THE argument that banks roll out every time that more branch closures are mooted seems reasonable enough.
It’s all about demand and delivering better service to customers who increasingly bank online and through mobile technology.
Makes sense. But it’s not the whole story. The reality is that branches are becoming an unwanted expense for the banks.
Barclays last week denied that it plans to shut a quarter of its 1,600 branches, although it admitted some will be closed. Indeed, Antony Jenkins, chief executive of Barclays, has spoken with pride of the bank’s flagship branch in London’s Piccadilly. Not only are the revamped premises all very gleaming and streamlined, but the tellers are at open counters rather than behind screens. Jenkins wants more Barclays branches like this because, he said last year, “any business has to have the customer at the heart of it”.
However, it’s not really about us humble customers. Those shiny branches are found only in high-visibility locations in big cities and more affluent towns. They’re about branding and image. It’s a different story outside those areas. The UK branch network has shrunk by 40 per cent in the past 20 years, according to Nottingham University research. The reason typically given is that the growing sophistication and use of internet and mobile banking technologies has reduced branch footfall.
There is some truth in that. Yet demand for branches hasn’t declined to the extent that the banks want you to believe. Almost two-thirds of us would choose not to use a bank that didn’t offer a branch, according to recent research by Deloitte. The firm also reported that more than half of regions are likely to see increased demand for bank branches.
So it’s not all about demand. It’s also about mis-selling. Or more to the point, the fact that mis-selling isn’t as easy or lucrative as it used to be.
The end of the PPI gravy train hit branch product sales hard, while high street banks responded to new rules imposed on investment sales last year by closing their investment advice arms or restricting them to their wealthiest customers.
In some ways that’s good news. While the advice gap has widened, fewer people are being mis-sold investment products by incentive-driven sales staff. Even current account mis-selling is down under new rules forcing banks to tell packaged account users exactly what they get for their monthly fee.
Mis-selling still occurs, but on a smaller scale. So, faced with customers that are using branch services but no longer generating sales revenue, banks are reviewing their physical presence on our high streets. Around half the bank branches in Europe and the US could be closed by 2020, Jones Lang LaSalle has predicted.
Barclays said its branch network “will remain an important part of our banking service and we will never leave a community without the ability to transact”. The reference to the “ability to transact” is deliberately vague.
RBS still regrets a pledge in its “customer charter” a few years back that it would never close a branch if it were the last in town.
In short, branches are losing their attraction for banks because they don’t know how to generate profits from treating retail customers fairly.