Back 25 years ago personal banking took a lot of physical visits to the bank itself.
Direct deposit was rare so everyone had to hit the banks on Fridays to deposit their checks. ATMs were rare so everyone had to hit banks to withdraw any spending cash they needed. On-line banking didn’t exist so all your bills were handled by mailing checks to all your debtors.
So with the advent of things like direct deposit, ATMs, on-line banking, etc. have the banks been saving money by reducing bank tellers, brick-n-mortar locations, and check processing people?
Or has the computer equipment, IT staff, ATM hardware cost more than the people it replaced?
Or has it been a wash?
There are a number of online-only banks these days which offer extremely competitive rates, usually beating traditional brick-and-mortar banks by a significant amount. Right now, for example, ING direct has ordinary savings accounts with 1.1% interest rates, at a time when most banks offer closer to 0.1%. That’s not very exciting right now, but when interest rates were higher all around you’d see 4% or better yields on a bog-standard savings account, compared to 1%-2% for the brick-and-mortar banks I used at the time.
Presumably this is because the online banks save money in all the ways you mention, without spending more on IT costs. So the business model can work. I don’t know how well the traditional brick-and-mortar banks are doing in this transition, however. They very well could have to spend a lot of money on IT staff, servers, and call centers, all the while maintaining their normal branches and staff levels. Customers probably won’t be happy with cuts in business hours or service, let alone whole branch closures.
Staff levels at branches are nowhere near what they would need to be if there weren’t so much online banking going on. I work for one of the biggest banks in the U.S., and customers who conduct most of their business online are the cheapest to service. IT costs are staggering if you look at them in isolation, but in-person transactions require a tremendous pool of people. Despite the cost of technology, it’s still more efficient than old-fashioned hi-how-are-you service. The biggest cost for any service industry is people, so if you can serve more customers per employee, your profitability goes up.
On top of that, computerized banking lets people conduct their business during non-traditional hours. It also provides the bank with a cheap way to cross-sell products, driven by the customer’s own interest level. Added flexibility and depth of relationship with a customer are very good things from a profitability point of view.
The only downside is the necessary ongoing investment in the ability to do more things online more easily – and doing it better than the other guys. But really, that’s just taking traditional service expenditures and moving them into new territory. If a service industry doesn’t do those things in all channels, they’re in the wrong business.
Computerized banking has been a huge boon for the industry.
Computerized banking = less cost per transaction = more profit for banks
Also, with portability of banking across state lines, and larger nationwide banks, people are less likely to close bank accounts and move them to a competitor these days. Account retention is big for banks and anything that helps them keep deposit accounts makes them money in the long run.