Banks’ consumer engagement undergoing “fundamental shift”

The way that consumers are interacting with their banks is undergoing “a fundamental shift” towards digital, but the industry shouldn’t be too quick to ring the death knell of the physical branch, according to Mark Aldred, banking specialist at Auriga.

“Banks have had to adapt as consumer banking patterns have changed. They are having to take hard decisions about their branch networks… banks closing their branches leave communities, especially those in rural areas, financially isolated. The industry should attempt to deliver choice to all customers, regardless of their income, location or how they want to access services.”

Spanish bank Santander announced last week that it would be closing 140 branches in the UK, a fifth of its total network. The move raises questions over the jobs of 1,200 employees, though the bank stated it would “seek to find alternative roles for the colleagues affected wherever possible.” It also announced that 100 of its remaining 614 bank branches will receive an investment of £55m for refurbishment.

The number of transactions carried out via Santander branches has fallen by 23% over the past three years, according to the bank, while transactions made through digital channels have grown by 99% over the same period.

“The way our customers are choosing to bank with us has changed dramatically in recent years, with more and more customers using online and mobile channels,” said Susan Allen, head of retail and business banking at Santander, in a statement accompanying the news. “As a result, we have had to take some very difficult decisions over our less visited branches, and those where we have other branches in close proximity.”

Closing down branches is “absolutely a commercial decision”, rather than a technological one, said Nick Sherratt, manging director of Mojo Mortgages, in an email. “Cost of servicing customers in branch is so high against the current margins on financial products that the model just doesn’t work commercially. The cost of servicing is so much less for [digital only banks], it enables them to come to market with more competitive products and I am certain that they will capitalize on the opportunity.”

Justification and alternatives

In November last year, consumer group Which? called on banks to justify branch closures in the UK, with the number of physical locations dropping from 20,583 in 1988 to 7,586 in 2018. According to the group’s research, ATMs are being closed at a rate of 250 a month, while 2,961 branch closures have occurred in the four years from January 2015 to January 2019, at a rate of 60 a month.

“Online banking may fit with today’s technology led world, but customers still want to be able to speak to someone who is well informed and has the skills and knowledge to deal effectively with their enquiry,” said Holly Andrews, managing director of KIS Finance, in an emailed statement.

“Faceless call centers manned by inexperienced staff are no replacement for branch staff. For the future banking network to work, it needs to combine efficient on-line systems with excellent support staff. Whilst having 24/7 access to high quality phone support is essential, there are still times when face to face contact is what is really wanted. Therefore, banks need to consider ways to maintain small ‘drop in’ type facilities where customers can still access one-to-one advice and support when they need it.”

The Post Office, which has a network of 11,547 branches, offers personal banking services for customers of major UK banks, with the service garnering a 77% approval rating from respondents to a Which? questionnaire.

Yet of those unlikely to use the Post Office for banking needs, staff expertise in financial services (28%), long queues (42%) and a lack of privacy to engage in financial affairs (32%) were concerns. 59% said they would always prefer to deal directly with their bank.

“Branches have been on the decline long before increased online mortgage activity,” said Sherratt. “UK customers now demand choice and reassurance that after comparing eligible products from the whole of the market, they have the best deal.

“It is unfair to hang the repercussions of a market evolution on our customers. They deserve a better mortgage experience and it’s the responsibility of the banks, lenders and intermediaries to innovate and strive towards providing clearer and more accessible advice on complex financial products.”

A 2017 survey conducted by Quadient indicated that 79% of consumers are concerned that customer service levels would drop in the event of banks closing down branches. 92% of respondents said that they would never conduct “once in a lifetime” decisions – like the arrangement of a mortgage – over an app or online.

Aldred believes that the industry is witnessing “an accelerated evolution of how the branch fits into a new approach to delivering the best possible customer experience, leveraging automation and innovation.” If banks rush in closing off large swathes of their branch networks, he warns, “there’s a risk that they will realize that we need them after they’ve been removed, and [branches will be] expensive to reinstate.”

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