Digital banking at U.S. Bank sped up during pandemic

In February 2020, U.S. Bancorp executives gathered in Reno, Nev., to discuss the future of banking, including how quickly they expected digital services to evolve.

Then the coronavirus pandemic came along, forcing them and other bankers to curtail branch activities and sparking a new burst in digital banking.

By February this year, nearly 80% of customer transactions at U.S. Bank were digital and nearly 60% of active customers did most of their banking that way.

"If you had told me that we would be at this stage 15 months later, I would have thought that would be impossible," said Tim Welsh, the Minneapolis-based bank's president of consumer and business banking. "I thought it was a five-year journey."

Of course, some people still go to a branch to cash a check or make a deposit. But many are going in less frequently, and for a different reason.

To help manage social distancing as U.S. Bank began to reopen their lobbies last year, it asked customers to make appointments with bankers. U.S. Bank booked more than a million such appointments last year, and is on track to double that number this year.

"Where you used to come in and cash a check and leave in two minutes, now you come in and you talk for 30 minutes about your finances with somebody at a scheduled time," said Welsh. "It's a completely different way of interacting with our customers."

The pandemic has even prodded some older Americans, who were previously more likely to go into a branch for routine transactions, to transition to digital banking, said Greg McBride, chief financial analyst with Bankrate.com.

"Just as more and more grandparents were using FaceTime to keep up with the grandkids, many of them were also downloading the bank's app and depositing checks for the first time or transferring money from their phone for the first time," he said.

But this rapid shift has also meant that banks no longer see a need to have as many branches as they once did. Last year, the pandemic spurred a record number of net branch closures in the U.S., according to S&P Global Market Intelligence.

U.S. Bank was the leader in culling branches in 2020 with 349, followed by Wells Fargo with 331. U.S. Bank has recently been more aggressive than other banks in closing branches, catching up to the broader industry after being prevented by regulators from making changes for several years ending in 2018.

U.S. Bank announced plans to close 10 to 15% of its branches before the pandemic hit, but executives decided to close more as consumer behavior changed last year. They ended up shuttering about 700, going from around 3,000 to about 2,300 in 26 states.

When banks close branches, it often leads to concerns that people who still depend on them will have to go farther to get access financial activities, particularly in low-income, minority and rural communities. Having to travel farther to get to a bank can be especially challenging for people with mobility issues and those without easy access to transportation.

Last year, the advocacy group National Community Reinvestment Coalition raised concerns about this trend after tallying up more than 13,000 closures, or 14% of all branches, between 2008 and 2020. It issued a report that noted that such closures often disproportionately impact rural, low-income, and minority communities where few branches might have existed in the first place.

However, an analysis earlier this year by the Federal Reserve Bank of St. Louis found that branch closures in recent years have been concentrated in areas with lots of branches. So in most cases, it has led to a relatively modest increase in distance to get to another full-service branch, the researchers concluded.

Still, Welsh acknowledged the concern and said it was a important consideration as U.S. Bank plotted out which branches to close. A company spokesman added that the bank did not see any changes in its share of branches in rural communities and actually saw a small increase in its percentage of branches in low- to moderate-income neighborhoods.

"We want everybody to have access," Welsh said. "But what we're finding is if you're not coming in to cash checks, you don't need a branch five minutes away. But if you're coming in for an appointment, you might be willing to drive a little bit more distance because it's a more substantive conversation."

U.S. Bank is not planning any other big rounds of branch closures for the time being and expects to have a more moderate pace of openings and closings, Welsh said.

The number of bank branches in the U.S. peaked around the Great Recession and has been on the decline since then as banks looked to cut costs and to adapt to consumers' shift to digital banking.

A swell of bank mergers and acquisitions has also contributed to the trend, with banks often closing overlapping locations as they consolidate under one banner. For example, Ohio-based Huntington Bank is closing about 200 branches after recently acquiring Detroit-based TCF Bank. None are in Minnesota.

Banks are also taking a more aggressive look at branch closures because it's harder for banks to make money right now with interest rates so low, said Nathan Stovall, lead banking analyst for S&P Global Market Intelligence.

A recent survey by the firm found that 64% of consumers who visited branches since the start of the pandemic expect to use them less in the future. They became accustomed to banking apps.

"After doing it for a month, they were like, 'Well, I'm never going to go back to doing it the old way. This is simply too easy,'" said Stovall. "So there's a lot of stickiness to digital usage that you hadn't seen before."

At the same time, U.S. Bank's Welsh says that branches are still "critical." Finances can be complicated and confusing. And many people may need some extra help and guidance from someone in a branch to give them a tutorial in how to use new tools in the app.

"That human connection really matters," he said.

U.S. Bank embraced a new branch design in the last couple years that's smaller and without once-standard features such as teller line. In some, there's no cash on hand other than in an ATM. Instead, they have more spaces where bankers can sit down with customers for a one-on-one consultation.

It's opened some of these newer branches around the Twin Cities, as well as in its newest expansion market of Charlotte, N.C. U.S. Bank opened its first branch in Charlotte in 2019. It now has two, with plans for eventually opening 10 to 12 branches there over time in what executives refer to as their "digital first-branch light" strategy.

That's a big change from the old approach in which U.S. Bank might have opened 80 or so branches in a market of that size as it currently has in some of its older, more traditional markets such as Minneapolis or St. Louis, Welsh said.

In the meantime, U.S. Bank continues to add digital tools. Last year, it ramped up use of a co-browsing technology that allows customers to share their screen with a banker. A couple months ago, it added a video option to that feature.

And in late May, it began offering virtual appointments with a banker, who in many cases may be at a local branch.

"What we're finding is that it matters that people know that you're at the intersection of 8th and Nicollet, or wherever you are," said Welsh. "As opposed to I'm in a call center in some nameless, faceless place. I'm actually your neighbor and we're here and we're here helping you."