Retail ATMs, Prepaid Cards Partially Fill Growing Void as Banks Close Rural Branches

Banks have closed thousands of branches in recent years, hitting rural America especially hard and leaving retail ATMs, prepaid cards, and services from non-bank providers to fill the void, according to a new Federal Reserve report.

The “Perspectives from Main Street: Bank Branch Access in Rural Communities” report released Monday says that while banks opened some branches in the study period, 2012 to 2017, they closed many more, leading to a net loss of 6,764, or 7% of all branches. More than 5,400 of these closures occurred in urban counties, while 1,332 occurred in rural counties. The U.S. has 3,141 counties or county equivalents, according to the U.S. Geological Survey.

But by some measures the closures hit rural areas harder. Just over 40%, or 794, of rural counties lost branches. And 39 of 44 so-called “deeply affected” counties—those with 10 or fewer branches in 2012 that lost at least 50% of them by 2017—were rural. “Rural counties deeply affected by branch closures had higher poverty rates, lower median incomes, a higher share of their population with less than a high-school degree, and a higher share of their population who were African American relative to all rural counties,” the report says.

Into this growing void are stepping an array of financial companies, including retail ATM and prepaid card providers, payday lenders, and others. “Non-bank financial-service providers are filling critical service gaps, but are not meeting all needs or are doing so at higher cost to the consumer,” the report says. It also says while usage of online and mobile banking is growing, “branches continue to be an important banking channel for consumers, especially for deposit and withdrawal transactions and for resolving problems.”

In addition to bank data, the report includes impressions regional Federal Reserve bank officials collected during 12 “listening sessions” they conducted from July 2018 to January around the country. The purpose was to get feedback from residents, small-business owners, local-government officials and non-profit groups on how branch closures affected their communities. Nine of these sessions occurred in deeply affected counties.

“Participants in many of the listening sessions cited private ATMs as a key source of cash in the absence of a bank branch,” the report says. “However, those participants were nearly universal in reporting that such ATMs charged what they felt were high fees. Some also described incurring out-of-network charges by their banks when they used these private ATMs that, when combined with the fees charged by the ATM itself, resulted in a meaningful cost burden.”

Participants also reported the non-bank ATMs were mainly useful for withdrawing cash “and that most did not allow for depositing cash—another important need that technology cannot meet,” the report says. “Some business-owner participants who host private ATMs in their stores described losing money by doing so, primarily because they needed to drive several hours away to acquire cash to restock the machine because they no longer have a local bank at which to do so.”

Meanwhile, a number of consumers reported switching from using banks to prepaid cards after a branch closure. “However, some participants noted that the amount of fees on these cards has limited the number of people willing to make this substitution,” the report says. But it adds that “not all participants believed that prepaid cards carried high fees, and some described being very satisfied with the prepaid card they used, noting the ability to have their paycheck direct-deposited to it, the ability to withdraw cash fee-free at certain ATMs, and the ability to make payments online through a convenient mobile app.”