ARK Investments: Why do banks invest in branches

ATTN: PYPL & SQ shareholders

Why Do Banks Continue to Invest in Bank Branches?

Before the 2008-2009 financial crisis, banks relied on their branches to attract new deposits. Since then and until recently, they have been cutting back, as shown below. Increasing usage of digital channels and rising costs have led to a decline of branches in the US. Recently, however, banks have returned to branch expansion as a go-to market strategy.

ARK Bank Branches Dates
Large banks such as JP Morgan Chase and Bank of America have announced plans to expand by 400-500 branches. FDIC data also illustrates an increase in the buildout of banks’ physical infrastructure.

ARK Amount for Infrastructure
What is motivating banks to increase investment in physical infrastructure? Perhaps they are looking backwards at trends suggesting that higher bank branch shares lead to higher deposit shares.

Offline competitors may be doubling down on physical infrastructure to acquire customers, but digital wallets are taking more share thanks to much lower customer acquisition costs. Banks branches can spend anywhere from $350-1,500 to acquire a customer, while companies such as Square and PayPal pay only $20 and could become a much more effective channel for distribution for banks.

Long SQ