Is the demise of the bank branch inevitable?


Ewen Fleming

Ewen Fleming

Partner - Financial Services Advisory


Branch closures are very much in vogue with the ‘Big 5’ banks (LBG, RBS, Santander, HSBC and Barclays) all reducing their branch footprint. In total, across the major retail banking and building society brands, the UK ended 2018 with fewer than 7,500 branches and over 1,800 branches have closed – one in five of all outlets – since January 2017.

 January 2017January 2018End of 2018
Barclays1,3091,2081,058
Lloyds Banking Group2,0381,7911,700
RBS Group1,5371,206797
Santander841798766
HSBC748625626
TSB588559551
CYBG Group248172159
Virgin Money818181
Handelsbanken207207208
Cooperative Bank1059568
Metro Bank455562
Nationwide Building Society691680680
Total9,2988,1387,456

Source: Retail Banker International

In January, Santander UK announced a further 140 branches are to close, and this is hot on the heels of 50 branches closing in 2018. In 2017, Barclays’ branch estate reduced by 101 outlets and it announced the closure of a further 150 branches this year.

There is no doubt that cost reduction is one of the banks’ objectives, although all banks that have undertaken, or are undertaking, branch closures cite the growing popularity of banking via smartphones and tablets, which in turn vastly reduces foot-flow in branches. Indeed Ross McEwan, RBS CEO, in a BBC interview, stated, “Our busiest branch in 2014 is the 7:01 from Reading to Paddington - over 167,000 of our customers use our Mobile Banking app between 7am and 8am on their commute to work every day.”

So, should bank branches be a thing of the past, or are our big banks overlooking the opportunity and value they can offer to consumers and the bank’s investors?

There is no doubt that the high street is changing, partly because of consumers transacting more online. Banks are no exception with their customers using branches less and using digital services more. Additionally, there has been increased regulatory scrutiny of banks and requirements imposed associated with providing customers with advice. Many banks have welcomed brokers to help gain market share and ease the regulatory burden on themselves. Consequently, the broker share of the mortgage market is now 80%, according to the IRESS Mortgage Efficiency Survey, and the same source states that branch mortgage sales have fallen by 37%.

Yet not all customers have access to or the ability to use digital banking and most consumers say they still value face-to-face for complex or higher value transactions such as applying for a loan, reporting the death of a family member, buying a home or retirement planning. This face-to-face support is increasingly difficult to procure, and will get more difficult, as banks willingly concede part of the value chain to intermediaries and digital channels.

However, bucking this trend and taking on the digital only challenger banks, Nationwide Building Society has pledged to keep open their UK branches till at least May 2021 and committed that this would happen whether, or not, there are rival banks and building societies situated nearby. They also acknowledged that branches often act as a bellwether for the health of a high street and can be a catalyst for growth or decline.

Designing the branch of the future will require banks to gather and evaluate additional data to help them determine what customers want, and where. It is likely that a ‘one size fits all approach’ to designing branches will not match with their customer needs and banks will need to look at experimenting with different models and approaches to meet these needs.

To chat more about the different factors affecting the future of bank branches, please get in touch with me here.