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.

Time to switch your bank account?

Changing banks is one of those activities that most people seem to avoid. Despite the industry moving to seven day account switching, the number of customers switching bank accounts in the UK is virtually flat and according to the Payments Council, in 2014 there were only 1.2 million switches. The recent FCA report (Making Current Account Switching Easier) states:

“Since September 2014, annual switching volumes have begun to fall back and by January 2015 were 16% higher than when CASS was launched and only 2% higher than the November 2012 peak in switching volumes using the previous switching mechanism.”

The report from the FCA on the effectiveness of the Current Account Switch Service suggests this is because of consumer inertia and awareness and confidence in CASS being low. My experience of using CASS last year was good. Apart from a lot of paperwork that had to be completed, my switch went through as planned, with no errors. The FCA has suggested that account number portability would improve the situation but as the current system works it’s hard to see that spending a huge sum of money on making switching simpler will make a difference.

The Payments Council publishes data each quarter showing gains and losses by bank. Whilst the legacy banks are net losers (as expected) it’s impossible to build a clear view of challenger bank gains because some of them (e.g. Handelsbanken, Metro Bank) don’t provide data and others are included under parent brands (e.g. First Direct and M&S are included under HSBC). TSB data would be interesting as with 630 odd branches and a ‘new’ brand on the high street I would expect it to be making an impact but the most recent figures include it under then parent Lloyds. Last year TSB added 500,000 new accounts, many presumably from other banks.

I see the biggest barrier to encouraging consumers to switch banks being consumer inertia, driven by a perception that most banks are similar, both in products and service. We have yet to see much market differentiation via product differentiation. Whilst there are some excellent ‘challenger’ banks out there, their profile is often very low and their range of accounts limited; some like Aldermore and Charter only offer deposit accounts. As the challenger bank market grows and the number offering current accounts increases, consumers will have more choice of where to switch. Digital banks like Atom and Starling plus the RBS spin-out Williams & Glyn will add to the choice. However ultimately it will be up to consumers to show their banks what they think of them; identify more appropriate organisations for their banking needs and move their accounts to competitors.

You can read the full report here.


Looking back on payments disruption in 2014

As the year draws to a close it’s worth reflecting on some of the more interesting disruptions in payments we’ve seen this year. Highlights for me include …

The launch that will perhaps have the biggest impact on consumer payments over time was Apple Pay. Apple Pay takes a lot of the friction out of the transaction process and combines this with much improved security. Whilst it has got off to a fairly slow start in the US, once Apple starts promoting it via handset prompts and merchant acceptance improves, it will start to make a major impact. International expansion is scheduled for 2015 so will be interesting to see which banks jump on board in the UK.

The roll-out of contactless card payments across the London Underground, following the move to cashless travel on buses, is probably the biggest boost to contactless payment adoption we’ve seen since contactless first emerged. This will help contactless payment become a more mainstream payment choice in the London region – I’ve already surrendered my Oyster card!

Moven in New York launched to the public and showed the rich functionality a digital bank can deliver to its customers via an app. Moven has since licensed its technology to Westpac NZ and TD Bank, showing the interest that traditional banks have in delivering an enhanced digital service. I’m hoping we will see a UK Moven licensee in 2015.

The launch of Paym in the UK marked the start of simple, ubiquitous, mobile, person-to-person payments. Being able to pay someone with just their mobile number (no more account numbers and sort codes) was something I imagined many years ago and it’s now a reality, at least for customers of the banks that have got round to launching; and launching both pay and receive (unlike my friends at NatWest!).

One of my personal favourites this year was discovering there is a bank in the UK that has over 180 branches, no counters and offers a service that combines the best of personal banking with decent apps. Handelsbanken must be the best kept secret in UK banking!

What can we expect from the challenger banks?

There’s been a lot of discussion recently in the UK about challenger banks. But what exactly constitutes a challenger bank? In the consumer space, for me it’s a bank that aims to take customers from the big names by doing something different around service delivery. That could be a digital focus enabling customers to do more via apps or a more personal focus with bank staff empowered to take decisions and resolve customer queries.

So who are the key challenger banks aiming to change retail banking in the UK?

Atom – Little has been mentioned by Atom so far but digital online and app delivery will be central to the way Atom engages with customers. Telephone support will be limited to technical issues. This approach will be unique and it will be interesting to see how customers engage with this model and whether it’s enough when things get tricky.

Verdict – With the right apps could appeal to technology aware customers, especially in younger demographics.

Hampden & Co – a new private bank, based in Charlotte Square in Edinburgh, will be opening its doors before the end of the year. This is an enterprise based on ‘old fashioned’ customer service. BillingViews had lunch with its Chairman, banking veteran Ray Entwistle, who emphasised that decisions will be made quickly and on an individual basis. Even before its launch, the bank has attracted a lot of support from Scots who see the need for a personalised service.

Verdict – the jury is still out, since the bank has yet to open its doors, but a small bank based on personal customer service seems to have a lot of support in the UK.

Handelsbanken – A large Swedish bank (Svenska Handelsbanken, to give it its full name) that now has around 180 branches in the UK. The bank does no marketing and relies for growth on recommendations and enquiries. Handelsbanken is unusual among the challengers in not being a mass-market bank and assessing all applications on their individual merits. Each branch is responsible for its own pricing and profit and loss account – a model successfully used in the Swedish operation. Handelsbanken also provides customers with good digital banking apps and online banking.

