The CIBC at Commerce Court in Toronto on Jan. 30, 2020.Christopher Katsarov/The Globe and Mail
Surging use of digital banking tools spurred by the coronavirus pandemic has threatened to make many banks’ costly bricks-and-mortar branches obsolete, but so far Canada’s largest lenders are hanging on to their extensive networks of storefronts.
After governments imposed lockdowns last March to curb the spread of the novel coronavirus, some of Canada’s largest banks temporarily closed 15 to 40 per cent of their branches and shortened opening hours at others to protect customers and staff. Call centres were flooded with requests, customers increasingly went online to do their banking, and a digital shift that was expected to take years happened in a matter of months.
As the habits of customers change, the banking sector seems primed to cull branches more quickly. Senior bankers are under acute pressure to rein in costs as low interest rates and a slumping economy have made it harder to increase revenues. But so far, the mass move to online banking forced by the pandemic hasn’t proved to be the tipping point for old-fashioned branch banking that many analysts, investors and consultants predicted.
Instead, Canadian bankers seem content to “watch and wait,” said John Armstrong, national industry lead for financial services at KPMG Canada, in an interview.
“I was thinking that maybe this would be a catalyst” for more branch closings, he said. “We haven’t actually seen that in Canada.”
The country’s five largest banks had a combined 8,686 branches as of Oct. 31, down about 6 per cent from a year earlier. But much of that reduction came from Bank of Nova Scotia , which shed 490 branches over the past four quarters. Almost all of those were either smaller locations in Latin America, where digital adoption is rising, or part of businesses the bank sold in the Caribbean, Latin America and Asia. By contrast, Toronto-Dominion Bank’s vast network of 2,308 branches across Canada and the United States has hardly budged in recent years.
At a virtual conference early this year, Royal Bank of Canada chief executive officer Dave McKay said his bank will likely shutter 30 to 50 branches this year – about 3 per cent to 4 per cent of its network. Canadian Imperial Bank of Commerce is trimming about 2 per cent of its branches annually, CEO Victor Dodig said at the same event.
“The pace of that will be dictated by the customer,” Mr. McKay said. But so far, most of Canada’s banks aren’t closing branches any faster than they were before COVID-19.
One reason for their caution is they still see branches as vital to acquiring new customers and forging closer ties that help keep clients from switching to competitors. The personal connection banks have with many clients is “already fragile,” according to a 2020 study of banking customers by consulting company Accenture PLC. “And without an emotional connection, banking services are likely to become commoditized, with consumers focused on price alone.”
More often, banks have moved branches to smaller locations with lower rents and reduced staffing to focus more on providing advice, instead of closing them altogether. Mr. McKay also said RBC is shortening some of its leases to give the bank more flexibility in the future.
Bank of Montreal hasn’t reached a “definitive conclusion” about its branches and is “watching the behaviour [of customers] really closely,” said Tom Flynn, who was BMO’s chief financial officer, at a September conference in New York. Foot traffic to the bank’s branches plunged early in the pandemic, but much of it has come back, especially in residential and suburban areas, he said.
Even demand for cash has started to rebound after plunging in the early months of the pandemic, Mr. Armstrong at KPMG said. But some of the emerging digital habits may be more permanent: About 30 per cent of Canadians surveyed by Accenture said they would prefer to keep getting advice from bankers through video chats.
“Everyone across the banking industry ... is examining their real estate footprint and asking themselves the question, ‘What do I really need?’” said Robert Vokes, a senior managing director at Accenture, in an interview.
Banks in other countries have been more aggressive. In Britain, total branches have fallen 44 per cent over a decade, to about 9,600 from 17,000, according to a recent report from RBC Dominion Securities. Swedish bank Handelsbanken announced it will close half its branches over the next two years.
And some global banks have started using machine learning to root out their least useful branches, analyzing factors such as demographics, proximity to automated teller machines and to rival banks, according to a report from McKinsey & Co.
RBC analyst Benjamin Toms estimates British banks could close nearly one-third of their remaining branches “with limited customer disruption.” But the savings to be reaped are “surprisingly small,” as he estimates British banks would save 1.7 per cent of total costs by shedding nearly 2,100 branches.
The wave of closings already undertaken by British banks “wasn’t without blowback,” Mr. Armstrong said, especially from small-business owners and seniors who rely most on in-person banking.
After BMO reviewed its U.S. branches last year, the bank closed 5 per cent of them – 33 in total – but only shut 14 locations in Canada in 2020.
“There’s a cost to operating [branches], but it’s not a huge cost,” Mr. Flynn said in September, before he retired as BMO’s CFO. “And if you move too quickly on branch closures, our belief is you can turn off a part of your customer base and run a risk there.”
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