Banks are going out of business – or, at least, that’s what the figures seem to suggest.
At the start of 2007, there were 11,283 branches across the UK. By January 2019, this figure had halved to just 5,694. According to one piece of research, last year the UK’s largest high street banks saw an average of 60 bricks-and-mortar branch closures per month, and there is more to come.
The closure rate has become so high, sites like ‘Which’ have even deployed a bespoke checking tool that allows visitors to enter their postcode and find out if their local branch is closing.
This marks a stark change from the days when the local bank was a community hub – a place where you could apply for loans, pick up your pension, or top-up your savings account. But in the wake of the recent branch closures, approximately 13m people are no longer able to access these services – at least not in person. And so, a new banking trend has begun.
Increasingly, digital-only banks are winning over the younger generation of savers by offering higher interest rates and mobile accessibility. And by eschewing the traditional bricks-and-mortar model of banking, these challenger banks can keep their costs low and pass on the savings to the customer. This is good news for savers, who can access better savings rates and cashback offers if they are prepared to make the switch. But for many others, the move from the high street to the internet signifies a larger wider pattern of change in the banking sector.
So, what does all of this mean for the future of the banking? Here are a few of our predictions…
1. The mainstreaming of online banking
Digital banking is on the rise, and this has forced traditional banks to adapt. Almost every major UK bank now has both an online and a mobile presence. In fact, a recent survey by Smart Money People found that more UK consumers now prefer banking apps over online banking.
The popularity of on-the-go banking has meant that many traditional banks have had to realign their priorities, investing more money into cyber-security and site functionality. This suggests that digital banking has already gone mainstream, and that we are likely to see fewer branches and more apps going forward.
2. The birth of the café/bank
Some bricks-and-mortar banks have tried to stave off closure by repurposing their space in a bid to attract more customers. In the US, Capital One bank has launched its own café brand – Capital One Café – to some success, while closer to home, the Lloyds’ Manchester Market Street branch has attempted to create a “genius bar” atmosphere where the company’s “digital lifestyle coaches” are on hand to answer questions about banking technologies over a fresh cup of coffee.
3. The end of customer loyalty
The dawn of Open Banking has made it easier than ever for customers to seek out the best possible deals for their specific needs. And in many cases, this will mean that savers and account-holders switch their bank more frequently than before. As a result, banks can no longer rely on customer loyalty to maintain their bottom line, and they may refocus their efforts on winning over new customers with market-beating deals or offering incentives to existing customers in an attempt to keep their business.
4. Consolidation across the sector
Given the high degree of competition in the banking sector, it is inevitable that some banks will seek to merge as a way of maintaining their market share. Already, there has been some evidence of this, through Metro Bank’s partnership with peer-to-peer lender and new digital bank Zopa, and the rumours that digital superstar Atom Bank is set to be acquired by Spain’s BBVA.
5. The arrival of new services and products
In order to maintain their market share customers, banks may find themselves forced to offer a range of new services that can’t be matched by their digital challengers. Earlier this month, Lloyds announced the return of its 100 per cent mortgage for first time buyers, while money management tools are increasingly being offered free of charge to help retain existing customers. Many big banks are also investing in technology that will make payments and transactions much easier for customers, and those who are not expanding into these areas risk being left behind.