Physical banking is dying

If you’re with a high street bank, one of the traditional big boys, and you don’t live in a city centre then I’d like you to open your banking app. One thing you might notice; where there was once a quite prominent feature that allowed you to locate your nearest branch or cashpoint, there is probably something else in its place. If, like me, you bank with Natwest you’ll notice it’s been hidden about half way down the help section and if you open it you might notice something a little disconcerting – there probably isn’t a branch or cashpoint on that map for miles.

There’s a reason for that. According to Office for National Statistics research 6,000 bank branches have closed since 2010 which represents a third of all bank branches. According to BBC research, about 13 million adults in the UK live in areas where at least half of the local banks and building societies have closed. The ONS also reported in August that more than two-thirds of people now use the internet to access banking services. According to UK Finance, the body that represents banks, the number of debit card payments in 2017 made by consumers, was for the first time greater than the number of cash payments.

Not only this, but free-to-use cash machines are also closing at a record rate as the country moves further away from traditional banking and towards a cash free, digital age of banking. The fact that banks see fit to close such a concerning high number of local branches indicates, at the very least, that the financial incentive to do so is real. Simply enough, they don’t attract enough customers who want to physically bank in branch and the cost of keeping them open is too great.

So too is the confidence of such banks that the backlash from customers won’t be significant enough to cause them any real reputational damage or lose them enough business to reconsider. The figures back them up too according to data from the British Bankers Association and EY cited by Finextra.

According to Business Insider, three of the UK’s largest banks have continued to see adoption of their mobile banking offerings — Lloyds Group, Barclays, and the Royal Bank of Scotland (RBS) added millions of mobile users in 2016, reaching 8 million, 5.7 million, and 4.2 million mobile banking customers, respectively. This has resulted in skyrocketing usage — from 2012 to 2017, consumer use of banking apps increased 356%.

Not just this, but the rise of digital only banks such as Monzo, now worth millions, are fuelled by a consumer base that realistically has very little use for physical, branch based banking. Use of cheques is practically non-existent, cash usage remains at a paltry 9% of GDP in most G8 economies and branches simply cost too much to run.

This, however, ignores the real social impact of closures on local communities that have older populations and a concentration of small businesses that deal mainly in cash. Many older customers and business owners report having to travel for hours to do their banking and paying in, and in tourist areas the problem is highlighted further. In coastal tourist towns where branches have shut, this is usually followed by cash machine closures and there are some that have just 3 cash machines per 10,000 residents.

It’s reasonable to assume that as traditional banks move further away from physical banking in order to compete with challengers like Monzo that somebody will have to step in to fill the void, and it appears that the Post Office see this as their opportunity to recruit these customers.

With a huge new advertising campaign based around physical branch-based banking, the Post Office are now offering current account and every day banking to these customers who have been failed by the fast paced nature of modern capitalism.

The hope is that, in the long term, this shift will find the right balance between providing younger customers cutting edge technology whilst older customers and businesses are provided the services they need by a more traditional provider.