Bank customers are deserting high-street branches in favour of digital technology, according to a report on the state and future of retail banking.
The trend has already resulted in branch closures and will cause more, but high-street banks will not disappear entirely, it says.
The second The Way We Bank Now report, published by the BBA and EY, highlights the growing use of the internet and mobile banking, which are now used for transactions worth £6.4bn and £1.7bn a week respectively.
Mobile apps offered by major banks have been downloaded more than 14 million times and are being used 18.2 million times a week. Spending on contactless cards, which can simply be tapped on terminals to pay for lower-value products, is expected to rise to £6.1m a week this year – up from £3.2m in 2013.
Chris Dunne, payment services director at VocaLink, which handles payments worth £5trn a year, including over 90 per cent of UK salaries, said the banking industry was in a “golden age of technological development”, and that digital banking reduced costs and gave customers more control.
“While some have slated the demise of high-street branches as the end of traditional banking, the rise of digital services is in fact extremely positive for consumers, businesses and the UK economy as a whole.
“Across the UK, early adopters of the online platforms and the latest mobile technology are already seeing the benefit. This is especially true of those who live in rural areas that, over the last decade, have seen a steady decline in the number of bank branches available to them.
“The fact that mobile and internet banking is now being used for transactions worth £1bn is a phenomenal achievement and one that has the power to bring enormous benefit to the UK economy.”
However, the effect of the increased take-up of digital services on branch footfall has been pronounced. For example, by the end of 2014 the proportion of NatWest and RBS transactions that will take place in a branch will have fallen to just 10 per cent.
As a result, the banks are closing branches. Estimates of the amount of the banks’ branch networks that will need to close by 2020 range from 40 to 50 per cent. Barclays, Clydesdale and Yorkshire Banks, RBS and NatWest have all announced plans to close branches – as many as 100 in the case of majority state-owned RBS and Natwest.
According to the Campaign for Community Banking Services (CCBS), around 300 bank branch closures have been implemented or announced so far this year by all banks – more than for the whole of 2013. It predicts the UK’s 9,500-strong branch network will contract by more than a quarter, to 7,000 by the end of 2018.
But some worry that the shrinkage of branch networks will be detrimental to the customer, leaving those left behind by the digital revolution struggling to access banking services. This could disproportionately affect the older people, small businesses and third-sector organisations.
Derek French, director of the CCBS, said the BBA was attempting to “justify its own repeated failures [...] in pursuing viable alternatives to branch closures”.
“For over 15 years we have been telling the industry that it needed to prepare for what now seems to be a surprise to them, i.e. the advance in the use of technology channels by many customers to access basic services,” he said.
“We have offered the opportunity to close more branches and cater for the remaining very real demand for them cost-effectively by using the proven and costed banking centre model, which would meet the needs of banks and customers alike, and sustain the economic future of communities.
“The BBA has consistently declined to properly engage on this issue with consumer and small business representative bodies, and governments have refused to intervene.”