Banks across Europe have been closing branches at an increasing rate as digital channels bed in and the current global health crisis forces consumers and businesses to bank differently.
In the past few months, banks in Europe have announced the closure of more than 1,000 branches, with migration to digital channels a recurring theme in their justification.
The Covid-19 pandemic and the restrictions it has brought to everyday life have proved the case for digital banking and allowed previously reluctant converts to see beyond the traditional branch.
Online, mobile and contactless technologies have shaken up transactional banking in recent years, with millions of payments during the pandemic migrating seamlessly to digital transactions. Whether people choose to make payments online or in-store, with a smartphone or a contactless card, cash use has been plummeting for some time and Covid-19 has accelerated this decline.
And it is not only cash use that is on the decline. Even traditional card payments are being usurped. According to recent data from Barclaycard, about 90% of card payments in 2020 were contactless. For example, there was a 29% increase in the use of contactless payments in UK grocery stores.
From bricks and mortar to digital services
Beyond these transactions, higher value banking services are now being offered remotely through technology, putting less emphasis on thousands of bank branches across the world.
Mortgage consultations, opening an account and other face-to-face services are today conducted with customers and banking staff in their own homes, using the latest video-conferencing technology.
The remote banking model is attractive to traditional banks. In contrast to their new digital challengers, they have large workforces staffing huge portfolios of properties made up of branches and office buildings. Closing branches offers them the opportunity to cut costs and helps them redirect funds to improve the digital services they offer.
News in December 2020 that app-based digital challenger bank Starling had become the first of the new digital banks to make a profit fired another warning shot to big banks. These challengers are not a flash in the pan and big banks must invest heavily in tech if they are to stay relevant.
But closing branches has not been an easy call. Even now, the financial regulator is concerned that banks are closing branches during the current health crisis. The Financial Conduct Authority (FCA) said it has been informed by some banks and building societies that they are “either going ahead with branch closures already announced or announcing new branch closures during the current lockdown”.
“We are concerned that these activities could have significant consequences for customers. It may be harder than usual to reach all customers under the current restrictions and engage with them on closure proposals effectively – for example, small businesses that are temporarily closed,” said the GCA.
“Some customers may need to access in-branch services to help them prepare for closures but may be unable to do so. Customers may also need additional help to access online banking and make payments. We want firms to review their plans against our existing guidance and ensure that they continue to comply with our principles.”
Banks will argue that digital services are in place to provide businesses and consumers with continued services. Banks are confident that their digital strategies are sound, so much so that the stigma connected with the closure of branches is a diminishing impediment.
Bank branches no longer essential
In its latest branch closure announcement, the UK’s HSBC referred to how the Covid-19 pandemic – or, more accurately, the restrictions it brought to its business – had “crystallised” its “thinking”.
HSBC is not alone, with hundreds, probably thousands, of branches earmarked for closure in the past few months.
Just this week, TSB announced over £200m losses. It will shutter more than 150 branches this year, with almost 1,000 jobs to go. It said a shift online had been accelerated by the pandemic.
Across the Irish Sea, Allied Irish Bank announced plans to cut its workforce by 1,500, merge branches and vacate premises as it attempts to cut costs following a review influenced by the acceleration of digital banking and home working during the Covid-19 pandemic.
On the continent, Germany’s second-biggest bank, Commerzebank, is closing more than 340 branches and slashing one-third of its staff – about 10,000 – to cut costs. It also said it planned to invest heavily in IT as part of its digital transformation. Similarly, in September 2020, Sweden’s Handelsbanken said it would cut its branch network by nearly half, but invest heavily in IT to offer customers digital alternatives.
Meanwhile, a merger at France’s Societe Generale, with the coming together of its retail business and its Credit du Nord subsidiary, will see 600 of its 2,100 branches close as part of a plan to take €450m off its costs by 2025. The bank said would move both operations to a single IT platform.
In these few examples, there are well over 1,000 branches set to be culled, but this has been going on for many years. More than 9,000 bank branches were closed in 2016, with over 50,000 people losing their jobs, according to figures from the European Banking Federation (EBF), which included the UK. Since then, the pace of closures has accelerated significantly.
Future of banking could be 100% digital
Ron van Wezel, senior analyst at Aite, said the switch from branch banking to digital banking has been a long-term trend. “The pandemic will have accelerated this trend, but banks would have closed these branches without it,” he added.
IT professional in financial services
But will banks heed the warnings of the FCA and pause their branch closure plans until the post-pandemic period, or will they use the pandemic and the shift to digital banking it has accelerated as a lever for more?
Van Wezel expects banks to continue to close branches at pace. “They have changed their distribution model to digital and even personal advice is now given through online channels. Only a few branches will remain,” he said.
One senior IT professional in the UK financial services sector said branches networks would become a thing of the past just like the horse and cart. “I am sure the banks are delighted to close branches under the cover of Covid,” they said. “Sadly, branches are just a piece of history now, and I’m sure we will see them all go eventually.”