Gareth Shaw: You can no longer bank on your branch

Last week, I spent a glorious day in a market town in the south west of England making a TV show about the impact of bank branch closures on rural communities. It '“ fortunately or unfortunately, depending on the way you look at it '“ coincided with the RBS Group's announcement to shut 162 more of its branches in 2018.

The Royal Banks Linlithgow branch will close next week, but many local businesses are not ready for a cashless world and many older people will not or cannot join the digital revolution, so are left behind

It’s an issue Which? takes a keen interest in. We’ve been tracking bank branch closures since 2015, and RBS’ decision to close a new raft of Royal Bank of Scotland branches in England and Wales pushed the total number of branch closures more than 2,300 in the past four years.

RBS Group, which consists of Royal Bank of Scotland, NatWest and Ulster Bank in Northern Ireland, is shutting more than 430 branches this year alone.

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That’s the largest number from any one bank this year; but RBS isn’t alone in closing down branches. Lloyds Banking Group is closing 98, Santander is shutting down 48. And Barclays is shutting 43.

Why is this happening at such a frightening pace? The banks say even they’ve been surprised by the rapid rise in online and mobile banking. RBS cites an increase in mobile and online banking of more than 70 per cent against a fall in people visiting branches of more than 40 per cent as one of the drivers behind closing their branches so quickly – people just aren’t using their local bank branch enough to warrant keeping them open. Many other banks quote similar figures.

Indeed, UK Finance, the trade body that represents the banking industry, has data further illustrating the digital revolution. A report it issued last year said that customer activity on banking apps ‘rocketed by 354 per cent’ in 2016. There were, apparently, 19.6 million users across the UK – almost half of the adult population – with 159 logins occurring every second.

In the face of this kind of data, one might argue that it’s a no brainer for banks to be closing empty branches and cut down the costs of keeping a physical branch open.

Banks have no legal obligation to keep branches open. But under something called the “Access to banking protocol”, they must consult with a range of organisations in a local community when they take the decision to close a branch, and provide alternative methods of banking suited to the needs of that community.

Most banks cite their investment in the Post Office – a way to bank that is probably underappreciated. You can pay money in, take money out, check your balance – and there are more than 11,500 offices across the country, dwarfing the number of branches of any individual bank.

Others have introduced mobile vans, which visit towns and villages on a day of the week, while others have local “community” bankers drop by to help people in communal buildings or areas. The theory is that while the physical bank has disappeared, it still has a local presence.

If this sounds like an impassioned defence of branch closures, my view is more complicated than that. Personally, I do all of my banking through my mobile app – I can’t even remember the last time I logged in via my desktop.

But spending time in a community that has seen four branches disappear in just five months this year, I’ve seen how profound the impact of closures can be.

Many people who cannot or do not want to engage with digital banking felt left behind. Some mistrust online banking, fearful of scams and fraud. Others don’t have the hardware to get online, even if they have the willingness. Although the government has pledged to improve broadband across the country, many areas still struggle for decent speeds, not to mention poor mobile coverage.

That creates significant risk of financial exclusion – something already on the radar of parliamentary select committees.

Many people, particularly older customers, have seen their local options hollowed out, forcing them to travel much further to the existing branches left in bigger towns. The butterfly effect is wide – if fewer people are travelling into town to do their banking, businesses and markets get less custom.

Many local businesses are not ready for a cashless world. In the town I visited, just one market trader had a card payment terminal, with the dozens of others still relying on cash. That leaves traders needing to travel further to deposit their earnings, which comes with an inevitable productivity hit.

And, as we’ve seen with the TSB fiasco, online banking is not infallible. The local taxi driver told me he saw queues of people lining up in the local TSB branch when its online banking system collapsed. In this situation, where do people turn when there are no branches left?

It’s absolutely right that banks should make alternatives available. But are they sufficient? To pay money into a Post Office, you need a personalised paying in slip from your bank. Where can you source those from? Your local bank branch.

Banks say they still see a future for branches, but they’ll be in bigger, urban areas and mainly for more complex areas of banking where advice is required. And although it’s undeniable that the internet has hugely disrupted the way we bank, the transition is far from complete.

My concern is what is happening to the people on the outside of the digital revolution. They’re the ones at serious risk of being under-served and left behind.

Gareth Shaw is head of Which? Money Online