The past three-and-a-half years have been a tumultuous time for every type of business. The way we use our high streets was already changing before the COVID-19 pandemic, but two years of on-off lockdowns have permanently altered the way people access essential services, including banking. It accelerated what was already in motion: a shift from in-person banking towards the widespread use of digital apps and cashless transactions.
It seems inevitable, then, that banks are choosing to drastically reduce their branch networks. However, as swathes of branches close across the UK, some firms, such as Nationwide and Metro Bank, have taken a different tack; choosing to keep branches open – and even expand their network. In our latest report, we discuss the future of high street banking; what it might look like in years to come and whether physical branches will soon be a distant memory.
What are the drawbacks of physical branches?
Branches are expensive. According to S&P Global, running a bank branch costs an average of £590,000 per year. What’s more, KPMG data suggests that just 25% of individuals actually visit their bank in person (December 2022).
What are the benefits of having physical branches?
Though the number of people using their local bank branch (if they still have one) has dramatically fallen in the past 20 years, the impact of bank closures on consumers is still significant. For those people who still bank in person, the service provided by their local branch is often a necessity. According to the Digital Poverty Alliance, approximately 11 million people in Britain are currently struggling with the shift to online-only options for everyday activities such as paying for parking, booking travel and paying bills. And those impacted most by this change are individuals who are already vulnerable: the elderly, the infirm, people with disabilities and those on lower incomes.
A survey by Age UK in May found that a third of over 65s in Britain felt uncomfortable with online banking and a study carried out by the Research Institute for Disabled Consumers (RIDC) in July found that more than half (52%) of disabled bank customers felt branch closures had had a negative impact on their ability to access vital banking services. For these people, having access to a person they can talk to about their finances and even carry out transactions on their behalf, is essential. Closing branches means vulnerable people have to travel further to access in-person banking, and for many, this is very difficult or even impossible.
Cost of living crisis
It’s worth noting that although the KPMG data showed only 25% of people use branches, the previous year was only 22%. This 3% increase in footfall coincides with the onset of the cost of living crisis in the UK. “While the move to digital banking is desirable for most, our research uncovers an important truth – bricks and mortar bank branches are vital for an increasing number of people who are struggling to manage their personal finances,” Karim Haji, KPMG UK’s head of financial services, told The Guardian. “The cost of living crisis has seen individuals and households who previously didn’t need to budget, now having to…During this challenging economic period, banks must recognise the importance of having access to a bank branch.”
Regulation: protecting access to cash
In August 2023, the UK government published a policy statement outlining minimum expectations on banks to protect services for people and businesses wanting to withdraw or deposit cash. The statement confirmed that under new rules, the vast majority of people and businesses would be no further than three miles away from being able to access cash and could expect to do so without any fees. Building on laws granted through the government’s Financial Services and Markets Act 2023, the FCA will use these newfound powers to make sure banks and building societies are keeping up to these standards – and have the power to fine them if they do not. The policy statement also outlines that if a service is withdrawn, a replacement service should be put in place before the closure takes place. The FCA is also required to “have regard” to local deficiencies in cash access. The policy statement sets out that the regulator should consider factors such as the opening hours and distance to cash access services, as well as the need for in-person assistance.
Nationwide: keeping branches open
Unlike the majority of banks in the UK right now, Nationwide has chosen not to shrink its branch network and announced in October that it would be keeping all of its 605 branches open until at least 2026. “Nationwide Building Society’s longstanding commitment to the High Street means it now has the largest number of branches in the UK – more than any other banking brand,” it said in a statement. Debbie Crosbie, Nationwide CEO, said: “Nationwide provides the face-to-face service that people value and need. We’re the large-scale alternative to shareholder owned banks and now we have the biggest branch network, too. Our branches are busy and we’re an important part of local communities.”
The building society has reported steady footfall for the past 18 months and says it has “not recorded a drop in branch usage since the pandemic, with some branches having returned to pre-pandemic levels.”
Nationwide is a member-owned “modern mutual,” meaning it isn’t driven by the profit-hungry demands of shareholders. The firm has not announced it will be opening any new branches though – only that it will be keeping its current branches running, until at least 2026.
| Top 10 UK banks by number of branches (October 2023) | ||
| 1 | Nationwide | 605 |
| 2 | Lloyds Bank | 598 |
| 3 | NatWest | 485 |
| 4 | Halifax | 476 |
| 5 | Santander | 443 |
| 6 | Barclays | 346 |
| 7 | HSBC | 333 |
| 8 | TSB | 211 |
| 9 | Bank of Scotland | 161 |
| 10 | Virgin Money | 130 |
Metro Bank: a community-led business model
Metro Bank was launched in 2010 in the wake of the global financial crisis. As a brand-new bank, it flourished using a business model that allowed it to rapidly grow when bigger, traditional banks were weighed down by a legacy of bad debts and increasing regulatory requirements. However, its success began to dwindle in 2019 after two accounting scandals saw its reputation plummet and it was fined heavily by financial regulators.
