Photographer: Ron Antonelli/Bloomberg
Photographer: Ron Antonelli/Bloomberg

Over the years, former Federal Reserve Chairman Paul Volcker has quipped that the only innovation in the banking industry has been the automated-teller machine.

He's half right: The other one is online banking.

These two changes, however, have had major consequences as can be seen in a new survey showing that a third of all bank customers haven't set foot in a branch office in at least six months. More than a fifth haven't visited in a year or longer.

As the survey suggests, ATMs and online banking promise to do to the local bank-branch office what Home Depot did to family-owned hardware stores, what Wal-Mart did to general merchandisers and big-box category killers did to book stores and electronics retailers (before Amazon.com gave them a second pounding).

For a large number of U.S. (and overseas) banking consumers, the country's 96,000 bank branches are already obsolete. Cash, for those who still use the stuff, can be dispensed from an ATM, which doesn't even have to be in a bank office. The last two decades have seen the machines spring up at gas stations, convenience stores, nightclubs, even free-standing on street corners.

As for cashing checks at the teller window, who even bothers now that so many transfers and payments are made electronically? Since 1990, the peak year, the numbers of checks issued by the U.S. government and cleared by the Federal Reserve has declined 85 percent. What's more, when someone does receive a check, many of those same ATMs can handle the deposit.

In fact, even ATM deposits are on the way to becoming old school. According to the Wall Street Journal, nine percent of all checks Bank of America Corp. customers deposited in the fourth quarter came from photos shot with a smartphone or tablet. Before 2012, the bank didn't even measure how many checks were deposited this way.

And thanks to the Internet, almost everything a consumer needs from a bank can be done online, from viewing an account balance to applying for a mortgage to paying almost any kind of bill. The Web has also opened up financial services to all sorts of companies that compete with banks, from Quicken Loans to PayPal and Google Wallet.

The real mystery is why there are so many bank branches to begin with: one for every 1,400 households. That's twice as many as in 1970, adjusted for population.

What happened was a branching arms race, mainly in reaction to the lifting of restrictions on interstate banking that started in the late 1980s. Once banks could expand into nearby states and buy one another, they wanted to plant as many flags as possible in their new markets. Bank branches weren't just places to do business; they were branding outposts.

Never mind that technology was lowering operating costs, quickly making much of that real estate unnecessary. Bank shareholders should be ticked off and press banks to scale back on this misuse of capital. Bank customers shouldn't be too pleased either: Building all those branches was expensive, raising bank operating costs. Think about that next time you see how much interest you earn on your deposits.

Banks are catching on, but slowly. They have been closing offices at a pace of about 1,000 a year since 2009, when the number of branches peaked at about 100,000.

Bankers say there will always be people who want to use a bank office. They have a point -- almost half of bank customers visited branches for reasons other than using an ATM within the past month.

Nevertheless, odds are that as more people become comfortable with online banking, banks will find their branch networks diminishing in value sooner than anyone expects.

To contact the author of this article: James Greiff at jgreiff@bloomberg.net

To contact the editor responsible for this article: Lisa Beyer at lbeyer3@bloomberg.net