Rumours of the death of the bank branch are not greatly exaggerated

It’s one of the slowest burning issues in fintech but one that needs to be urgently addressed. 

Bank branches are closing at a rapid pace as digital methods of payments and banking soar. Yet, anxiety about what this means for millions of consumers who are not on board with the digital revolution in banking and still regularly use cash is very real. 

New research carried out by 3Gem on behalf of Transact Payments suggests that 68 per cent of UK citizens are “worried” about having no access to a bank branch in their area by 2027.

It’s an issue that affects millions of people and one that must come to a head soon as two trends: digital only banking and branch closures meet in the next few years. 

Wilting branches

In the world of tech disruption, venture capital and startups people like to use the word ‘moat’ to describe a competitive advantage a company has that is hard for competitors to overcome. This could be intellectual property, brand, technological skill or a network effect. 

For decades large banks had one of the best moats in the economy: a branch network - hugely expensive to set up from scratch -  numbering in the thousands and perfectly dotted across the UK, and sometimes the world. 

More than a decade ago, my own bank of the time HSBC helped me secure a new card to replace a lost one through its local Istanbul branch in Turkey in a matter of days. Very helpful and excellent customer service, although I am not sure if it was standard protocol or just had a very helpful local bank manager. Nonetheless, one that made me more a more loyal and sticky customer at the time.

Today the branch networks and the cash machines they house are more akin to a millstone around the necks of big banks. They are expensive and much less utilised than 10 or 20 years ago. 

In response, they are rapidly being shuttered, to the consternation and fear of millions of customers who rely on them. 

Between 2012 and 2021, the total number of bank and building society branches in the UK fell by 34 per cent to about 8,000.

After a pandemic fall, the annual numbers for bank branch closures is rising again rapidly, according to Which. 

Last year about 60 UK bank branches closed every month with a total 736 bank branches shut in 2021. This year, the trend continues with Barclays the latest bank to announce a round of closures, bringing its estimates to c.132 to be closed in 2022. So far 536 have closed or are scheduled for closure in 2022.

A report from the Economist Intelligence Unit and Temenos last year surveyed over 300 banking executives, half of whom were at the C-suite level, and found nearly two-thirds believe branch-based banking will be “dead” within five years, up from a third (35 per cent) five years ago.

Despite the clear concern about the issue most consumers rarely use bank branches. Nearly half of those surveyed (44 per cent) will only visit their bank branch in case of an emergency, while almost a quarter (23 per cent) “never” go. A third (33 per cent) say they go to their branch each calendar month. 

Cash is (not?) king

Access to cash is another large part of the puzzle and the UK cash machines network, which turned 55 years old this week, are also affected by the problem.

A large majority - 73 per cent - of the British public though still regularly use cash. More than 6 in 10 (62 per cent) are still using ATMs on a monthly basis in fact. 

More than half a century since the ATM’s launch a similarly large majority - 71 per cent - of people said they are worried that the elderly will be cut off from society due to a cashless future.

The pandemic prompted a particularly sharp drop in cash use, with cash payments accounting for just 17 per cent of all payments in 2020 and the numbers continuing to fall. 

Between July 2018 and February 2022, the number of ATMs in the UK fell by 12,968 or 20 per cent.

Solutions

The UK government last year launched a public consultation to examine legislation to protect access to cash. In the May 2022 Queen’s Speech, the government also pledged to bring forward a Financial Services and Markets Bill that would further add new protections.

The UK’s financial regulator the FCA also recently proposed tougher measures to stop banks from closing branches  

“We know that in some cases firms make decisions to close branches that are still being used by significant numbers of customers. We have also seen firms making decisions to remove facilities such as counter services from branches, or to permanently and significantly reduce the hours that branches are open,” the FCA said in a statement earlier this month.

“We have also seen firms making decisions to remove facilities such as counter services from branches, or to permanently and significantly reduce the hours that branches are open,” it added.

Share bank branches must be part of the solution and yet no concrete steps forward have been established. 

The Post Office network has also been widely tipped to play an increasing role in facilitating access to cash as well simple banking services although less so with regards to more complex services such as investments or lending. 

While digital banking and payments are transformational for a large number of people, there is clearly another story away from the fintech world. And as fintech grows away from an insider or early adopter phenomenon and more and more into everyday lives declining branches and cash machines are a problem that will have to be solved. The only question is how.

While the solution remains elusive, the direction seems clear bank branches are unlikely to be commonplace and a near cashless future seems inevitable. For millions of people that is a problem.