With mobile banking, JPMorgan Chase & Co. is making it easier for customers to avoid visiting branches.
Then why is the New York banking giant opening so many new ones while other banks are closing theirs?
Rivals and branch consultants have been pondering the question since JPMorgan Chase said in February that it plans to open 1,500 to 2,000 branches over the next five years, mostly in California and Florida.
Charlie Scharf, the head of JPMorgan Chase's 5,300-branch retail bank, says the reason behind its branch-building spree is straightforward: Branches are still money-makers, even if services like check deposits via cellphone mean shorter teller lines.
After buying Washington Mutual in 2008, it has a rare chance for an old-school market-share grab in two of the country's densest, wealthiest states. That necessitates more branches, which he described as "one of our key competitive advantages.
"We are going to listen to our customers -- our customers continue to tell us that having a physical branch presence is critical," Scharf said. "Branches are going to be important for us as long as they're important for customers."
Banking-on-the-go and banking-face-to-face is not an either/or proposition, he said. As long as branches are important for JPMorgan Chase — the second-biggest bank in the country by assets, and in many ways the strongest — they are going to remain important for every other bank too, experts said.
"JPMorgan has kind of turned the screws on people a little bit," said Brian Foran, a managing director with Nomura Securities International Inc. "They know everyone wants to rationalize their branches.
"They've basically sent a big shot across the bow," he added. "You don't want to [close an office] if JPMorgan is going to say: Is your branch closing? By the way I'm going to build 500 of them."
Consumers and businesses are borrowing little. New regulations mean higher compliance costs and lower deposit-related fees. Revenue is anemic, even if profits are robust from drawing down massive loan-loss reserves.
Small and large institutions have been responding by reducing their biggest expense: branches. Bank of America Corp. has closed 200 in the last five quarters, including 50 during the first three months of the year. Regions Financial Corp. closed 120 in 2010. The country's number of commercial bank branches declined last year for the first time since 1992, by close to 1%, according to regulatory data.
Paul Seibert, vice president of financial services for EHS Design in Seattle, said JPMorgan Chase's strategy is an affirmation that some of the precrisis rules of banking still apply.
"They're the leader. They want to come in, and they want to dominate a market," he said. "The more physical locations you provide to the point of saturation, the faster you are going to grow. That's what's so interesting about this — those rules still apply."
Scharf said JPMorgan Chase is investing in the future — and it can afford to. Having stayed profitable through the crisis, analysts project it will generate some $12 billion of capital in 2011, according to the company's investor day presentation in February.
"To the extent that others don't want to be in branch banking it creates more of an opportunity for us," Scharf said.
It does not expect its new branches to start adding to the bottom line for years.
Washington Mutual was a thrift, whereas JPMorgan Chase has a hand in just about every aspect of banking — including having the top-performing investment bank on Wall Street. Its plan is to offer products and services Washington Mutual did not.
Branches during the last ten years have been built almost entirely around gathering and servicing deposits. Scharf concedes that the internet and mobile banking innovations are changing that.
But branches are not just a place for hitting up the ATM or cashing Friday's paycheck, he said. They are brand-builders, and the most important tool for establishing a rapport with customers and selling them products.
"Branches have been changing for 40 years — it's not a new phenomenon," he said. "Absolutely teller transactions are going downward. That's something you want to encourage. We will have fewer transaction people over time, but a lot more specialists to talk to people."
The biggest push has been in California, where it has added 90 branches to the 700 Washington Mutual ones with plans to open another 100 this year.