News broke today that Lloyds has doubled planned branch closures, with 200 set to close by the end of 2017.
The high street bank is also ramping up its job-cutting scheme by adding a further 3,000 cuts. Lloyds announced plans to trim the company down by 9,000 jobs and 200 bank branches in 2014. The intensification of these plans is in part due to the UK’s decision to leave the EU, and to the threat of a decline in interest rates, but has also been attributed to a general shift towards online banking among consumers.
Lloyds is not alone in having cut back on bank branches. In fact, RBS, HSBC, Barclays and Santander have each closed more branches in 2015/16 than Lloyds.
Online banking apps and fintech companies have dramatically risen in popularity in recent years. With more and more customers moving online, the relevance of branch networks has been on the decline. Online lenders – both peer-to-peer and balance sheet based – have been able to save on costs by doing away with physical infrastructure. As such, these companies can afford slimmer margins, and are able to pass savings through to investors and borrowers.
Cormac Leech, an analyst at Liberum, clashed with Matt Hammerstein of Barclays at the LendIt Europe 2015 conference (video below) on the subject of whether P2P lending will “take over banking”. In the debate, Leech referenced the “cost efficiency advantages” of fintech companies, which he attributed to their reliance on cutting-edge technologies, as opposed to human attention. Leech said that perhaps the “biggest challenge” facing banks is that they have the wrong types of people, and suggested that a large proportion of those people could be replaced by technology. While this comment drew laughs from the audience at the time, the banks now seem to be moving steadily in that direction.
McKinsey & Company published a report in February entitled “Cutting through the noise around financial technology”, which suggested that a significant proportion of bank revenues could be stolen away by fintech companies over the next ten years. The report said that a small number of fintech players are likely to “profoundly reshape certain areas of financial services”, with 10 to 40 per cent of bank revenues at risk by 2025. The defensive actions of Lloyds and other banks would appear to add weight to that suggestion.