As banking goes mobile, branch closures rip through local economy
Phil Arlia has been dispensing medication in Pitcairn since 1968, but he was more than a pharmacist.
He was a kind of banker.
“We always had a courtesy of cashing customers’ paychecks, state checks, any kind of check,” said Arlia, owner of Phil’s Pharmacy on Broadway Boulevard.
But he stopped cashing checks when the borough’s only remaining bank, a Citizens Bank branch, closed last March. Arlia no longer had fast access to cash to replenish his register when it got low.
The branch closure made it more difficult for Pitcairn residents to access cash to spend at local businesses.
Alria estimated his store’s foot traffic has fallen 15 to 20 percent since Citizens closed, highlighting the hidden economic impact to communities when banks leave.
Last year, 1,407 bank branches closed in the United States and Pennsylvania had a bigger net loss than any other state, according to Charlottesville, Va.-based SNL Financial. PNC Financial Services Group has been among the leaders in this trend, closing 240 branches since 2013.
Bank industry officials say branches are becoming less relevant in a digital age.
“The consumer is driving branch closures,” said Tom Crosson, a spokesman for the Consumer Bankers Association, in Washington. “Today, consumers are telling the bank that they want to do more of their banking by phone.”
The push to replace traditional branches with ATMs and mobile banking services has raised concerns about the impact on low- and moderate-income communities like Pitcairn.
A branch closure is more than an inconvenience to depositors, critics say. It shakes the financial underpinnings of a local economy by making it more difficult for residents to manage their money, apply for loans and cuts off opportunities for financial literacy.
“I think this is a class war,” said Mark T. Williams, a banking expert at Boston University and former bank examiner for the Federal Reserve.
Financial institutions are required to notify federal regulators of branch closings under the Community Reinvestment Act, or CRA, which was passed in 1977 to protect low-income neighborhoods from discriminatory credit practices. Those regulators — the Office of Comptroller of the Currency, Federal Reserve Bank and Federal Deposit Insurance Corporation — consider a bank’s branch network when reviewing it for CRA compliance, but cannot actually prevent a specific branch from closing.
The banking industry is lobbying for changes that would give branches less weight in the CRA review, which happens every three to five years. Banks say they can deliver many of the same services through ATMs or mobile devices.
It is unrealistic to expect low-income communities to bank that way, said John Taylor, president and CEO of the National Community Reinvestment Coalition in Washington.
“There’s this blind belief, almost naiveté, that everything can be done on mobile phones,” Taylor said.
PNC Bank in the midst of a “retail transformation” that is placing greater emphasis on digital banking. Branches are not going away, PNC spokeswoman Marcey Zwiebel said, but when 47 percent of its customers are doing most of their banking through other means, the physical footprint becomes less relevant.
“That has really prompted the evaluation that we have done of the network and prompted changes we have made to make sure we are serving customers where they want to be served and the way they want to be served,” Zweibel said.
Branch closings can negatively affect local businesses even after new institutions move in to replace them, according to a recent study by Hoai-Luu Nguyen, a Ph.D. candidate in economics at the Massachusetts Institute of Technology. The number of new small business loans in a community declined 13 percent following a branch closing, Nguyen found, and stayed depressed for several years after that.
Relationships with local bankers can make it easier for small businesses to get loans. That used to be true in Clairton, an economically depressed city where business owners relied on trust with their lender, local officials said.
“In the old days, if you were in business for 10 years or more, you called them up, told them how much money you needed and they’d give you a loan,” said Roger Tachoir, a Clairton school board member who has owned Tachoir Auto Body for 42 years.
Clairton has been without a bank in town since PNC closed its only branch there in 2013. But the cozy relationship Tachoir described evaporated before that, starting with heightened lending requirements after the financial crisis and later from cutbacks in services and staff turnover. “Toward the end, it was like a merry-go-round,” Tachoir said. “It got to the point where you didn’t know anybody.”
Business owners in Clairton and Pitcairn said they were inconvenienced when their bank left town, but the real economic harm was borne by their customers, who are unlikely to be served by online banking services.
“A lot of them are older, in their 70s and 80s, and they’re not doing the computer thing,” said Janet Lingelbaugh, a Phil’s Pharmacy employee.
Nor do they drive.
Kathy Hoke, 70, lives in a retirement community in Pitcairn. Hoke doesn’t own a car, but she used to walk the half-mile to Citizens. Now, she rides a bus to get to the nearest branch.
“I have to go down to Turtle Creek,” she said. “I think it’s an inconvenience to everybody here.” Williams, of Boston University, said fewer branches could lead to a generation of less savvy consumers.
“There’s no substitute for human interaction in learning financial literacy, that kid going into the branch and setting up their first account,” Williams said.
The Citizens branch in Pitcairn is vacant, and Pitcairn officials want a new bank to replace it. Don’t count on it, said Taylor, of the National Community Reinvestment Coalition.
“When branches close, they’re like dinosaurs,” he said. “They never come back.”
Chris Fleisher is a staff writer for Trib Total Media. He can be reached at 412-320-7854 or [email protected].