Can branches survive in a cashless future?
BSA conference delegates in Harrogate debated the future of the branch
Two different visions of the future of retail financial services did battle at the Building Societies Association annual conference in Harrogate this week, revealing a dilemma facing UK building societies.
On the one hand are those who envision a cashless, branchless future where society has transcended the need for physical interaction with coins, notes – and staff. On the other is a vision in which cash endures and the branch becomes a centre of financial expertise, where consumers can go for face-to-face help and advice on the really important financial questions relating to getting a house and saving for their future.
Riding into battle on behalf of the enduring branch model, Chris Pilling, chief executive at the Yorkshire Building Society, pointed out that recent studies found having a convenient branch is second most important reason for choosing a new bank, second only to cash incentives; even more tellingly, one third of customers would not even consider a bank that doesn’t have branches, he said.
Yorkshire Building Society has opened branches in Wetherby, Ripon and several other places in the last year and is planning to open one in Harrogate this year. The building society is not alone; Metro Bank, Virgin Money, and Handelsbanken are also opening branches, said Pilling. Metro’s target is to open 200 branches by 2020.
“Branches are centres of serving the community, where valued financial advice on the important decisions is delivered by experts customers can trust,” he said. “Even in cashless Sweden, Handelsbanken has just been voted bank of the year. It has refused to restrict cash because it knows this is not what customers want. People matter more than technology and the best businesses know this.”
However, a riposte was swiftly delivered by Mark Mullen, chief executive at HSBC’s branchless banking subsidiary First Direct, who pointed out that it was entirely possible to run a branchless bank; his firm has operated without branches since it was founded in 1989, and does not plan to cease operations any time soon.
“I believe we are successful because we don’t have branches,” said Mullen. “We concentrate our expertise in one place, in a way that a typical bank branch can’t match. You’ll never have to wait because your bank manager is out to lunch at First Direct, nor will you ever have to wait for an underwriter. They say we’re a telephone brand. But that’s just a means to an end. The real end is to bank 24/7, for 365 days a year – and you won’t get that with a branch.”
At the heart of Mullen’s argument was a simple question: are customers using branches because they want to, or because there is no other way of doing what they want to do? Historically, the bank branch model, in which customers come to the branch and often serve themselves using an ATM, was designed for the convenience of the bank, not the customer.
“Customers who use digital banking are more engaged than those that don’t,” he said. “Why is that? It’s because customers who have access to their money online or via a mobile phone have more control, and that’s what makes them happy. If you want your customers to be happy, close those branches as quick as you can.”
According to a survey published by Accenture in March, daily and weekly branch visits in the UK and Ireland fell from 19% to 15% between 2010 and 2012. Meanwhile, inherently brief, more transactional banking activity rose significantly, with daily and weekly mobile banking more than doubling – from 7% in 2010 to 15% in 2012.
However, at this point Stephen Mitcham, chief executive at the Cambridge Building Society, countered that customers still value their local branch network, even if they use it less than they once did.
“If you ever want to know whether people care about their branch, try closing it down,” he said. “If you want to be vilified by your local community, give it a go. We had more people write to us complaining about plans to close branches than we had doing transactions there. Do they want to visit a branch? No. But they want the reassurance that it is there.”
A Lydian coin, 640BC. Will cash go the same way as the Lydians?
The other thread of debate running through the session was whether the UK might move to a cashless society. Chief advocate of the enduring presence of cash was Pilling at Yorkshire Building Society, who reminded delegates that cash has been in continuous use ever since it first appeared in the ancient kingdom of Lydia in Anatolia in 650BC – a period of 2,663 years. Chief detractor was Samee Zafar, director at financial consultancy Edgar Dunn & Company.
According to Zafar, cash is an expensive and inefficient way to make payments; for example, charitable donations made in cash end up losing 70% of their value to intermediary companies that count the cash, leaving only 30% of the original value to actually reach the intended charity. We use it because we don’t have any alternative and we are familiar with it, not because it has a strong value proposition; however, the arrival of mobile wallets such as the Google Wallet and services such as mobile payments app Square should aggregate customers’ store cards, credit and debit cards and even boarding passes for flights and shopping vouchers, onto a mobile phone.
“When we talk of the ‘war on cash’, there are really two separate battles,” said Zafar. “The war for mid- and high-value payments is already finished. People have moved from cash to credit and debit cards. The war still being fought is for low-value payments. But over the next 10-12 years, low value payments are going to go the same way as high value, because of mobile. If you’re at John Lewis and you’ve 50 store cards, the phone will bring up the right one for you. If you have a £2 voucher for Tesco and you can’t find it, the wallet will bring it up. These things will completely change the way we look at low value payments in the future. Cash will become a rarity rather than a common thing.”