A big part of Metro Bank’s business model has been centred on building a network of physical branches and to focus on traditional, community-based banking. In July, the bank released findings from a survey it had carried out asking respondents what they would like to see on their “dream high street.” 62% said they would like a local bank branch, with only 44% currently having a bank in their local community. Metro Bank also used the press release to announce it would be opening 11 new branches in the north of England during 2024 and 2025. Ian Walters, managing director of distribution said: “As many banks retreat from the high street and trim their opening hours, our research shows that this couldn’t be further from what our local communities want. Banking services should be available to those who need it at a time that suits them, whether that’s first thing in the morning, on a Sunday, or after work. It’s interesting to see that this desire to have a bank branch nearby remains high across all age groups and locations across the country…As the first new high-street bank in Britain for over 100 years, Metro Bank is committed to staying on the high-street.”
On 8th October this year, Metro Bank was rescued from the brink of collapse via a £925m refinancing package. In a statement, the lender confirmed it had raised £325m in new funding and refinanced £600m of debt, saving it from a takeover.
Since the rescue deal in October, there has been no suggestion of Metro Bank back-peddling on its promises to open new branches. But in light of recent events, one can’t help but wonder whether the decision to invest in its branch network was a smart one.
Although there is research to suggest people do want to keep their bank branches open, this doesn’t necessarily always translate into usage statistics. “Many people may say they would like access to a local bank, but the truth is that most of us don’t actually need one anymore,” says Mike Finlay, CEO at RiskBusiness. “The romanticised image of the traditional bank branch, with high ceilings, marble pillars and friendly, helpful, staff, is no longer a reality. The majority of transactions – even paying in a cheque – can be done digitally, without spending your lunch break in a queue. And those bank branches that are still open give you the feeling that they don’t want to remain as such: they are often just a series of ATMs manned by one member of staff and have far fewer services than they used to, such as foreign exchange desks etc. Though several surveys suggest people do not want to lose their local bank branch, the number of times they have actually visited it tells us a different story.”
Banking hubs: do they work?
Banking hubs have been hailed as the solution to dwindling branch numbers in the UK. They are run by the Post Office and are designed to provide a central location for people to access their bank account and essential banking services – regardless of who they bank with. A banking hub can only be opened in a town if all of its bank branches have been closed down. Banking hubs are owned by Cash Access UK, which is a non-profit organisation set up by Bank of Ireland UK, Barclays, Danske Bank, HSBC UK, Lloyds Banking Group, Nationwide Building Society, NatWest Group, Santander, TSB and Virgin Money – though Nationwide withdrew from the scheme in October, choosing instead to focus on its own branch network.
In theory, banking hubs are a good solution for those who still need in-person banking services. However, there are currently only seven open across the entire UK, and they are manned by a representative from a different bank on different days of the week – meaning you won’t always be able to talk to someone from your bank. “Shared banking hubs are a great idea for places where all the individual bank branches have closed,” said Age UK director Caroline Abrahams, “but they are coming into being at a snail’s pace, leaving some towns and villages without any physical banking options nearby at all.”
Cash Access UK has confirmed plans are in place to open more banking hubs. “We look forward to having Banking Hub services open in 30 communities by Christmas, alongside the 15 Post Offices that are benefiting from investment in additional banking services,” it said in October. “With at least 60 more Hubs due to open in 2024, Cash Access UK will go on to support the customers of our nine member banks in hundreds of communities across the UK.”
Open Banking: alleviating the need for physical branches?
A critical development for retail banking in recent years has been the dawn of Open Banking. This concept allows customers to give their banks permission to share personal financial information, such as transactions and regular payments, with other banking institutions. The benefits of Open Banking include making online payments more streamlined by allowing retailers direct access to your bank, rather than having to fill out your card details; and also the ability for banks to provide more personalised advice and product recommendations based upon your financial situation and spending habits (if you wish.) There are also several money management apps and websites that utilise Open Banking to allow you to view all of your accounts on a single platform, or to provide budgeting and investment advice.
OneBanx
OneBanx is an example of Open Banking in action. Launched just before the pandemic by a young Scottish fintech entrepreneur, Duncan Cockburn, OneBanx (Or OneBanks as it was originally called) was designed to enable financial institutions to “maintain a cost-efficient presence wherever cash services are needed most.” Customers from any bank can use the platform to perform transactions, with the help of pop-up counters run by OneBanx representatives in local communities.
