Empty ‘Ghost Banks’ Are Costly Side Effect Digital Transformation

Empty bank branches dotting Argentina are visually underscoring the nation’s transition to digital banking.

The world is currently undergoing an unprecedented transformation driven by changing consumer preferences and technological advances that has seen a rise in automated chatbots and future-fit digital engagements taking the place of once critical in-person interactions across industries.

The rapid rise of digital banking over the past few years has opened new doors for individuals seeking alternatives to traditional approaches to banking and investing, while reinventing key touch points for this new era, as technology reduces the need for tellers and other traditional roles.

But while customers increasingly do their banking online using digital channels like mobile apps, many banks are left wondering what to do with those branches that, while not technically closed, no longer see as much consumer foot traffic and have in effect become glorified — yet still expensive to upkeep — ATMs.

No Longer Serving Clients

Traditional financial organizations are finding it necessary to integrate next-generation innovations into their business models, and widespread adoption of digital technologies is increasingly changing the way consumers behave within today’s ever-evolving banking and investment ecosystems.

In Argentina, these broader macro changes and evolving expectations are running into series of complex regulatory hurdles that mean banks must keep their branches open regardless of how few customers are using them.

There are more than 100 of these ghost banks in Buenos Aires alone, and many banks across Argentina are being forced to renew their leases for underperforming locations, Bloomberg reported Tuesday (Jan. 10).

The reason companies can’t shutter their branches permanently, according to the report, is due to complex regulatory hurdles stemming from Argentina’s national central bank and the country’s employment unions, which say that technology shouldn’t replace jobs.

It represents an expensive dilemma for Argentina’s banking industry, a sector already subject to caps on lending rates and facing other strong economic headwinds, including historically high inflation and dampened consumer sentiment, the report stated.

Keeping each bank branch open on life support requires around $500,000 a year from the branch’s parent to maintain the required regulatory status quo, according to the report.

As a result of these measures, just three bank branches closed in all of Argentina through August of last year, representing less than 0.1% of all locations in operation. For comparison, according to central bank data quoted in the report, Chile shut 8.3% of its branches while Brazil closed 2.2%.

After all, in the face of a predicted recession and economic contraction, even the largest banks are doing what they can to cut costs, reduce spending, and streamline their operations.

Affected organizations include Santander Bank as well as local Argentine institutions such as BBVA Argentina, Grupo Financiero Galicia and Grupo Supervielle, all of which are pushing to close their physical locations in order to protect the health of their balance sheets, the report stated.

The empty ghost branches separately add difficultly to any potential mergers and acquisitions, as any agreed-upon deal would include taking on the sunk cost of maintaining unused branch locations, according to the report.

However, Argentina has a general election coming up this October, meaning the central bank’s position on branch closure authorizations could change in as soon as 10 months, pending a new administration, the report stated.

Representatives for the banks listed above have not replied to a request for comment by PYMNTS.

With the FinTech industry rapidly innovating digital financial services, many consumers believe that their traditional banks have not been able to keep up.

According to the report “Personalization Beyond Traditional Banking to Build Financial Wealth,” a PYMNTS and NCR collaboration, three in four U.S. consumers said they would be open to making the switch from their existing bank to safer and more cost-effective digital services.

Driving the appeal of digital banking is its industry-defining promise of personalization and convenience, which ties in neatly to the needs and preferences of an emergent audience of digitally native younger consumers.

As such, retail banks prioritizing a digital-first approach, and which boast strong data protection frameworks, will likely find themselves well-positioned to compete in the future banking landscape — as long as those central authorities they report to don’t add new regulatory hurdles along the way.