If your income is below a certain level, you won’t be invited to some places: black-tie galas, prime rib night at the country club, presidential campaign fundraising dinners, and the like. But recent news suggests that your friendly nationwide retail bank might not want you around, either, even though you bank with them. And as banks shun the less-than-wealthy and close underperforming branches, it’s elderly people who will be hurt.

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A recent story Crain’s New York Business about Chase’s branch banking operations opens with a telling detail — Chase recently closed a branch in a poor New Jersey county, only to open another in a wealthy New York county. “Get used to it,” writes Crain’s, “As changes in government regulations and consumer habits make it harder for banks to profit from the bedrock business of branch banking, Chase…is taking steps to weed out unprofitable customers and focus on wealthier ones.”

Speaking at an investors’ conference, a Chase executive said nearly half of the bank’s customers “would be unprofitable once all the new regulations kick in…even after excluding from the equation such overhead as branch rent expenses, 1 in 7 retail customers wouldn’t generate enough revenue to cover the $300 it costs the bank annually to maintain their accounts,” reports Crain’s.

This raises a number of questions, among them: is it wise for banks to think about the costs of their branch banking operations in this way? And who loses out if nationwide banks like Chase start cutting back on their retail footprint?

Real estate, real costs

A retail footprint is by no means cheap. Aside from rent, they have substantial labor costs for tellers, loan officers and security. And while the fluorescent lighting may help keep costs down, there are also energy bills to consider. With so many more banking services available online, or at ATM vestibules, it’s hard to imagine nationwide banks don’t see their branch network as a bit of a millstone around their necks.

As a result, the big banks are seriously reconsidering their branch strategy, reported The Economist last June. Bank of America will be closing 10% of its branches, according to the story. A report by commercial real estate firm Jones Long LaSalle from last year estimated that banks will reduce their square footage per office worker from 200 square feet to as low as 50 square feet  by 2015, in the interest of efficiency and cost savings. The Economist predicts there will be more mini-branches in supermarkets, which cost 85-90% less than a traditional branch.

However, The Economist also points out that while ATMs and mobile banking are great for depositors, the more profitable side of the banking business is lending, which benefits from a brick-and-mortar footprint. By cutting back on retail in the short-term, banks might be shooting themselves in the foot.

Think of your mother

Furthermore, by reducing their footprint, banks could potentially harm their relationship with their most vulnerable, and most loyal customers: the elderly.

“The elderly and many, many others like to have a physical location associated with their money,” said Arjan Schutte, managing partner of Core Innovation Capital, a venture capital firm that invests in companies that help the underbanked, in an email. “Those who want branch services may have to travel further.”

Baby boomers just started becoming seniors last year. As time marches on, the United States will begin to resemble Florida, from an age demographics standpoint. And as boomers trade their station wagons for Rascals, they might be perturbed to find their local strip mall bereft of its Chase branch.

Schutte points out that with Social Security payments going digital next year, this could lower seniors’ demand for retail banking services. Still, as banks like Chase decide to shut underperforming branches, seniors could be hit harder than others.

By the time someone is 40 years old, they’ve bought most of the banking services they’re going to buy. Demand for banking services peaks between 25 and 40 years of age, said Ron Shevlin, of the Aite Group, in a phone conversation. If a branch is underperforming, it might be in a location with a poor population, but it might also just be in a NORC — a naturally occurring retirement community.

There might be a sliver lining here for smaller banks. however. If giants like Chase and Bank of America feel the need to pick up and leave certain locales, community banks could be looking at an influx of customers. If they’re based in your community, they don’t have anywhere to run to.

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