In early 2020, having spent some time learning to code amongst the tech wizards of California’s Silicon Valley, Cockburn came back to Scotland with an idea to make digital banking more accessible. “I had really got into Open Banking and APIs [application programming interfaces] during my period in California and could easily have gone down a pure fintech route. But the thing with Open Banking is that it only reaches people who are digitally savvy,” Cockburn told Fintech Finance News. “It doesn’t help those who aren’t, particularly the older generations. And so, while I was really excited about Open Banking, I was also concerned about what this meant for those who weren’t being taken on its journey, particularly in the face of all those branch closures.”
OneBanx utilises the abilities afforded by Open Banking, but via face-to-face kiosks set up in local supermarkets and the like, offering people help with setting up Open Banking or an online bank account, and also allowing them to make payments and even withdraw cash.
“Money is all about trust, and banks with their physical branches have provided that for generations,” says Cockburn. “Some people really only want to deal with and trust other people in their financial lives – they therefore only want to interact with people, not machines, particularly the older generations. Apps don’t offer that element that physical branches and real people do. The face-to-face environment and physical touchpoint are therefore both hugely important, especially during their transition.”
Newcastle Building Society even partnered with OneBanx in early 2023 and allowed it to set up a multi-bank kiosk in two of its branches in North and North East Yorkshire, in communities where access to banks is low.
Third-party risks
While clearly beneficial to consumers, Open Banking hub-type services like OneBanx and Post Office banking hubs add another layer of risk to retail banking, including process risks, technology risks and data risks, which mustn’t be overlooked. “Many of the FinTechs involved in developing Open Banking solutions are start-ups that may not come under the aegis of a financial services regulator,” explains fintech and regtech journalist, Ellen Davis, in an article for RiskBusiness. “As a result, they may not operate to the same compliance requirements and industry standards as regulated financial firms.”
Two key areas of risk highlighted by Davis are account takeover, whereby criminals use compromised credentials to access an existing customer account and initiate unauthorised payments; and payment scams, which involves conning or using social engineering to get the customer to authorise payments for illegitimate purposes.
However, Open Banking has also facilitated greater protections against some areas of risk, for example the Confirmation of Payee framework, which allows a customer to confirm the account they are transferring to is the correct account, by sharing data between banking organisations. Open Banking also allows consumers to keep a closer eye on activity across all of their bank accounts, meaning they are perhaps more likely to spot a fraudulent payment going out of their account than if they didn’t have this ability.
Does closing branches impact a bank’s brand or reputation?
As banks become largely faceless, the emotional connection we may have had with our local bank in times gone by is receding. Switching providers is becoming easier, and with incentives of up to £200 for switching, plus cashback on purchases, the temptation to hop from one provider to another has never been greater.
Research by Capita suggests that over half (55%) of all consumers have switched the providers of their bank account; one in five (21%) multiple times. Men are significantly more likely to have switched than women (61% vs 49%), with those aged 54 and over less likely to switch than younger generations. “For many, branches clearly still play an important role in consumers keeping their account with their provider,” says Capita. “18% said they switched
because there was a more local bank branch nearby – and a further 12% because they moved to another area. With 1,221 branch closures between 2019 and 2021 alone.”
Swapping humans for robots
Maintaining a relationship with customers in the future will hinge on the quality of customer service provided. With online banking, this is often poor, with overseas call centres presenting a language barrier and making communication difficult, and online chatbots producing frustrating, stock answers to questions.
The growth in the use of artificial intelligence (AI) to automate many services promises to improve the customer experience and free-up human advisors to deal with more complex enquiries. Citi CEO, Jane Fraser, recently spoke about the bank’s vision for AI. “In the near term, generative AI will drastically improve productivity,” she said. “Over the long term, it has the potential to revolutionise all functions across our bank and the industry – changing how we write code, onboard clients, service customers, detect fraud, develop market research and strengthen compliance and controls.” But is replacing people with robots really the future of face-to-face banking? “Citi will always be a human bank, and AI can and will help amplify the power of our people,” she added.
As retail banking continues to evolve, it seems the banks that will come out on top are those who can strike a balance between cost-saving and providing a customer-centric approach. “Building societies such as Nationwide, with its commitment to keeping branches open, and Newcastle Building Society, which put customers before competition in their partnership with OneBanx, are really demonstrating what it means to be driven by the needs of members – i.e. customers – rather than shareholders,” says Finlay. “They may not always have the budget or technical prowess to offer the breadth of products and services as some of the bigger names, but they are providing something that is essential to some, and appreciated by all: good customer service. However, Metro Bank’s recent troubles demonstrate just how difficult a balancing act this is. What form high street banking will take in years to come – or if it will exist at all – remains to be seen.”
You can view a full PDF of this report, here.
