 in 2009 before falling to 79,974 by year-end 2020.

Various factors have contributed to this decline, including earnings pressure from low interest rates, rising regulatory costs, and customers increasingly turning to ATMs, online banking, and mobile apps to conduct financial transactions.

Unfortunately, even before the pandemic, this trend has led to the creation of hundreds of “banking deserts” across the country, or regions with inadequate or no mainstream financial services.

Rural, diverse, and low-income communities are particularly vulnerable to branch closures, and there is growing concern that branch closures in disadvantaged communities may exacerbate existing inequalities in access to affordable financial services.

Credit unions, however, have closed branches at a much slower pace than banks, and in recent years have even increased their total number of branches. While the number of bank branches has fallen dramatically, the total number of credit union branches grew slightly from 21,440 in 2009 to 21,566 in 2020 (see “Bank & credit union branches" chart). This means credit union branches are a growing percentage of the total number of branches across the U.S., and now total roughly one-fifth of all branches.

Credit unions also have different location patterns relative to commercial banks, with a higher proportion of branches in low-income and ethnically diverse counties helping to prevent many banking deserts. Still, credit unions face similar pressures as banks due to the pandemic, such as reduced foot traffic and an increasing share of members adopting mobile technologies.

Estimates range that branches have experienced 40% to 50% less traffic since the pandemic started, although some of that has returned in recent months as new COVID-19 cases have ebbed in most states. The extent to which customers will return to physical branches after they’re vaccinated and the pandemic subsides remains unclear.

On one hand, people may yearn for the personal aspect of chatting with a teller or loan officer. On the other hand, as more people adopt mobile technologies for everyday transactions such as bill payments and check deposits, it seems unlikely that they will visit branches at the same rate as before the pandemic.

Banks have bet that branch visits will remain muted even after the pandemic: banks and thrifts closed 3,324 branches in 2020 (versus opening only 1,040), leading to a record net loss in bank branches of almost 2,300. U.S. Bank, for example, announced it will close 400 branches, or 15% of its total locations. Wells Fargo, which has the nation’s largest branch footprint, announced plans to reduce the number of its branches from 5,400 to 4,000.

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