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Why does Citibank want to open more branches in the age of online banking?

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A couple stands outside a Citibank branch in Washington, D.C.

Physical bank branches are good for building relationships with customers whom the bank hopes will buy more services over time. Andrew Caballero-Reynolds/AFP via Getty Images

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Citigroup CEO Jane Fraser recently said that the bank is considering opening more branches in more cities. That seems a bit counterintuitive in this age of Venmo, Cash App and customers with years of online banking experience. Why would a bank want to open new branches?

Brick-and-mortar bank branches still play a few key roles. “People are not taking out a mortgage with an app,” said Mayra Rodríguez Valladares at MRV Associates. She said branches can help customers with issues that can’t be handled easily online.

“You still want to go see a human being who’s going to go explain to you what the mortgage is, what the responsibilities are, what the rates are,” Rodríguez Valladares said.

The second function of a physical bank branch is that once you walk in, bank employees have an opening to try to sell you other services, Rodríguez Valladares said. And over time, “maybe I take out a small, you know, student loan, or a personal loan. And then a couple years later I’m now ready to move on, and I’d like a mortgage, and so I start to develop a relationship with that person. Those are big financial products.”

Additionally, slapping a bank’s logo on buildings throughout the country can be good advertising for the bank’s brand.

“You know, being the top of mind, as the biggest brand, that’s got to be an advantage in thinking about where to invest dollars,” said Barbara Kahn, a marketing professor at the University of Pennsylvania’s Wharton School of Business.

Right now, investing in new bank branches is pretty affordable. “Effective rents are dropping and vacancy rates have been increasing,” said Paul Habibi, a principal at the real estate consulting firm Grayslake Advisors. “And so for those who are in the market, it’s a pretty opportune time to take up that new space.”

Citigroup has a good reason to be opening new branches, said bank analyst Gerard Cassidy at RBC Capital Markets. Yes, it’s a big, international bank, but this part of its business has room to grow. “Their U.S. consumer franchise is subpar for the size of the bank that they are,” Cassidy said.

While younger people might be content with online banking and apps like Venmo and Cash App, eventually they might want to walk into a physical bank branch, Cassidy said. “As they become more affluent, and they need more banking services, just having a Venmo account may not support all of their needs.”

Bigger banks will continue pursuing a hybrid model with physical branches and online services, Cassidy said, to give customers more options.

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