Verdict – Not suitable for everyone but has developed a good balance between personal service and digital delivery.

Metro Bank – Launched in 2010 and now up to 27 branches (or stores in Metro speak) in the South East. Early branches are profitable and Metro is now starting to see the importance of digital delivery alongside branches. A much-improved online banking presence is now live and mobile apps are imminent.

Verdict – Improved digital delivery will create a much better balance and ensure the bank doesn’t just appeal to people who want branches.

M&S Bank – Although using a long-standing retail brand, M&S Bank is actually part of HSBC. Branches are located inside M&S stores and the focus is very much around personal service.

Verdict – Will appeal to the loyal M&S customer base but is dependent on HSBC and M&S having an aligned view of where to take it.

Tesco Bank – Tesco’s long awaited current account finally arrived this year allowing the bank to position itself as a challenger bank. Whilst the Tesco brand is a powerful player in retail it remains to be seen whether consumers will use it as their primary bank, rather than somewhere to get competitive credit cards or savings accounts from. Online banking and mobile apps are at the heart of customer engagement backed up by telephone banking and very limited in-store facilities.

Verdict – Massive consumer customer base to tap into but needs to overcome the brand challenges and market positioning of the parent.

TSB – 631 branches spun out of the Lloyds monolith at the behest of the EU (a requirement to receive state aid). Many of the TSB branches were originally Cheltenham & Gloucester branches and as such have a strong bias towards consumer banking. This consumer / business imbalance is creating some challenges for the bank with a lack of businesses to lend money to. The heavy dependence on old Lloyds banking systems is another problem to be managed.

Verdict – The promotional video (with a very annoying soundtrack) for the new website suggests TSB doesn’t understand digital delivery and is still stuck in the past. Talking about local branches will not be a differentiator.

Virgin Money – Created out of the wreckage of Northern Rock, Virgin doesn’t yet qualify as a real challenger bank because it is yet to launch its current account. Like Tesco discovered, launching a current account has been a lot harder than originally envisaged. A dated online banking website and no mobile apps leave Virgin with a lot of catching up to do.

Verdict – No evidence yet that Virgin Money can do more than be a niche player in areas like savings accounts.

Williams & Glyn – 318 branches due to be spun out of RBS in the next year or so. It’s still unclear when the RBS and NatWest branches involved will start trading as Williams & Glyn although John Maltby, the new CEO, has been appointed. Williams & Glyn looks better placed than TSB to build a new bank because it has a better-balanced portfolio of consumer and business customers. Much has been made of resurrecting an old and trusted brand although as Williams & Glyn’s, the bank only existed for 15 years. The new bank will use RBS banking systems which given their performance over the last couple of years must be a worry. Plus, with their major focus on bank managers, there is a risk that the bank will not balance that with next generation digital banking apps.

WGVerdict – If Williams & Glyn fixes a lot of what’s broken with RBS NatWest then it will make a good start but it needs to to use the opportunity of being new to put digital at the heart of customer engagement. And it really needs to rethink the dismally dull logo it’s chosen for the new bank.

It’s early days for the challenger banks and given the size of the incumbents it will be difficult for them to make a significant impact. However the challengers are starting to add more choice in the market and it’s no longer the case to say that all retail banks are the same. Now consumers have more options it’s up to them to make the most of it.

Originally posted on Billing Views.

Banking on a personal touch

Recently I’ve come across two very different approaches to making retail banking more personal. I attended an event organised by RBS to garner feedback on their plans for Williams & Glyn when it is hived off from RBS. CEO designate John Maltby outlined his ideas for moving decision making back into branches, via empowered bank managers. The approach certainly met with approval from many in the audience and seeks to address the concern that UK banks have alienated customers by fronting their businesses with people who are powerless to make a decision.

However the bank manager is only part of the solution. Customers also need to have control of their day-to-day banking via superlative digital delivery of everyday products and services. Whilst Williams & Glyn recognises the need for digital customer engagement, they are thin on the details apart from saying they will continue to use the RBS NatWest online banking and apps; which after yet another outage last week of the NatWest mobile app doesn’t fill me with confidence. This feels like a missed opportunity to attract customers who want a different kind of personal banking – digital first with someone local who can take decisions if needed. The problem Williams & Glyn will have to overcome is that a bank built on creaking, legacy banking systems will struggle to be agile and customer centric.

The second approach I’ve seen is Swedish in origin. Handelsbanken is part of Svenska Handelsbanken and has 180 branches around the UK. Their model is based on giving branch management full authority to take decisions on customer accounts including pricing and interest rates. The 180 (and growing) branches keep managers local but control branch overheads by typically locating them outside town centres and not having counter services (genius!). The Handelsbanken view is that their customers rarely need counter services so it’s a waste of money running them. On the odd occasion a customer does need counter based banking services they have the use of NatWest branches. Personal engagement is balanced with high quality online banking and mobile apps (the advantage of being part of a progressive Swedish bank). The Handelsbanken model is based on the devolved Swedish operating model which has kept the bank safe during the last two financial crises. Whilst the Handelsbanken approach isn’t right for everyone, it addresses the gap caused by taking decision making away from branches and the people who know their customers.