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The slow decline of the British bank branch: do more clicks = fewer bricks?

15 September, 2015George Browne

British banking is an institution. In the City, it does not require any degree of mental agility to conjure images of bowler-hatted, pin-striped men swinging their briefcases into austere buildings of grey, while in the Shires, officious Captain Mainwaring types dish out loans and credit based on the politics of the golf club.

Needless to say, this quaint notion is exactly that and the world of banking has, thankfully, moved far beyond these realms. But despite the technological advances society has made in the past few decades, one aspect of banking has remained relatively untouched – the humble bank branch.

 The changing face of banking

For the majority of retail consumers, their earliest experiences of banking will have been largely shaped by a trip to their local high street branch, perhaps to open a savings account or deposit a gift or allowance. Often the very substance of a bank is tied-up in its branches – it is no coincidence for example that bank branches are often housed in architecturally “sturdy” buildings, with prominent brick and stonework displayed to present an air calmness and security.

Young prefer to bank online

women looking at phone while internet bankingBut according to consultants McKinsey, this could all be about to change. In the next five years, the total number of high street branches will fall to below 7,500, with rural areas being particularly hit hard. This is the culmination of a long trend of customers shifting their habits and interactions online and has also been felt in virtually every other industry. The Young Persons’ Money Index, commissioned by ifs University College to track the financial habits of teenagers, for example reveals that branch-based banking has seen the biggest fall in usage among this group, with younger people increasingly preferring mobile and online methods in which to conduct their banking.

Other pressures are at play too of course. Offices are expensive to run and maintain and for businesses whose prime function is the accumulation of money, the rising price of land and retail space presents an attractive alternative.

What is a bank?

Nonetheless, if this trend reaches its natural conclusion, then this leads to question what is a bank without its buildings? New entrants to the market are already stepping forward to answer this question. Initiatives, such as Atom Bank, as well as microfinance companies and peer-2-peer lenders demonstrate that finance providers can thrive in an online-only environment. One only has to look at the multitude of entries to the Financial Innovation Awards each year to see that there are hundreds of projects and initiatives that are both responding to, and driving change within, the industry.

The end of the branch

However, it may not be all bad news for branch banking. McKinsey’s research shows that for more significant financial decisions – taking out loans or mortgages for instance – consumers prefer face-to-face interactions, while new players such as Metro Bank are increasing their branch networks. In the business banking sector, where important decisions are made along relationship management lines, branch-banking may be becoming more important, as the recent example of Handelsbank, who have opened their 200th branch, has shown.

What all this demonstrates is that while the means and methods of banking might change and in some cases may in fact be becoming more important, the tradition of innovation in the sector looks as steadfast as the brickwork of an old bank branch.