How banks’ branch closures are spawning alternatives

When the Roy­al Bank of Scot­land announced in 2016 that it would be clos­ing its branch in Cam­bus­lang, Lanark­shire, it start­ed a chain reac­tion. With­in 18 months, the small town’s two remain­ing bank branch­es – run by TSB and Clydes­dale – also shut their doors. The grow­ing pop­u­lar­i­ty of dig­i­tal bank­ing was wide­ly blamed for the decline in foot­fall that had made these sites unvi­able. Cam­bus­lang joined the hun­dreds of com­mu­ni­ties across the UK that had become unbanked over the pre­ced­ing decade.

For Cam­bus­lang Com­mu­ni­ty Coun­cil, a for­mal­ly con­sti­tut­ed group of res­i­dents who’d been work­ing to regen­er­ate the area, it was a huge blow. Local peo­ple who’d depend­ed on cash, many of whom were elder­ly and dis­abled, were “left strand­ed”, recalls the group’s chair­man, John Bachtler, pro­fes­sor of Euro­pean pol­i­cy stud­ies at the Uni­ver­si­ty of Strath­clyde. Many of them were no longer able to man­age their mon­ey unaid­ed, which meant that they became “depen­dent on car­ers or fam­i­ly mem­bers” or even ran up prob­lem debts. 

It was also bad for the whole high street, as many small shops suf­fered a seri­ous decline in busi­ness. After the clo­sures, there were two cash dis­pensers left in Cam­bus­lang, one of which was reg­u­lar­ly out of ser­vice. That not only made it hard­er for con­sumers to access and spend mon­ey in town. Traders also had nowhere to deposit their tak­ings oth­er than a post office counter inside a con­ve­nience store in a less-than-con­ve­nient loca­tion for many of them. 

The sto­ry would have end­ed there but for Cam­bus­lang Com­mu­ni­ty Council’s deter­mi­na­tion to tack­le the prob­lem. After writ­ing to the banks’ CEOs with lit­tle suc­cess, it learnt of a scheme called Com­mu­ni­ty Access to Cash Pilots (CACP). This was an inde­pen­dent ini­tia­tive backed by a range of par­ties, includ­ing sev­er­al banks, the Fed­er­a­tion of Small Busi­ness­es and a con­sumer rights group called Fair­er Finance.

The coun­cil applied to CACP and in 2019 received a grant to come up with a work­able solu­tion: a shared bank hub. This facil­i­ty, locat­ed in an old butcher’s shop in the cen­tre of town, is run by the Post Office in part­ner­ship with Bank of Scot­land, the Roy­al Bank of Scot­land, San­tander, TSB and Vir­gin Mon­ey. 

From Mon­day to Fri­day, cus­tomers of any of these five banks can use the hub for basic trans­ac­tions such as deposit­ing cash and cheques, with­draw­ing mon­ey and pay­ing bills. To deal with more com­plex mat­ters such as loan appli­ca­tions, advis­ers from each bank come in once a week to meet cus­tomers in a pri­vate room.

The impact has been “phe­nom­e­nal”, accord­ing to Bachtler, who reports that the cus­tomer sat­is­fac­tion rat­ings of the 500 or so peo­ple who use the facil­i­ty each week range between 95% and 99%. He also believes that its cre­ation has led to an increase in foot­fall in the town cen­tre, encour­ag­ing new shops to open. 

The biggest rea­son why peo­ple rely on cash is that they’re on low incomes. Deal­ing in cash is still the most effec­tive bud­get­ing method

Is it a solu­tion that can last? Bachtler accepts that the UK is mov­ing towards a cash­less soci­ety in which bank branch­es will have even less of a role, but he adds that this will take at least 20 years. 

“The idea that we don’t need branch­es in the mean­time is com­plete­ly flawed,” he argues.

Accord­ing to research pub­lished in April by Which?, the mag­a­zine of the Con­sumers’ Asso­ci­a­tion, just under 4,700 of the UK’s bank branch­es have shut their doors since 2015 – a decline of near­ly 50%. It also iden­ti­fied 17 par­lia­men­tary con­stituen­cies where access to cash is “par­tic­u­lar­ly poor”, offer­ing three or few­er branch­es and 30 or few­er ATMs that don’t charge for with­drawals.

Despite this, Which? esti­mates that 5 mil­lion peo­ple in this coun­try still rely on cash. At the rate that bank branch­es are declin­ing, those who depend on notes and coins risk being “cut adrift”, it warns.

Shared hubs are only one way to tack­le this prob­lem. Star­tups, lenders, trade groups and char­i­ties are all work­ing on con­cepts to try to keep in-per­son bank­ing ser­vices alive. Yet they face a harsh real­i­ty, giv­en that a fur­ther 226 branch clo­sures are known to be sched­uled for this year alone.

