The number of branches at credit unions and banks has been surging for decades and presents some challenging problems for financial institutions as they face an ever-increasingly competitive landscape in the future.

According to a new study from Atlanta-based Financial Management Solutions Inc. (FMSI) called the "2015 Teller Line Study," the ratio of population-to branches in the US has plummeted from 9,340 in 1970 to 2,970 last year.

That prodigious plunge reflected an almost 300% growth in the number of branches since 1970, while the overall population has increased at a far lower rate.

That means there are about two-thirds fewer customers for each CU or bank branch, raising questions about the need and viability of some of these branches. As a result, the number of branches, after peaking at nearly 100,000 in 2009, has edged downward to about 97,000 in 2012. As of June 14, the number of branches had fallen by almost 5%.

"Coupling the decline in the ratio of population-to- branches and the recent decline in bank branches suggests that the market is starting to correct itself from being 'over-branched,' FMSI commented.

Still, there are far too many branches.

FMSI noted that it believes the recent downward trend in branches has more to with the market correcting itself from an over- branched environment, rather than the use of alternative channels to replace those branches.

At any rate, FMSI added, "online and mobile banking are on the rise, with no signs of letting up."

But while some are predicting the "death" of branches due to the inexorable emergence of mobile technology, FMSI counters that branches will likely undergo a "complete transformation" with retail locations ultimately becoming "much more sales-centric than deposit-centric."

But this will not happen anytime soon.

Conceding that the majority of interactions in branches remain simple deposits and withdrawals (and also admitting that the overall number of branch transactions continue to fall), FMSI asserts that the "significant portion" of transactions taking place between account-holders and front-line staff members will not disappear any time soon — "as the more traditional segments of the population remain in society."

Nevertheless, FMSI added, at some point in the future these simpler transactions will "almost certainly completely migrate to more efficient channels when... future generations replace the older population segments of today."

Consequently, banks and credit unions that have already established "sales-centric" branches that cater to customers with heavy digital usage will already enjoy a competitive advantage.

"FIs can make significant strides towards creating profitable sales-centric branches today and, most importantly, sustainable locations that remain viable in the future," FMSI advised.

In addition, since 1992, branches at credit unions and community banks have experienced a 45.3% decline in teller transaction volume; while employee salary and benefits have surged by 90.1%. Or, put another way, the cost of labor-per-transaction has surged by 133.3% since 1992; while productivity has fallen by 18.5%.

FSMI explained that historically FIs have not had to worry about staffing their branches to a declining volume of transactions, because branch activities were always growing — partly due to a rising population and a strengthening economy.

"Instead, they were looking where to add new branches as new housing developments were popping up on every corner," FMSI said. "Management was convinced there wasn't a lot of money to be saved in closely managing 'teller' staffing."

But now the climate has drastically changed for branches and tellers — resulting in a market that is "over-branched," suggesting that either some low-volume branches should be closed or companies need to adopt new technologies to increase efficiency and reduce operating expenses.

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