EXCLUSIVE: Is the UK ready for bank branch closures?

The Financial Times recently reported that one out of eight UK bank branches will close in 2023. According to analysis they gathered from ATM provider Link, a total of 636 branches will have closed by the end of the year.

It follows a trend that has accelerated in the years following the Covid-19 pandemic and has seen almost three fifths of the network disappear since 2015. As adoption of digital alternatives flourishes and use of cash declines, many banks are questioning the value of maintaining these physical locations. This is increasingly true in metropolitan cities such as London, which is set to lose over 100 branches.

Hundreds of smaller towns and communities have also been left without a physical presence and this is despite the estimated 5 million people in the country that still rely on cash, according to Which?. The US too, characterised by community banks that often serve quite a localised area, has seen larger firms close more than 1000 branches across the country in 2023.

There are calls in the UK for this trend to be slowed and concerns about what this means for the vulnerable, the elderly and the unbanked. Although the changes ultimately reflect wider cultural shifts the danger is some could get left behind in the short term.

We looked at what’s driving this trend and whether there is a case for maintaining physical branches despite it.

The digital revolution

The FT’s report highlighted the increase of purely digital banking alternatives, as one of the main drivers incentivising branch closures.

Neobanks such as Starling, Atom, Monzo, Revolut and more have been resolutely branch-less since their beginning. A key USP has been that users can open an account from their phone and access most financial services without ever entering a physical branch. Established banks have followed suit, enhancing their own digital offerings, increasingly adding more and more features, that people typically went into branches for.

Now, all these changes have been widely championed and for a majority of bank users is a welcome and inevitable development. It’s possible that it cannot be avoided.

Commenting on these findings, Hans Tesselaar, the executive director of BIAN, said the industry has to “use the shift in consumer behaviours as an opportunity to future-proof their services and improve the customer’s experience.” To remain competitive, banks have no choice but to focus their resources on developing a customer focused online experience so he says, “we will likely see more and more physical branches close.”

As digital transformation continues, “while it might be conceivable for banks to keep their branches open at the start of their digital transformation journey it won’t be in the long run.”

Not only does the layover from social distancing and the growth of e-commerce mean more and more people are inclined to use online services, some recent bank failures and concerns about liquidity could well be influencing some decisions to take the cost of running branches off their books.

But despite these understandable changes, it threatens to leave some people behind.

Not ready for branch-less banking yet

Ian Bradbury, the CTO of financial services at Fujitsu UK and Ireland told us that “while a cashless society seems to promise to make banking more convenient, it’s essential that financial institutions don’t leave anyone behind in their march towards modernisation.”

This sentiment is shared quite broadly with some concerned that this change leaves certain groups at risk from not having access to money at all. Bradbury points out that four in 10 older people are not managing their money online and that 17% of the UK population would struggle to cope with a fully cashless system.

The loss of bank branches in many smaller towns and high streets could also be having an impact on shopping in those areas, with yet another reason to ‘head to the shops’ being shifted online.

“We are committed to our stores because we know that the amazing customer experience that our colleagues provide is a key differentiator for us, and that having a physical hub in the heart of a community is key to establishing our brand and making a difference. As a relatively new player, we are still looking to establish ourselves in many new communities.”

Ian Walters, Managing Director of Distribution, Metro Bank

But the government haven’t completely ignored this, and the Financial Conduct Authority have made attempts to curb the impact caused by banks leaving by putting a 3-mile limit on how far a customer has to travel to access cash services. Failure to do so, could result in fines.

Other efforts are being made to establish ‘bank hubs’ to plug the gap in areas where branches are being closed. These are collaborations with consumer groups such as Age UK, major retail banks and Post Office. According to UK Finance, cash machine network “LINK will determine whether a new solution should be provided to meet that community’s cash needs. LINK, which already provides ATMs where communities need them, will commission services to meet the cash needs of that community.”

And there is one bank that resolves to buck the trend altogether: Metro Bank.

Metro not binning the branches

One of the first major challengers to incumbent banks, and the first high street bank to launch in the UK for one hundred years, Metro Bank opened in 2010 and tried to disrupt the way that bank branches were run.

And they’re sticking to their physical strategy in the face of pretty much everyone else.

Metro has had a bumpy ride in recent years but in August 2023 posted a half year profit for the first time in 4 years and rather than reducing its network, it plans to open 11 more stores in the North of England in the next two years. To get a better understanding of their strategy, FF News spoke to Ian Walters, the Managing Director of Distribution, who reiterated why “stores are at the heart of Metro Bank.”

“While we also invest in digital channels,” he said. “Our ethos is to offer customers the option to bank with us via whichever channel they prefer.” He pointed out that there are local business managers based in every Metro Bank store and “Our store network allows us to be an active member of our local communities. Regularly being used for financial education sessions with local schools and for business networking.”

On why they’re sticking with physical and going against the trend, Walters feels their physical presence can be a differentiator. “We are committed to our stores because we know that the amazing customer experience that our colleagues provide is a key differentiator for us, and that having a physical hub in the heart of a community is key to establishing our brand and making a difference. As a relatively new player, we are still looking to establish ourselves in many new communities, whereas our high street competitors established much larger physical networks over many years and are now looking to consolidate.”

Another key development that will have to happen in the short to medium term is educating those who are not currently accessing digital banking. Metro bank are looking to do this through their Money Zone programme.

Tesselaar said that government mandated “initiatives are promising, but the industry and government must do all it can to ensure these initiatives are widespread. The industry must also continue to innovate, and develop additional initiatives aimed at those unwilling or resistant to embrace the digital future.”

There appears to be a consensus that if the industry is going to make well needed strides towards innovation, they must also partner with others to ensure the relevant education is made accessible to those who can’t immediately access it. And it is possible that despite society’s shift towards no cash, that having a physical location could be a differentiator.

Unfortunately, there’s a reason the industry is heading in one direction. I’ve only been into a bank branch once in the last year. I imagine I’m not alone.