“We have 18.6 mil­lion reg­u­lar online bank­ing cus­tomers and more than 15 mil­lion mobile app users. Few­er cus­tomers are choos­ing to vis­it our branch­es. We’re like many oth­er high-street busi­ness­es in that respect,” reports a spokes­woman for Lloyds Bank­ing Group, which has closed scores of branch­es over the past five years. “We have to respond to this chang­ing behav­iour.”

Cat Far­row is lead coor­di­na­tor of the Access to Cash Action Group at bank­ing trade body UK Finance, which sup­port­ed the CACP ini­tia­tive. She believes that “there will always be a place for cash”. For as long as dig­i­tal bank­ing “isn’t a real­is­tic choice for every­one, we’re com­mit­ted to main­tain­ing access to it”. 

Far­row adds: “The biggest rea­son why peo­ple rely on cash is that they’re on low incomes. Deal­ing in cash is still the most effec­tive bud­get­ing method for them. If some­one has £6.30 to last them a few days, they may find it eas­i­er if that’s in cash. It can also be impor­tant in remote areas where the lack of a good phone sig­nal can make it impos­si­ble to make dig­i­tal pay­ments.”

The CACP scheme, which end­ed as planned in Octo­ber 2021, tri­alled a range of solu­tions in eight under­banked com­mu­ni­ties around the UK. The shared hubs – which were pilot­ed in Cam­bus­lang and Rochford, Essex – attract­ed the most atten­tion, with these two becom­ing per­ma­nent fix­tures and five more set to open this year in towns rang­ing from Knares­bor­ough in North York­shire to Brix­ham in Devon.

“It’s hard­ly a rev­o­lu­tion­ary con­cept, but the com­bi­na­tion of hav­ing cash ser­vices at a counter and the abil­i­ty to speak to some­one from your own bank, all in a key high-street loca­tion, has proved incred­i­bly pop­u­lar,” Far­row says. “More than £11.6m-worth of cash with­drawals and deposits took place in Rochford and Cam­bus­lang dur­ing the hubs’ first year of oper­a­tion.” 

But the hubs do have their lim­i­ta­tions. Some small busi­ness­es feel uneasy about deposit­ing large sums of cash with them, for instance, and they are unlike­ly to be set up in small and/or remote com­mu­ni­ties. As such, they are seen as only one piece of the puz­zle. 

Oth­er con­cepts that have been test­ed include a ‘cash­back with­out pur­chase’ ser­vice run by bill pay­ment net­work Pay­Point in small shops, which has enabled peo­ple to check their account bal­ances and/or with­draw cash with­out hav­ing to pay a fee or buy some­thing. In light of a recent leg­isla­tive change, 2,000-plus stores nation­wide have made the ser­vice avail­able and more are expect­ed to fol­low. 

A ‘click-and-col­lect cash­back’ ser­vice has also been tri­alled in Burslem, Stafford­shire, while ded­i­cat­ed bank­ing areas were set up in Co-op super­mar­kets where con­sumers and busi­ness­es could access their accounts with the help of trained staff. In addi­tion, post offices that already offered bank­ing ser­vices were refur­bished to make them more suit­able for larg­er cash trans­ac­tions. Auto­mat­ed deposit machines were installed at some of these so that local busi­ness­es could bank their tak­ings with­out hav­ing to queue. 

It remains to be seen how many of these inno­va­tions catch on more wide­ly, but they do indi­cate a will­ing­ness in the indus­try to reimag­ine bank branch­es by con­sol­i­da­tion or out­sourc­ing their ser­vices. 

One of the prime movers in this respect has been the Post Office, which has been fill­ing much of the void on the high street left by the banks’ exo­dus. Since 2017, it has been han­dling basic deposits, with­drawals and bal­ance enquiries for cus­tomers of 30 banks and build­ing soci­eties via its bank­ing frame­work agree­ment, which has just been renewed until 2025. The company’s 11,500 branch­es nation­wide are han­dling more than £3bn a month in cash trans­ac­tions. 

A Post Office spokesman says that it pro­vides the only exist­ing cash net­work in the coun­try with “the scale of infra­struc­ture, robust scal­a­bil­i­ty and secu­ri­ty” in place to man­age this role in the cash mar­ket. 

He adds: “In many places across the UK, the Post Office is pro­vid­ing the last counter in town where peo­ple can access cash.” 

Does all this mean the end of the tra­di­tion­al bank branch as we know it? Not quite. Metro Bank has put branch­es at the heart of its bricks-and-clicks strat­e­gy and, despite some set­backs, the plan seems to be work­ing. Launched in 2010 after the glob­al finan­cial cri­sis, it was the first new high-street bank to open in the UK in more than a cen­tu­ry. Its core aim was to pro­vide excel­lent ser­vice at a time when pub­lic trust in the sec­tor was at a low ebb. 

As rivals shut their branch­es, Metro Bank opened them, see­ing them as key to its “cul­ture and brand”. Today, it has 79 branch­es, although it’s plan­ning to close three this year. 

