IT MIGHT be an uncomfortable truth for many to hear, but the UK is dramatically over-banked for the digital age. There are a little less than 10,000 bank branches across the UK, far fewer than the approximately 38,000 in France, for example. But for the UK, this is still too many. Lloyds Bank seems to agree and plans to close 150, but we think more closures will follow.
Deutsche Bank and the consultancy CACI recently concluded that one could build nationwide coverage with just 800 branches. Lloyds currently has over 2,200 physical outlets, Barclays 1,500, against Nationwide’s 800 – and there is a clue in the name there. If the UK’s largest mutual is what its name suggests it aims to be, 800 branches are indeed sufficient for country-wide coverage. For Lloyds, RBS/NatWest, Barclays, HSBC and Santander, this in aggregate would suggest 4,000 branches need to be closed – that is two in every five. With transactions per branch declining by nearly 10 per cent each year and likely to ultimately halve (according to Lloyds), the challenges for the much beleaguered UK high street look set to continue.
The bank branch is not completely going away. There are a number of transactions that can only take place within a branch with a well-trained intermediary present, and the big high street banks – especially those that are partially taxpayer owned – will not want to court negative publicity by shutting branches and depriving consumers of choice. But it is hard to believe they would start where they all are, in terms of physical footprint.
Transactions per branch are declining because digital channels now account for 40 per cent of business – and rising. Lloyds has also suggested that 9,000 jobs will go, and again this could just be the start. When did you last enter a bank branch and how happy were you to be there? I would suggest that, in this digital age, queuing up to cash a cheque – to hand over a signed piece of paper to a cashier – feels very anachronistic to most. Perhaps now is the time to consider smaller micro-branches or fully operational branches within supermarkets, as some of the competition has done in the US. Certainly, the current banking footprint is too big and not designed for the digital age.
The other big challenge for the high street banks is disintermediation. From new online wealth managers and peer-to-peer lenders, through to PayPal, the transactions business, technology is increasingly utilised by companies disrupting some of the banks’ traditional activities. For many banks, their digital strategy has not been about innovating and leading from the front, but instead has focused on being a “fast follower”. But change is afoot and the large banks are starting to recognise that digital is becoming their primary interface with the customer and are investing accordingly. In the meantime, with consumers having more ways of paying for things, more places from which to source loans (such as crowdfunding), or indeed simply choosing instead to opt for one of the new “challenger” banks, more choice is ultimately good for us all.
However you look at it, the high street banks will need to innovate and change with the times if they are to remain relevant to their customers. To do this and build the new, they will first need to shed some of the old. And that means more branch closures.