[Half of Bank Branches on Second Floor] Disappearing First Floor Stores... Even Building Owners Prefer Starbucks Over Banks

Land Prices Rise and Customers Decline, Banks Move to 2nd Floors
Branch Mergers Face Strict Regulations and Local Opposition
Meanwhile, Moving to 2nd Floors Avoids Financial Authorities' Scrutiny
Building Owners Prefer Bright Cafes with Longer Hours
Some Concerned About Increased Inconvenience for Financially Vulnerable Groups

[Image source=Yonhap News]

The background behind commercial banks relocating their branches to basements or second floors is 'cost efficiency.' Factors such as rental fees, the activation of non-face-to-face and digital finance, the emergence of internet-only banks, financial authorities' policies, and changes in landlords' preferences have influenced this trend. Major financial institutions have drastically reduced rental costs, which once amounted to hundreds of billions of won, through changes in their store location strategies. Some voices have also raised concerns that banks' strategy of locating branches on the second floor could reduce accessibility for financially vulnerable groups.

On the 24th, Asia Economy, in collaboration with Representative Yoon Doo-hyun's office, investigated the floor-level branch status of domestic banks and found that 52.5% of the branches of the four major banks?KB Kookmin, Shinhan, Hana, and Woori Bank?were located on floors other than the first floor. (Related article: [Exclusive] Half of branches on the 2nd floor... The formula 'Bank = 1st floor' is broken)

The biggest reason cited is rental fees. According to an analysis of Korea Real Estate Agency statistics by the Commercial Information Research Institute, the standard first-floor rent in Seoul in 2020 was twice that of the second floor. For medium to large commercial spaces, the average rent per 1㎡ on the first floor was 55,200 won, while the second-floor rent was 24,000 won, a difference of about 2.3 times. If a bank operates a 100㎡ branch in Seoul, those with first-floor locations must pay an additional 3.12 million won monthly.

The appeal of first-floor branches is gradually diminishing compared to the costs. This is because the number of customers visiting physical branches is decreasing. According to the Bank of Korea's 'Status of Internet Service Usage by Domestic Banks in the First Half of 2021,' the proportion of deposit, withdrawal, and fund transfer services conducted via internet and mobile reached 70.9% in the first half of last year. This is the first time the figure has exceeded 70%. In contrast, only 6.1% used teller services. From the banks' perspective, there is no longer a reason to maintain expensive first-floor branches.

Banks Save Hundreds of Billions in Rent... Voices Say "Customer Inconvenience Increases"

Another advantage is that banks do not need to worry about financial authorities or local residents. Moving floors within the same building faces fewer clear regulations or opposition. Financial authorities are tightening regulations to slow the pace of branch closures and consolidations. Last year, there was discussion about mandating banks to report the results of pre-impact assessments to financial authorities before closing branches. If mishandled, banks could face strong protests like those encountered at the Wolgye-dong branch in Seoul during consolidation efforts.

Through these floor relocation and cost-efficiency strategies, banks have saved hundreds of billions of won in rent. The four major banks spent 973.5 billion won and 984.8 billion won on rental costs in 2017 and 2018, respectively. However, through branch optimization, this was reduced to 212.3 billion won in 2020. As of September last year, rental costs were only 156.5 billion won, and further reductions are expected compared to the previous year.

Landlords' interests have also aligned with this trend. A representative from a commercial bank explained, "Landlords often prefer cafes like Starbucks over banks on the first floor. Since cafes always have their lights on and create a good atmosphere, it is difficult to secure prime first-floor locations even if banks want them."

Some express concerns that as more branches move to the second floor or basements, the inconvenience for financially marginalized groups may increase. Elderly and disabled individuals find stairs difficult to use, and most banks do not have specific regulations requiring elevator installations. Another commercial bank representative hinted, "Considering rental fees, we have continued to increase branches on the second floor or higher, but customers have started to raise complaints about the inconvenience."