The answer that the banks responsible for the closures will give you is that their customers are increasingly turning to mobile banking and away from bricks-and-mortar locations.
They’ll say that the future of retail banking is online and that by closing low-performing and low footfall branches, they can invest in better products and services that their customers will actually use.
They’ll say that they have to cut costs to compete with each other and, increasingly, with the Challenger Banks that are here to “eat their lunch”.
Challenger Banks like Monzo, ATOM and Starling are starting from scratch – surveying the banking landscape and making strategic decisions about how to steal customers from the incumbents. And what’s one of the major decisions they’ve made?
No branches. Digital first means no expensive leases, no refurbishment costs and fewer pesky employees getting in the way.
Despite the growing prevalence of online and mobile banking, no market is fully digital—for the next three to five years the human touch will remain important for 30 to 50 percent of consumers in most markets.
However pervasive the coral calling card of Monzo becomes with the under-30s, it’s a long time before someone who has banked with Natwest for fifty years is going to throw in the towel and go branchless.
The situation begs a few questions:
These questions are of course not limited to the future of retail banking alone, but have significant implications for many industries facing similar disruption.
However, the cornerstone role that retail banking plays in society, the intense regulatory scurinity experienced by all in the financial sector, and the relative maturity of customer adoption of mobile banking solutions means the industry is a particularly interesting battleground for the future of the high street.
In modern retail banking, you don’t need branches.
Everything that you need to make up the functions of a retail bank can be done online, directly on someone’s mobile phone.
Trying to open a bank account?
Want to transfer someone some money?
Doesn’t matter if they’re a new or existing customer, you can do it straight from an app.
Lost your card?
Freeze it on your mobile in three clicks without calling anyone.
Need a loan?
We’ve got you covered up to £30,000 using just your fingerprint and a secure-code.
You can argue all you want whether this is a good or a bad thing, whether you want to do all your banking without speaking to another human being or not, but the fact is, in modern retail banking, you don’t need branches.
It’s also a fact that branches are necessarily expensive – rent is high, upkeep is annoying, you need staff there all day, people to clean them at night. It is likely for these reasons that most of the new Challenger Banks haven’t opened a branch between them (I’m not counting Metro Bank and CYBG here as challengers – they look more traditional, even if their approach and positioning in the market does differ slightly).
Despite all this, the number of branches a bank has is still a very accurate indicator of overall market share. This is because, right up until just a few years ago, branches were essential for the running of a retail bank. Digital technology has simply done what it so often does – change the game faster than the players can read the new rules.
Does this mean that those banks without branches are sitting there, feeling pretty in their digital towers, waiting for their cumbersome rivals to toppel and fall?
Probably not – Monzo reported that its prepaid card scheme loses around £50 per active customer per year. It’s not like they’re sitting there making shed-loads of cash, despite their lofty valuations. This is because banking has another, less-commented-on parallel with other digital business models – people expect it to be free…
Banks make money by charging interest on loans, charging fees for overdrafts, credit cards and the like. These are not always very high margin undertakings, and for new banks, they rarely happen in the volume required to make any money whatsoever.
That’s why Challenger Banks talk of becoming platforms or marketplaces, where you can buy anything from a phone contract to a new utility provider, with the bank taking a small affiliate fee. The issue with all these things is that they require a lot of trust for someone to start using any one institution as the focal-point for so many transactions.
And it is in this context of trust and the need for diversification that branches may just come in to their own. Maybe. Just maybe, branches – or more significantly the people in them – might actually be a real help in the future of banking, not a cost.
If a bank doesn’t need a branch, then branches have to add some incremental value. There will be an obvious an unavoidable trend towards branches operating as mobile-led banking hubs. In the same way as a customer can do all they need on a mobile phone, so will branch staff be equipped with tablets to serve customers – either enabling them to do it themselves next time or at the very least speeding up the time it takes to serve each person.
In addition to technology-enabled staff, there will be increasingly effective self-service machines that can help customers pay in cheques (for as long as those crazy pieces of paper are still around), open accounts, review the best mortgage deals etc.
Logically, this points in two directions. Firstly, staff in these techno-branches will need much greater knowledge of all a bank’s products and services – if they have an iPad round their neck, it would look pretty stupid to say that they can’t help you. Secondly, there will be fewer of them – if you can serve more customers in a shorter space of time, you’re going to have fewer colleagues.
These colleagues will be there for those customers who are just never going to go online by themselves, for whatever reason.
They’ll be there for the odd millennial who wants to go in to ask about whether you really need to have a credit card to build up a good credit rating, or who wants to ask professional advice ahead of taking out their first mortgage. And the colleagues will be there to offer digital skills training to their customers, to offer small business financial advice, to offer local community groups legal support.
Some banks have already started to open up ‘concept branches’, taking things to a logical extreme, where the branch really is an embodiment of the bank’s brand. Trying to copy the success of higher-end concept stores from the fashion and retail space. Perhaps if you walk past an HSBC branch and it looks really cool, then you’ll be happy to stick with them through the tough times, when interest rates are low and PR is weak.
Perhaps branches will become coffee shops, where staff roam around with as much knowledge of espresso as they do of interest rates. If that’s the case, why have a branch at all, why not just put bank staff in actual coffee shops?
You know, places where people actually want to go for a chat. Community banking projects operate roaming banks that go back to visit locations where permanent branches have been closed – providing the same service, just at a fraction of the cost.
So it may well be that the best thing really is for banks to shut their branches and move everything to a remote, multi-located model with roaming bankers across the country.
If a bank saves more money by shutting low-performing branches then it can invest that money in better services for customers. However, a survey found 66 percent of adults in Britain do not trust banks to work in the best interests of society. People don’t think banks are doing what they should do.
So perhaps, there’s more to a bank than making money. Perhaps there’s more to business than making money. Perhaps, and this may sound ridiculous, perhaps a bank should look for how it can best contribute to society and serve the people that have propped them up for the last ten years.
In some instances, that might be creating the most amazing digital experiences you can imagine – a virtual reality Gringotts vault where you visualise all of your money as though it were wizard gold.
And in some instances, it might be keeping open a branch in a local Welsh village because the branch has been there for longer than anyone can remember, and the high street wouldn’t look the same without it.
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