:max_bytes(150000):strip_icc()/bank-sign-on-marble-facade-184973549-9d33e48440b14ebb838bc3c0ba0523cd.jpg "Definition, Benefits, and Comparison With Unit Banking")
What Is Branch Banking?
Branch banking involves having storefront locations distant from the home office, providing convenience to customers.
Since the 1980s, branch banking in the U.S. has gone through significant changes in response to online banking and a more competitive and consolidated financial services market. The Riegle-Neal Act of 1994 allowed for interstate branch expansion, and since 1999, banks can sell investments and insurance products, along with banking services, under one roof.
Online banking has made it easy to complete transactions on a mobile device, but branch banking still offers the advantage of personal encounters for complex transactions.
Key Takeaways
- Branch banking allows financial institutions to expand services beyond their main office into additional retail locations.
- The Riegle-Neal Act of 1994 enabled interstate branch expansion, drastically changing the banking landscape.
- Mobile and online banking surged after COVID-19, with many consumers favoring digital channels for convenience.
- Branches provide essential in-person services, such as cash withdrawals and financial advice, that digital banking can’t fully replace.
- Branch banking contrasts with unit banking, where single-location banks serve local communities without additional branches.
Evolution of Branch Banking: Historical and Modern Insights
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 authorized well-capitalized banks to acquire branch offices–or open new ones–anywhere in the United States, including outside their home states. At that time, most states had already passed laws enabling interstate branching.
Then, in 1999, Congress repealed laws that forced banks to keep their investment services separate from their banking services. Those two actions combined led to the current proliferation of branch offices that are dotted around the U.S.
After the financial crisis of 2008-2009, the banking industry went through a consolidation phase. The branch bank, for most Americans, now means one of the “big four” banks: JPMorgan Chase & Co., Bank of America, Wells Fargo, or Citibank.
Internet banking and mobile apps have significantly changed the banking landscape.
A survey by Morning Consult for the American Bankers Association shows mobile and online banking grew significantly post-COVID-19. As of 2021, 44% of bank consumers turn to mobile apps (compared to 33% before the pandemic), and 26% use a computer or laptop to manage their accounts (compared to 24% before the pandemic).
COVID-19 also led to a higher rate of bank branch closures. In 2020, just under 3,700 bank branches shut their doors. However, banks are constrained from closing some branches by the terms of the Community Reinvestment Act of 1977, which requires banks to make an effort to provide services to low- and moderate-income neighborhoods.
Why Choose Branch Banking? Benefits and Value to Customers
Branch banking allows a financial institution to expand its services outside of its home location and into smaller storefronts that function as extensions of its greater operations. It can save costs by letting smaller offices provide key services while larger branches offer more.
For customers, branch banking offers the added value of interacting with someone in person, a richer experience and connection that can’t be replicated by digital channels.
Many use digital channels for simple tasks, but visit branches for services like cash withdrawals or using a safety deposit box. Other advantages of branch banking include the ability to complete complex transactions, get information on specialized financial products, or receive financial advice.
Important
Branch banking networks have evolved into multi-state financial service networks that allow depositors to access their accounts from any banking office.
Comparing Unit and Branch Banking: Understanding Key Differences
Unit banking refers to a single, usually very small bank that provides financial services to its local community. Typically, a unit bank is independent and operates without any connecting banks or branches in the area.
However, not all unit banks are independent. Even if they do not share a name with a larger banking entity. There are some banks that retain a familiar name, even though they are owned by a larger holding company.
What Is the Difference Between Branch Banking and Chain Banking?
Chain banking is a form of bank governance in which individuals or an entity takes control of at least three banks that are independently chartered. It differs from branch banking because chain banks are separately-owned and not part of the same entity.
What Is a Banking Desert?
A banking desert is a census tract or neighborhood with no bank branches in it or within 10 miles of its center.
What Is Retail Banking?
Retail banking provides financial services to individual consumers rather than large institutions. It’s also known as consumer banking or personal banking. The services provided by retail banking include savings and checking accounts, debit or credit cards, personal loans, mortgages, and certificates of deposit, among others.
The Bottom Line
Branch banking makes banking more convenient and accessible to customers. Each branch provides the same services as the main office. Although online banking is growing in popularity and is more convenient for most people, branch banking offers a human connection that can’t be replicated online, as well as the ability to withdraw cash, access to financial advice, and a wider variety of products and services.
Legislative milestones in the 1990s, such as the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 and the repeal of laws in 1999, helped shape the current landscape of branch banking.
Branch banking differs from unit banking, which typically involves small banks associated with a local community.
