Hans Tesselaar, Executive Director, BIAN
In recent months, a number of well-known banks have announced closures of their high-street branches. Lloyds Banking Group announced in May it was closing an additional 28 bank branches. This is on top of its plans to shut 60 high-street branches, including 24 Lloyds Bank branches, 19 Bank of Scotland branches and 17 from the Halifax brand, bringing the total number of closures to 150 since June 2021.
As digital banking grows, this move from one of the UK’s largest banking groups is a prime example of how the industry is adapting to consumer trends and the shift to online banking. In 2007, around one-third of consumers utilised online banking for managing their finances. Now, more than 90% of UK consumers use online banking.
It is clear that the future of the financial services industry is digital, and shifting behaviours have forced a seismic divide between those who prefer to bank online and those who don’t. It has also raised many questions about how prepared our high-street banks are when it comes to supporting this divide, while future-proofing their services for the continued digital transformation happening within the industry.
Banking for Every Customer
Some banks are incorporating services to support those who are unable to access digital services. Hands-on support at branches for example, has helped to improve accessibility and improve education around digital initiatives. It has also encouraged increasingly more people to embrace digital change. However not all consumers are ready or capable to make the change, which means there is still work to be done. As banks continue to accelerate digital transformation projects, the closure of more high-street bank branches is inevitable. This unfortunately means that those who prefer to bank in person could be left in the dark when it comes to managing their finances.
Banks must ensure they continue to innovate while considering the needs of every customer. This means providing offline support, such as the recent move for banks to share services to support the local community and the future of cash. As part of this pilot agreement, large banks across the UK will assess local needs every time a branch closes. This assessment could recommend a shared branch opens, an ATM installed, or a Post Office is upgraded. Banks will commit to delivering whatever recommended to support those customers who prefer to bank in person.
In addition, regulators are making moves to further protect those who don’t have access to online banking. The Financial Conduct Authority will have the power to ensure local communities across the UK have access to cash. Banks who don’t comply could face fines. This will ensure that in those areas where digital adoption is not common, access to physical services will remain a priority for banks.
These initiatives are promising, but the industry and government must do all it can to ensure these initiatives are widespread. The industry must also continue to innovate, and develop additional initiatives aimed at those unwilling or resistant to embrace the digital future.
There is an opportunity to future-proof services and improve the customer’s experience from this shift in consumer behaviour. However, banks must also remember the need to support those directly impacted by the branch closures.
There are also some select players who provide differential services by focusing on keeping their branches, and advertising this. In the United States, for instance, community banks unique selling points are their branches and knowing their – local – customers by name.
The speed at which established institutions can bring new services to life is often slow and outdated however, due to the extensive use of legacy technology within banks. This challenge is also complicated by a lack of industry standards, meaning banks continue to be restricted by having to choose partners based on their language and the way they would work. This is instead of their functionality and the services they offer which has the potential to way transform the bank and its capabilities.
To truly digitise banks, there is a need to overcome these obstacles surrounding interoperability with a coreless banking model. This approach to transformation empowers banks to select the software vendors needed to obtain the best-of-breed for each application area without worrying about interoperability. Banks will also not be constrained to those service providers that operate within their own technical language or messaging model.
By translating each proprietary message into one standard message model, communication between different organisations is, therefore, significantly enhanced. This ensures that each solution can seamlessly connect and exchange data, from fintech’s, to traditional banks to technology providers
Banks must form an ecosystem alongside fintech’s, service providers, and aggregators, in addition to taking a coreless approach to banking. This will help banks when it comes to the how fast and efficiently they can introduce new products.
With an effective ecosystem strategy, banks will become more relevant to their customers, providing an opportunity to drive better relationships and bigger wallet shares by delivering the speed, scale and differentiated products that make the most of the opportunity presented by the significant shift to digital banking. There is a risk if banks fail to take this approach: they will struggle to survive as consumers continue to demand new, digital services aligned to their needs. Which is why, working together is key for the future of the industry.
A Future Driven by the Customer
It’s likely that we will continue to see more and more branch closures across the UK. This is an opportunity however, for the industry continue to adapt by embracing new initiatives and encouraging innovations based on the needs of every single customer – no matter their demands. Failing to do so only means that customers will leave for a nimbler competitor who understands the customer both now and in the future.
This shouldn’t be seen as a hard weight to bear. By taking a core banking approach to transformation, supported by an effective ecosystem – banks will benefit immensely. The industry is at a cross-roads, and its success will continue to rely on a balance that provides for each and every customer, through maintaining previous methods of banking and developing new and innovative services for the future customer.