The way we conduct our financial affairs is changing – and changing fast. Branch closures by banks has been a big issue for more than three decades when numbers started falling from around 22,000 branches (banks and building societies) in 1986, to just a little more than 11,000 in 2018, according to a House of Commons Library publication in May.
There has been a sharp fall in the number of branches in all the countries and regions of the UK – apart from Northern Ireland – between 2012 and 2018. The average fall is about 17 per cent,but was slightly lower in Scotland at 15 per cent.
More recently, the number of ATMs – and the amount of money withdrawn from them – has also fallen. In 2016, UK ATMs reached their peak at 70,600 units, but there were less than 62,000 in June 2019.
The number of withdrawals peaked in 2012, at 2,915 million, and has dipped to 2,420 million by 2018, largely as a result of the increase in cashless transactions.
In 2008, six out of every ten transactions were in cash. In 2018, that had fallen to less than three in every ten.
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In the supermarket, pub and coffee shop – and increasingly on public transport too – we are using contactless payments for smaller transactions more frequently.
The UK is rapidly moving towards being a contactless country, with 123 million of the country’s 159 million debit and credit cards making use of the technology, according to UK Finance.
Total contactless spending in the UK rose by almost one-third in 2018 to £69 billion, with 7.4 billion tap-and-pay transactions made that year, 31 per cent up on 2017. While debit still dominates, the number of contactless credit card payments is growing fast, up 44 per cent on the previous year.
Eric Leenders of UK Finance has said: “Many of us are now reaching for our cards or mobiles rather than cash to make low-value purchases, as customers opt for the convenience and security of paying with contactless.
“There has also been an increase in credit card use although growth in outstanding balances has slowed, suggesting many consumers are using their cards for day-to-day spending rather than as a means of borrowing.”
The fall in cash transactions means we need fewer ATMs, but their decline is also a matter of simple economics, as Natalie Ceeney, who led an independent review into the future of cash in the UK, noted earlier this year.
She said: “It costs around £5 billion a year to run Britain’s cash infrastructure, and it’s almost entirely run by commercial businesses. Their income is going down as fewer cash transactions are made, but their costs remain the same, making their services less profitable.”
Yet what of those who have not embraced – or cannot embrace – the cashless revolution?
The decline in physical branches and loss of ATMs still matters to a significant group of people, especially those in remote areas, says Caroline Stevenson, legal director in the financial services team at law firm Womble Bond Dickinson.
“It’s a huge issue because there are still many people who do not have access to a computer or a mobile phone to do digital banking, so branches are really important to them,” says Stevenson.
A survey published by the Office for National Statistics (ONS) in March showed that 5.3 million Britons had either never gone online or not used the internet in the last three months – almost 10 per cent of the population.
“Sometimes the barriers are not as straightforward as this, though,” explains Stevenson. “It might not be the lack of access to a physical bank, it might be that you live in a ‘not-spot’ where you have poor or no wifi and broadband, and you simply can’t do digital banking.”
Stevenson says aggregation of banking services, especially in remote areas where both bank branches and ATMs are closing, could make a real difference: “I would like to see the creation of consolidated banking locations. These could be shared spaces for the likes of Barclays, RBS, Bank of Scotland and other banks, which would provide customers with physical access to do their banking, regardless of who they bank with.”
Stevenson’s colleague Natasha Brownlee, managing associate in the financial services team, agrees: “It’s happening in the digital space with open banking and PSD2 [Payment Services Directive], so why not in the physical space too?”
The UK Government’s response in July 2019 to the Treasury Committee report, “Consumers’ Access to Financial Services”, said that while banks had to comply with competition
law, there is no specific regulation that prevents them from sharing branches or other premises on a commercial basis where their interests require.
Brownlee argues that there are very practical reasons for maintaining physical branches for those who need them. “A customer going into a physical bank branch can really help identify vulnerability,” she says.
Yvonne MacDermid, chief executive of Money Advice Scotland, says services like hers need to be targeted specifically at those who have not embraced the digital revolution: “There is a core of people who, for various reasons, will not engage with digital banking. But if we can get, say, 80 per cent of people using digital banking effectively, that allows organisations like ours to focus efforts on those who don’t engage digitally and support them better.”
In 2018, most of the ‘offline minority’ who did not have internet access to do online banking, were older people – with 79 per cent of the total aged 65 or over. However, many are also disabled, making up 23.3 per cent of those who never go online.
This offline minority is, however, reducing rapidly. In 2011, 8.7 million people had never used the internet, compared to the 5.3 million in 2018.
When the survey was released, Dawn Snape, assistant director for sustainability and inequalities at the ONS, said: “The number of people using the internet regularly and having at least basic digital skills is increasing.
“However, more than five million adults in the UK are not accessing vital services, help and information online. Many of these are among the most vulnerable in society.”
The explosion in mobile phone use has also revolutionised the way we do our banking. The number of people without access to a mobile phone is about 5 per cent of UK households – about 1.35 million out of 27 million households – according to ONS figures. Yet those who do have a mobile phone, and use it for almost every aspect of their lives, are fully embracing the online banking revolution.
The challenger banks, set up, as the name suggests, to challenge the status quo, are offering very speedy customer sign-up – often requiring just one form of ID and a selfie – much more detailed and easy-to-access information and great convenience for the user.
Monzo Bank is signing up about 55,000 people every month, and it now has more than three million customers. Starling Bank says it will pass the one million mark by the end of the year, while Revolut said in March that it had reached 4.5 million customers – with 1.6 million of them in the UK.
Jonny Williams, partner and head of financial services at Womble Bond Dickinson, says: “The new banks have an advantage because they can implement change more quickly –they don’t have complex legacy systems to wrangle with.
“You can view payments and manage money better than ever before, with more information at your fingertips letting you see how much you have spent on specific items. Technology is really driving banking forward.
“Yet compared to the challenger bank, the traditional banks’ advantage is their access to large numbers of customers and data, as well as physical infrastructure, and they are innovating. The legacy banks and challengers are just different and in time, I think they will come together.”
Colleague Natasha Brownlee believes that the challenger banks are succeeding because they are helping to deliver what customers want – transparent and clear communication with customers right from the start of their initial contact with the bank.
“Banks in general are definitely working to make the customer experience and customer journey simpler and easier but they are constrained by the law,” she says.
“Technology is moving fast but the law is lagging behind, so we are often trying to shoehorn advances in technology into an outdated legal framework.
Caroline Stevenson adds: “For credit cards, we are dealing with law created in 1974. This was 33 years before the first iPhonewas released, and the law at that time didn’t envisage applying for and servicing credit cards via a mobile device.”
Despite this, Williams says that the influence of fintechs is having a positive impact, with legacy banks working in positive collaborations to tackle specific customer ‘pain-points’ or setting up their own internal agile labs to drive innovation and improve the all-round customer experience.
“Banks are working with young fintechs to look at specific problems and some of them are doing great work looking at customer needs or those ‘pain points’ where things have to improve,” says Williams.
“In general, customers want things to be done more quickly, especially the time it takes for finance to clear. At the same time, compliance and good governance has to be built in, so there is a tension there between speed and convenience and security and compliance.
“However, all the banks are looking to resolve these issues and we are definitely making progress towards a quicker, simpler banking world – which can only be good for the consumer.”
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