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Banking deserts are cropping up in rural areas as banks shutter branches in remote areas, considering the majority of the US population is concentrated in cities and drives the bulk of deposits, per American Banker. And as consumers increasingly turn to digital banking platforms, bank closures have allowed institutions to cut operational costs.
Net branch closures nearly doubled between 2012 and 2018, with 1,947 branches shutting down last year alone, per S&P Global Market Intelligence. Bank of America (BofA), for example, has closed over 1,600 branches since the 2008 financial crisis, primarily in rural areas, as they're less lucrative than its city-based branches: The typical BofA urban branch generates about $2.5 million in revenue, compared with $1.4 million in revenue for the typical rural branch, per The Wall Street Journal.
Beyond shuttering branches, firms like JPMorgan Chase and BofA have also been shifting their strategies to include opening new branches in cities they didn't previously operate in - with gaps in rural areas remaining.
Rural areas include a considerable amount of financially underserved consumers, which amount to 33 million US households - opening opportunities for firms of all sizes:
- Major banks could offer remote banking services to access these customers in a more cost-efficient way. Depositing a check digitally is 96% less expensive for Chase than depositing it via a human teller, for example, which has caused many banks to build out their digital channels with everyday banking capabilities. But because some financial tasks are more complex and require more personal attention than a mobile banking app feature, these firms will need to offer remote capabilities, like phone and video services, to serve consumers in remote areas. It's important to note that broadband penetration is lower in some rural areas, which could limit access to services like video banking.
- Challenger banks could carve out a niche among consumers living in rural areas. The US neobank market has been growing, with US firms like Varo and Chime, and foreign entrants such as N26 and Monzo launching new services to grab a larger share of the space. As the space gets more crowded, these neobanks could target rural areas, and ultimately an underserved audience that legacy banks largely don't cater to.
- Community banks could establish themselves as regional leaders. These smaller firms might ultimately have a leg up on digital providers due to the reliance of low- to middle-income consumers on branches, creating a behavioral barrier to adoption of digital banking services. Given the pace of branch closures among big banks in the US, and factors like low connectivity that might inhibit digital banking adoption, community banks operating branches could allow them to gain a substantial market share in rural areas.
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