Charted: Why Branch Banking Is Dying in America
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Why Branch Banking is Dying in America

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the end of branch banking

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The Briefing

  • In the last decade, 27,943 bank branches have closed in the U.S.
  • The increasing prominence of mobile and digital banking is leading to lighter demand for in-person banking services

Branch Banking Is Dying

The 2008-09 financial crisis was triggered by reckless banking practices that dominoed into the global economic system.

Though the world has since recovered and moved on from the crash, the banking system that ignited such damage has in some ways never been the same.

Take U.S. branch bank net openings, which is undergoing a notable trend reversal. According to the Federal Deposit Insurance Corporation (FDIC), for 11 years and counting, the number of U.S. bank branch closings has exceeded the number of branch openings.

YearOpeningsClosingsNet
20201,2512,788-1,537
20191,4603,090-1,630
20181,5633,134-1,571
20171,0652,986-1,921
20161,0842,826-1,742
20151,2092,689-1,480
20141,3512,996-1,645
20131,4702,500-1,030
20121,6232,570-947
20111,9012,364-463
20101,8972,892-995
20093,4572,877+580
20083,5622,300+1,262
20075,1682,024+3,144
20063,7591,609+2,150
20053,9472,026+1,921
20044,0952,217+1,878
20033,4042,271+1,133
20022,5562,469+87
20013,1932,982+211
20003,2743,826-552

There are fewer banks in America with every passing year—in 2020 alone, a deficit of 1,537 branches was recorded, almost 2% of the roughly 85,000 branches in the country.

Branching Towards Digital

Unsurprisingly, the fall in branch banking coincides with the adoption of digital activity in the banking space. And this is especially true for younger, tech-savvy generations.

Undoubtedly, convenience is a big factor, as now nearly 50% of traditional branch banking activity can be conducted online. As a result, mobile banking activity occurs most frequently on one’s couch or bed.

The Good Ol’ Days

The decline in the number of branch banks also reflects the overall downturn of the broader banking industry. In that, the industry faces a slew of challenges including:

1. Contracting net interest margins
Net interest margins are the difference between the interest income generated for financial institutions and the amount they pay to lenders.

2. Fintech industry disruption
Fintech is bridging the gap between finance and digitization, sleek modern technologies enable firms to optimize financial services and the customer experience.

3. More stringent reserve ratio regulations
Reserve ratios are a portion of reserves that a financial institution must hold onto rather than invest or lend.

Investors are fleeing to other avenues as is evident in the stock price performance of the big U.S. banks. As a result, underperformance has been a common theme in the last decade.

 Number of U.S. BranchesStock Price Performance
(Jan 2011 - Jan 2021)
Change Relative to S&P 500
JPMorgan Chase5,016208%+17%
S&P 500191%
Bank of America4,265116%-75%
U.S. Bancorp3,06776%-115%
Citigroup70425%-160%
Wells Fargo5,195-2%-193%

What Lies Ahead

Yet, despite the progress towards digital banking, the U.S. is still a laggard. For instance, large cohorts of Americans still use cash as a frequent transaction method, while the country’s mobile payment penetration rates are lower than most developed nations.

As a percentage of smartphone users, 29% of Americans have adopted mobile payments. A tepid figure relative to Denmark at 41%, and India at 37%.

America’s fierce economic rival, China, has a whopping 81% of smartphone users that have adopted mobile payments. That’s 801 million people, compared to America’s 69 million. Adjusting for population disparities, China still has 2.7x more mobile payment users.

If the U.S. follows on the path of other more fintech savvy countries, visiting a bank branch and using physical cash may become as increasingly antiquated as writing a check is today.

Where does this data come from?

Source: Federal Deposit Insurance Corporation
Notes: This data was updated last on January 8, 2021

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AWS: Powering the Internet and Amazon’s Profits

Amazon is best known for its sprawling ecommerce empire, but three-quarters of the company’s profits actually come from cloud computing.

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This graphic shows the surge in AWS profits which now represent 74% of Amazon's total profits

The Briefing

  • Cloud computing has become a hugely important element of Amazon’s business
  • In 2021, AWS accounted for 13% of Amazon’s revenue, but clocks in nearly three-quarters of their operating profit

AWS: Powering the Internet and Amazon’s Profits

The Amazon growth story has been a remarkable one so far.

On the top line, the company has grown every single year since its inception. Even in going back to 2004, Amazon generated a much more modest $6.9 billion in revenue compared to the massive $469 billion for 2021.

Most of these sales come from their retail and ecommerce operations, which the company has come to be known for. However, on the bottom line, the source of profit paints a completely different picture. That’s because 74% of Amazon’s operating profit comes from Amazon Web Services (AWS).

Here’s a closer look at the financials around Amazon and AWS:

YearAWS Operating Profit ($B)Total Operating Profit ($B)AWS % of Operating ProfitRevenue ($B)
2021$18.5$24.874%$469.8
2020$13.5$22.959%$386.1
2019$9.2$14.563%$280.5
2018$7.2$12.458%$232.8

Ultimately, the data suggests that the cloud business has been, and possibly will always remain, a higher margin business and consistent profit center in comparison to ecommerce and the physical distribution of goods.

A Glance at AWS

AWS is Amazon’s cloud computing service that provides the critical infrastructure for an assortment of applications like data storage and networking. With this, they help fuel over a million organizations including businesses like Twitter and Netflix and even both the U.S. and Canadian Federal Governments.

