The decline of the bank branch

According to the Campaign for Community Banking Services the rate of UK bank branch closures has accelerated, with banks on track to close around 650 branches this year, following 500 in 2014 and 222 in 2013. The report uses a number of different metrics to suggest that the decline in branch numbers is a completely negative phenomenon.

The banks are closing branches because their usage is declining in favour of technology. Whilst banking apps tend to be quite limited in their feature set (legacy banks have yet to work out how to transform their businesses into digital centric organisations), they do enhance customer engagement. As the banks improve their online account sign up processes the need for branches declines further.

Cash handling for shops is an issue when branches close but also an incentive for shops to focus on card payments. In smaller towns many retailers are reluctant to accept cards because of their perceived cost to the business (I’ve had many conversations with small retailers about the benefits!). However the fall in interchange rates should reduce this concern, provided retailers understand it.

A quote from the CCBS report is telling:

“Neither Santander, TSB nor new entrants like Metro, Handelsbanken UK and Virgin seem interested in filling the voids being created by the Big 4’s closures.”

The reason is clear; the challenger banks are not interested in opening lots of branches because branches are not the opportunity in retail banking.

From the perspective of helping banks reduce their cost base and reorientate their business towards a digital engagement model the closure of branches is both logical and a positive reflection on the move to digital. New app centric challenger banks will put increasing pressure on the legacy banks and unless the legacy banks adapt to the digital world they risk being left with an increasingly unprofitable customer base.