Why Is JPMorgan Chase Building Branches While Other Banks Are Closing Them?

One of the primary storylines in banking nowadays revolves around the slow death of branch banking. But don't tell that to Jamie Dimon, Chairman and CEO of JPMorgan Chase . Dimon told analysts at a recent industry conference that the nation's biggest bank by assets will build as many as 100 new branches over the next few years.

The problem with branch banking is that consumers are migrating to alternative channels to deposit checks and transfer money. A substantial share of bank customers already bank online. And now they're also adopting mobile banking through smartphone apps. You can see this in the chart below, which tracks the number of active online and mobile accounts at Bank of America , JPMorgan Chase's closest rival in terms of the breadth of their product offerings.

The net result is that fewer and fewer transactions are being conducted in bank branches. FMSI, a consulting firm that tracks the performance of bank branches, estimates that transaction volumes at credit unions and community banks have fallen by 45% since 1992. Meanwhile, the hourly pay rate of branch employees has increased by 90% over the same period. This means that the cost of each in-branch transaction has risen by 133.3% in just over two decades.

Bank of America and others have responded by reducing their branch counts. But JPMorgan Chase seems intent on going against the crowd. Speaking at the Barclays Global Financial Services Conference, Dimon shared the bank's strategy to grow in markets where JPMorgan Chase doesn't have a presence:

Beyond the fact that this goes against the prevailing winds in the bank industry, Dimon's strategy to build branches, as opposed to buying them from competitors, which is a much cheaper way to acquire a physical footprint in a city, evidences a new reality facing the nation's three biggest traditional banks, JPMorgan, Bank of America, and Wells Fargo. Because these three banks each control more than 10% of the nation's deposits, they're prohibited from growing through acquisition by the Riegle-Neal Act of 1994 -- which gave nationally chartered banks the power to branch across interstate lines for the first time since 1927.

The point here is that branches still matter. "Market share in [a particular] area is really important," said Dimon, referring to the need to have a physical presence in major metropolitan centers. "Convenience is [also] still really important," he went on. Consequently, while building branches may not be the most economical way to gain market share by offering convenient places for new customers to open deposit accounts, it's better than doing nothing at all.

The article Why Is JPMorgan Chase Building Branches While Other Banks Are Closing Them? originally appeared on Fool.com.

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