Accelerated High Street Bank Branch Closures: Balancing Bank Profitability and the Needs of the Disadvantaged
Britain’s high streets are being transformed at a relentless pace. Cafés, fast-food outlets, barber shops, nail bars, and charity shops are taking over, just as the established bricks-and-mortar town centre retail sector is making way for online shopping and out-of-town shopping malls. The traditional stalwarts of the high street- post offices, bank and building society branches, and police stations-are fast disappearing before our eyes. The days of high street banks, which once served as financial hubs for local communities, are numbered. Teller channels, queues at bank counters, and all-knowing, benevolent, bank managers will soon become distant memories, as banks seek to cut back on the costs of renting premises, hiring staff, and providing adequate onsite security.
. The contraction of the high street banking sector is a phenomenon that is being replicated across Europe and beyond the Atlantic, just as mobile apps (downloaded on smartphones, computers, and tablets), digital banking, video banking, and call centres take over instead. Changing customer preferences that favour electronic payments (e-commerce, contactless point-of-sales transactions) and embrace online banking, with easier, faster, real-time access to bank accounts 24/7, and the resulting reduced footfall at branches, have driven the rationalisation of retail banking services. A perceived over-provision of branches, at a time of relatively low interest rates that have eroded profits, has encouraged banks to cut costs by consolidating branches, laying off staff, removing ATMs (cash machines or cash points), shedding non-core assets, and digitalising services. The COVID-19 pandemic accelerated this transition as customers resorted to digital channels under lockdown restrictions. According to the consumer magazine Which? 5,431 bank and building society branches have either closed or are scheduled to close since January 2015 in the UK, averaging at a rate of around 54 each month. If the projections are to be trusted, high street banks are likely to disappear by 2025. Meanwhile, social inequality has widened, leading to “banking deserts” in poorer areas while private banking services for high-net-worth individuals continue to thrive. The disappearance of physical banks is a symptom of societal transformation, which undervalues direct human contact and dispenses with face-to-face and in-person transactions whenever possible. The digitally excluded, who are thereby disadvantaged, include some older, poor, and disabled people, as well as the residents of remote and sparsely populated rural areas lacking internet access.
What are the alternatives? The Post Office offers basic banking services at more than 11,500 outlets for most of the UK’s top banks. These include balance checking, making deposits, withdrawing cash, and paying bills. Mobile bank branches, static banking hubs, which host different banks on different days on rotation, and facilities that are shared simultaneously by multiple banks, may well come to replace traditional brick-and-mortar bank branches. In the deregulated financial services sector, other financial institutions (credit unions, mutual building societies, peer-to-peer lending platforms, online banks, etc.) can also manage transactions and deal in commoditised savings and lending products, in place of physical banks. Those who prefer to use physical banks for the time being must not give up all hope. In the UK, just as the Big Four (Barclays, HSBC, Lloyds Banking Group, and Royal Bank of Scotland) are losing interest in the high street, an independent challenger bank, the Metro Bank, continues to open up spacious, user-friendly, and even pet-friendly branches, in operation seven days a week and providing high levels of customer satisfaction.
A voluntary system, devised by the Access to Cash Action Group and set up by UK Finance, enables ATM operator LINK to assess the impact of closures on local communities and to recommend additional cash services when felt necessary. On 10 October 2022, the Financial Conduct Authority extended these impact assessments to cover partial closures of bank branches. The Access to Banking Standard, overseen by the Lending Standard Board, serves as a safeguard for customers and stakeholders affected by bank closures, explaining the reasons for closure and supporting access to alternative banking services.
Just as we move towards to a cashless society, cash is once again becoming a desirable commodity for some, especially those who seek better control of their spending -there’s nothing like handling a tangible commodity rather than engaging in the invisible flow of money via debit and credit cards and online purchases. Unfortunately, many retail outlets, transport systems, bars, and eateries no longer accept cash, a trend which became popular during the pandemic when the handling of money was felt to contribute to the spread of the coronavirus. We are far from the time where we can dispense with cash altogether.
Banks have long served as a source of credit (loans, overdraft facilities) and financial expertise to individual customers, to small- and medium-sized enterprises, and to charities. Providing advice about, and facilitating the purchase of, complex financial products, such as life insurance, mortgages, private pensions, and stocks and shares, remains an important function of banks and justifies their continued physical presence, albeit at a smaller number of sites.
Digital technologies have, without doubt, dealt a body blow to high street banks. The inevitable closure of bank branches disproportionately affects those who rely on cash for transactions, whatever the reasons. Alternative sources of cash, including free-to-use ATMs and at post office counters, have to be put in place as vital lifelines are withdrawn. At the same time, secure online banking networks, protected against failures and hacks, are essential to encourage customers to adopt mobile and online banking. Either way, while there may be little scope for backtracking in the matter of high street bank branch closures, it is important to ensure that the vulnerable are not left behind by the pace of progress.
Ashis Banerjee