“Many cus­tomers val­ue face-to-face inter­ac­tions for key moments, such as tak­ing out a loan,” says a spokes­woman for the bank, point­ing out that branch­es are about more than mere­ly pro­tect­ing access to cash. “Our small busi­ness cus­tomers also ben­e­fit from a named local busi­ness man­ag­er who can help them in all sorts of ways.”

In many places across the UK, the Post Office is pro­vid­ing the last counter in town where peo­ple can access cash

That said, Metro Bank’s sites are quite dif­fer­ent from those of tra­di­tion­al branch­es, open­ing from ear­ly in the morn­ing until lat­er in the evenings and on week­ends – times that are con­ve­nient to its pre­dom­i­nant­ly younger clien­tele. Metro Bank branch­es, which it calls “stores”, also offer fea­tures such as safe­ty deposit box­es along­side more tra­di­tion­al counter ser­vices.

The bank says that there is a slight bias among old­er cus­tomers towards using its branch­es but adds that more than 60% of its cur­rent accounts are opened on site. “Cus­tomers can walk in with­out an appoint­ment, open an account on the spot and leave with a deb­it card,” the spokes­woman says.

The bank’s expan­sion plans have been hit hard by the Covid cri­sis and its shares have not recov­ered since an account­ing scan­dal in 2019, in which it erro­neous­ly clas­si­fied a port­fo­lio of com­mer­cial loans for cap­i­tal pur­pos­es, there­by fail­ing to hold enough cap­i­tal to ensure reg­u­la­to­ry com­pli­ance. 

That said, the busi­ness is still grow­ing. It serves 2.5 mil­lion cus­tomers, up from 200,000 in 2013. In Feb­ru­ary, it opened its lat­est branch in Leices­ter, although it admits that it has no imme­di­ate plans for fur­ther open­ings. 

The incum­bents that Metro Bank is chal­leng­ing have changed the branch­es they have retained, cut­ting staff num­bers and using more automa­tion. So says Tony Farn­field, a part­ner at Bear­ing­Point, a tech con­sul­tan­cy that has helped Bar­clays to mod­ernise its branch estate. He thinks there is clear scope for banks to go fur­ther, although in an increas­ing­ly cash­less future the main role of branch­es is like­ly to be advi­so­ry. 

“It will be about help­ing peo­ple with com­plex bor­row­ing deci­sions, where you want to see cus­tomers face to face,” Farn­field pre­dicts. 

Nonethe­less, he agrees that branch­es can be key to a bank’s brand and says that lenders are some­times wrong to close cer­tain sites. He cites work that Bear­ing­Point did with tel­cos that found that even an unprof­itable mobile phone shop could still be extreme­ly good for “brand per­cep­tion” if its foot­fall is high enough. 

“We built an AI mod­el that cor­re­lat­ed sales and geolo­ca­tion­al data. From it, we found that remov­ing an unprof­itable store would some­times make no dif­fer­ence to the bot­tom line,” Farn­field says. “So I think banks real­ly have to be care­ful.” 

Back in Cam­bus­lang, Bachtler says that he’s been heart­ened by the suc­cess of the CACP exper­i­ment. But he fears that the sit­u­a­tion nation­wide is unlike­ly to improve unless West­min­ster real­ly gets behind ini­tia­tives such as shared bank hubs. 

In May, the gov­ern­ment final­ly answered long-term calls for it to pro­tect the cash econ­o­my by law. In the Queen’s Speech, it said that it would be leg­is­lat­ing to ensure “con­tin­ued access to with­draw­al and deposit facil­i­ties across the UK” but gave no fur­ther details. It remains to be seen whether reg­u­la­tors will be award­ed pow­ers to pre­vent banks from clos­ing more branch­es. Cur­rent­ly, all they can do is issue guid­ance and share exam­ples of good prac­tice to dis­suade them. 

Anoth­er pos­i­tive devel­op­ment is that big banks have signed a new vol­un­tary agree­ment which means that an inde­pen­dent assess­ment of local needs will be con­duct­ed each time a branch is shut. Such a review could rec­om­mend that a shared branch is opened, an ATM installed or a post office upgrad­ed. The sig­na­to­ries say that they will com­mit to deliv­er­ing what­ev­er is rec­om­mend­ed to ensure that vul­ner­a­ble cus­tomers and cash-depen­dent busi­ness­es con­tin­ue to have access to the ser­vices they need.

Far­row says that more pilots are on the cards. When it comes to the new leg­is­la­tion, she is keep­ing her fin­gers crossed. 

“Although I don’t know what the new leg­is­la­tion is like­ly to stip­u­late,” she says, “we’re hope­ful that it will enable us to con­tin­ue with the progress we’ve made so far in pro­tect­ing access to cash in com­mu­ni­ties across the UK.”

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