Here are some other notable entities and the monthly payments they’ve made towards AWS:

AWS CustomerMonthly Payments ($M)
Netflix$19
Twitch$15
LinkedIn$13
Facebook$11
Turner Broadcasting$10
BBC$9
Baidu$9
ESPN$8
Adobe$8
Twitter$7

Source: Continho (2020)

Based on these monthly figures from 2020, AWS collects $1.3 billion in sales a year just from these 10 customers, while raking in $62 billion of revenue overall. Moreover, this makes them the leader in the competitive cloud market.

Chart showing the market share of cloud computing companies as of 2021. AWS leads at 33%

In an industry worth an excess of $180 billion, Amazon’s 33% market share position exceeds both Google and Microsoft (Azure) combined. Their market share also surpasses the bottom six shown on the chart combined, who are formidable tech giants in their own right.

The Future of AWS?

AWS has been a cash cow for years and there have even been rumors of an Amazon split up, where AWS would spin off as its own entity. It’s believed by some that if the cloud segment of the business separates, it will be seen as a pure play on the cloud industry and will be awarded a higher valuation multiple by the market.

One thing is for sure, from the perspective of profits, Amazon could be better be described as a cloud company, with an ecommerce business on the side.

Where does this data come from?

Source: Amazon SEC Filings
Notes: Operating profit is the profit from the business before the deduction of non-operating expenses like interest and taxes.

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Ranked: These Are 10 of the World’s Least Affordable Housing Markets

An analysis of 90+ major cities reveals which ones are the least affordable housing markets based on their price-to-income ratio.

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The Briefing

  • For the 12th year in a row, Hong Kong is the world’s least affordable housing market, according to Demographia’s ranking of 92 cities in select countries
  • Sydney, Australia moves up one spot from last year’s ranking to take second place

These Are 10 of the World’s Least Affordable Housing Markets

It’s become increasingly difficult for middle-class families to purchase a home over the last few years—and the global pandemic has only made things worse.

According to Demographia’s 2022 Housing Affordability Report, the number of housing markets around the world deemed “severely unaffordable” increased by 60% compared to 2019 (prior to the pandemic).

This graphic looks at some of the least affordable housing markets across the globe, relative to median household income. The report covers 92 different cities in eight nations: Australia, Canada, China, Ireland, New Zealand, Singapore, the United Kingdom, and the United States.

The Least Affordable Housing Markets

Before diving in, it’s worth outlining the methodology used in this report, to help explain what’s classified as a severely unaffordable housing market.

To calculate affordability, a city’s median housing price and divided by its median household income. From there, a city is given a score:

  • A score of 5.1 or above is considered severely unaffordable
  • 4.1 to 5.0 is considered seriously unaffordable
  • 3.1 to 4.0 is considered moderately unaffordable

All the cities on this graphic are classified as severely unaffordable⁠—and, for the 12th year in a row, Hong Kong takes the top spot as the world’s most unaffordable housing market, with a score of 23.2.

Housing MarketNationScore
Hong Kong🇭🇰​ Hong Kong (SAR)23.2
Sydney, NSW🇦🇺​ Australia15.3
Vancouver, BC🇨🇦​ Canada13.3
San Jose, CA🇺🇸​ U.S.12.6
Melbourne, VIC🇦🇺​ Australia12.1
Honolulu, HI🇺🇸​ U.S.12.0
San Francisco, CA🇺🇸​ U.S.11.8
Auckland, AUK🇳🇿​ New Zealand11.2
Los Angeles, CA🇺🇸​ U.S.10.7
Toronto, ON🇨🇦​ Canada10.5

One reason for Hong Kong’s steep housing costs is its lack of supply, partly due to its lack of residential zoning—which only accounts for 7% of the region’s zoned land. For context, 75% of New York City’s land area is dedicated to residential housing.

Sydney moved up one spot this year, making it the second most expensive city to purchase a home on the list, with a score of 15.3. Besides Hong Kong, no other city has scored this high in the last 18 years this report has been released.

There are several theories for Sydney’s soaring housing rates, but industry expert Tom Forrest, CEO of Urban Taskforce Australia, boils it down to one fundamental issue in an interview with Australia Broker—supply isn’t keeping up with demand:

“Housing supply has been consistently not meeting demand in the Greater Sydney and across regional New South Wales…if you have supply consistently not meeting demand then the price will go up. That’s what happened and we’re seeing it in abundance.”Tom Forrest, CEO of Urban Taskforce Australia

The COVID-19 Impact

Middle-income earners were already feeling the squeeze prior to the global pandemic, but COVID-19 only exacerbated housing affordability issues.

As people began to work from home, high-income earners started to look for more spacious housing that wasn’t necessarily in the city center, driving up demand in suburban areas that were relatively affordable prior to the pandemic.

At the same time, supply chain issues and material costs impacted construction, which created a perfect storm that ultimately drove housing prices up.

But with interest rates rising and COVID-19 restrictions easing around the world, some experts are predicting a market cool down this year—at least in some parts of the world.

>>Like this? Then you might like this article: How Much Prime Real Estate Could You Buy for $1M?

Where does this data come from?

Source: Demographia
Details: The affordability score is calculated by taking a city’s median housing price and dividing it by the median household income. Anything over 5.1 is considered severely unaffordable
Notes: Data includes 92 metropolitan markets across eight countries; Australia, Canada, Ireland, Singapore, China, New Zealand, the U.K., and the U.S., as of the third quarter of 2021. Many European countries, along wth Japan, we excluded from the dataset, because information on median income was not readily available.

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