To build, or not to build,
that is the question


New bank building in the works?

THESE DAYS when a shiny new banking office sprouts, someone inevitably wonders aloud how close we may be to a tipping point where online banking renders physical locations obsolete. Will this building will be the one too many that shouldn’t have been built?

That might have seemed like a silly question in 1995 when, after largely unsuccessful forays in the prior decade, online banking had its real start. To ask if online banking might someday threaten in-person banking would have seemed as ridiculous as to ask if streaming might someday threaten the music industry as we knew it.

Though by the end of 1995 people could use a personal computer to check balances, transfer funds between their accounts, and make payments, not many did. Those who dared dabble accounted for not quite four percent of bank customers and comprised mostly the better educated, the better heeled, and the young. Despite the meteoric rise of PCs, people were still afraid of turning HAL loose with their money. After all, it was only a decade earlier that people over 35 were largely afraid of ATMs.

Things changed over the next decade. In the September 2006 issue of the Federal Reserve Bank of Kansas City’s newsletter, Perspectives, Division of Supervision and Risk Management of policy economist Eric Robbins reported that computer banking had risen to just over 35 percent. I hardly need point out that the upward trend continued, thanks in part to a hefty boost from the emergence of mobile banking. By the end of 2014, the number of people availing themselves of mobile banking was increasing by 33 percent a year.

Newer, related studies, like this one reported by Fiserv, confirm that electronic banking will only continue to grow in importance. Or take, for instance, this observation made in 2015 by Market Watch’s Bill Gunderson: “A whopping 85% of U.S. banking transactions now take place outside the branch, with branch traffic continuing to decline 4% per year for an aggregated decline of 51% over the last 16 years.”

Still, survey after survey shows that the proximity of a physical office remains the Number 1 factor in choosing a financial institution. Fine for now—but I have my reasons for doubting pundits who predict that that will be ever so. Here’s why: 

  • Self-reported data are not reliable. Asking people what matters most to them reveals more about their self-concept than about their actual values or habits.
  • The payments business isn’t limited to banks. When you count online payments to merchants and utilities, the growth of electronic transactions looks even more dramatic. 
  • We must beware motivated reasoning. It is human to reward pundits who say you can stay the course and to dismiss those who say you must change. 
  • As markets grow more accustomed to nonphysical banks the likes of PayPal and Simple, the importance of brick and mortar will diminish. 
  • We humans are lousy at predicting the future. If you don’t believe me, watch the second installment in the Back to the Future series, which takes place in 2015. Or look at Captain Kirk’s communicator, which holds not a candle to today’s least capable smartphone. And, speaking of smartphones, iPhone took Google unawares, and the rise of texting took miniaturizing-obsessed phone manufacturers unawares. 

To be clear, I’m not telling you not to build that new office. I can’t foretell the future any better than the next person. What I can tell you is that it’s important to remain open and flexible. Change isn’t as slow as it used to be. Today, we must remain ready to change on a virtual dime.

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