The Decline of Physical Banking

New technological developments are reshaping the way financial services are delivered. From new peer-to-peer lending platforms to cryptocurrencies, the so-called FinTech industry seems to start gaining steam and its full potential is still uncertain.

One of the financial sectors more influenced by new technological developments is the traditional commercial banking system. Many economies have certainly moved really far from the old-fashioned banking model where people would physically commute to their closest bank branch, greet their well-known bank teller and spend long periods (queuing up mostly) to complete mundane transactions such as opening a bank account, depositing money, or applying for a mortgage. Today, some of these transactions still require some sort of physical interaction with our local banks, however, most of them are now performed online or are ceasing to exist (when was the last time you made a bank deposit?)

Nevertheless, the extent of the ongoing transformation is still unclear. The EY FinTech Adoption Index provides important insights into how different markets are changing their consumption habits towards FinTech. I believe, however, that there is a much simpler way of appreciating this transformation. The next figure presents a less sophisticated (but arguably more direct) way of observing direct changes to the way financial services are consumed. At least as far as commercial banking trends go.


This figure shows the average number of bank branches in US counties over time, along with the average amount of deposits per bank also at the county level. Unlike the number of bank branches, bank deposits have increased steadily over the last 20 years. This speaks to the fact that, despite recent disruptions to the system (the GFC and FinTech competitors for instance) the banking industry has experienced growth. Nevertheless, the average number of branches per county has decreased from a high of 49.5 (per 100,000 people) in 2008 to 45.5 today. These recent developments could very well attest to the reshaping of the way financial services are consumed and the current influence of FinTech.

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