Who’s going to pay for bank branches?

The relentless decline in the number of bank branches in the UK and elsewhere features regularly in the press. In May 2016 BBC News stated that 600 branches had closed in the previous year. It’s no surprise that customers are using apps and online for managing their banking and using branches less and less; it’s more convenient, it’s immediate and the service is often better.

So who still uses bank branches? The declining number of people who don’t have smartphones or computers, retailers who still handle cash, customers when the bank insists on a personal appearance, e.g. to open an account. I only ever use a bank branch when it is impossible to complete the task in app or online, like when someone inconveniently send me a cheque.

So what does the future hold for bank branches? For some banks, especially the new digital banks, it’s no branches. Another model that works well for Handelsbanken is small branches without counters that deliver a personal service without the overheads of traditional full service branches. Where new banks want to offer a limited counter service, some of them are looking at using Post Office branches.

The challenge for the legacy banks is how to pay for the overheads of their branch networks when only certain groups of customers are using them. Subsidising the cost from non branch using customers risks making those customers’ products uncompetitive against new branchless challengers. Loading the costs onto branch using customers will in many cases hit the less well off, as the branch closure programme already does.

My view is that the banks are avoiding tough decisions and ‘banking’ on the decline of cash and the increase in smartphone and online usage to solve the problem over time. This will eventually allow them to close many more branches and run all branch based activity through a small number of branches. It will be interesting to see which legacy bank is the first to accelerate branch closures to get to a much smaller network and accept the loss of some customer segments.

Originally published on DisruptiveViews.