LONDON, April 11 Europe's top banks shut or sold 5,300 branches last year and the closures are likely to accelerate as customers embrace speedy online banking over traditional face-to-face contact.
Yet many lenders are holding back from massive cuts for fear of choking off a source of new business, alienating older customers and sparking a political backlash in isolated regions.
Branch closures are greeted with dismay when communities are left without a local bank. But they reflect an online revolution that is transforming the way people do everything from buying holidays and comparing insurance prices to borrowing library books and renting DVDs.
They are also an ideal way for lenders to cut costs and build up more capital after the financial crisis.
The figure on closures or sales last year was compiled by Reuters based on year-end statements from 26 of Europe's 30 largest listed banks. The other four do not disclose the figures routinely and would not provide them.
As many as 40 percent of Europe's bank branches are expected to close between 2013 and 2020 as the "digitalisation" of banking takes hold, says consultancy firm Bain & Company.
That would mean 65,000 fewer branches across the EU, based on European Central Bank data showing there were almost 218,000 bank branches across the region at the end of 2012.
"It's only the start of branch closures," said Bain's head of global retail banking, Dirk Vater. "I've been a banking consultant for more than 20 years. For the first time, we'll really see some dramatic changes... The industry will be disrupted."
The most drastic cuts have come in Spain, where many banks are still struggling to recover from a property crash and debt crisis and have taken a hatchet to costs.
A September 2013 study by Deutsche Bank analysts found Spain had more branches per person than any other market they track.
Bankia, cobbled together from seven failed Spanish regional banks and bailed out in 2012, has slashed 37 percent of its network, or 1,100 branches in 2013.
The other four Spanish banks in the top 30 - Santander , CaixaBank, BBVA and Banco Popular Espanol - cut a combined 1,774 branches. Some went as banks sold foreign units, but most cuts were in Spain.
"Bank branch networks need to keep shrinking," Maria Dolores Dancausa, CEO of mid-sized Bankinter, said at a Madrid conference in April. "I don't know if I would dare predict if that will be by half or if it needs to be more than half."
Italy, Cyprus and Germany were also singled out for special mention as being "over-branched" in the Deutsche report, but banks from those countries, with the exception of Italy's UniCredit, cut at a slower rate than the 6 percent contraction across the 26 European banks.
Online banks have already shown it is possible to do without an established retail network and traditional lenders are scaling up their online networks.
The shift to internet banking means fewer people are choosing to visit their local bank.
Royal Bank of Scotland, which has more branches than grocery chains Asda and Sainsbury's combined, said it has seen a 30 percent fall in branch transactions since 2010.
Deutsche Bank analysts say retail banks can cut their expenses by up to 15 percent over the medium term by cutting branches and repositioning those that remain into smaller offices with fewer staff.
Industry newcomers are embracing a branchless world. Metro Bank founder Anthony Thomson this week announced an online-only UK bank dubbed 'Atom' to launch in 2015.
Yet some banks have decided bricks-and-mortar networks are a vital part of their business and are not cutting deeply.
Deutsche's head of European banks research, Jason Napier, believes a UK bank can get by with as few as 500 branches in the long term. But Lloyds has 2,254 and has committed to keeping them all open under a strategic plan that runs to the end of this year.
In Germany, another market singled out as "over-banked", Commerzbank cut just 0.43 percent of its network last year and executives have recently spoken of the bank's total commitment to its branch network.
Cutting branches means fewer staff, lower business rents and other overheads and can yield quick cash from the sale of valuable land and buildings. But it is not cheap to do.
"They've got exit costs relating to personnel and leases ... with branches and employment both sensitive (political) issues," said Napier.
IPADS, COFFEE, ARMCHAIRS
Ian Walsh, global head of retail banking at Boston Consulting Group, said the future of bank branches wasn't just about closing them. "Banks are looking to optimise their branch networks rather than eliminate it," he said.
BNP Paribas added plant-covered wall, iPads for customer use and a touchscreen desk at its refurbished flagship branch near the Paris Opera in 2011. Visits to the branch had increased 40 percent by last year, the bank said.
Virgin Money, one of a handful of "challenger" banks emerging in Britain, last month opened its fourth "lounge" for customers, where they can drink free coffee and fruit juice or biscuit, use iPads or watch television from an armchair.
You can even play the piano or a board game. But staff do not process any banking transactions. There is free Wifi and customers get help logging onto their online accounts, but there are no tellers or ATMs.
Walsh said relatively few bank customers want to do everything online and most still want branches for face-to-face conversations about complex products such as mortgages.
RBS is refurbishing 250 branches to remove counters so staff can talk more easily to customers and investing 600,000 pounds in five extra mobile banks for clients with no branch on their doorstep, an approach long tried and tested in Spain.
Efficiencies like mobile branches and part-time outlets can work well, Walsh said, but slashing branches can be dangerous.
"If you close branches .... before you ensure you still have reach into those customers, you risk cutting off the blood supply to the bank," said Walsh. "We are bullish about the importance of branches as a key channel in retail banking." ($1 = 0.7204 euros) (Reporting By Laura Noonan; Additional reporting by Sarah White in Madrid, Steve Slater and Matt Scuffham in London; editing by Tom Pfeiffer)