At present, retail banking is going through a period of uncertainty. Some banks are building new locations, others are doubling down, and some banks, such as Citigroup, are having to lay people off and close branches. Experts believe that retail banks are being hit the hardest. In fact, the co-founder and executive chairman of Singularity University, Peter Diamandis, believes that bank branches will mostly be gone within this decade.
There are numerous reasons why this is the case, including the fact that we prefer the convenience and ease that comes with core banking software provided via desktop or mobile phone, and that we don’t see the need to go into branch anymore. So, are we nearing the end of retail banks?
You only need to turn on the news or browse on the Internet and you will see plenty of headlines about bank closures in the UK. In April, it was revealed that Barclays, RBS, and HSBC were planning to close approximately 400 branches this year. In July, Lloyds TSB announced that 9,000 jobs would disappear and 200 branches would close by the end of 2017. Figures released by the Sunday People showed that there were 650 bank closures in 2015, with some of Britain’s largest banks closing 12 or more branches every week. Contrast this with the 222 that closed in 2013, and the 500 that closed in 2014, and the pattern is very clear.
The reshaping of the banking industry
Of course, the closure of retail banks does not come without reason. We are going through a period of radical transformation and innovation. Imperative to change has been caused by economics, demographics, regulatory requirements, and most significantly, technological capabilities and customer expectations. It is widely accepted that if banks stay the same, they will get left behind. After all, who really feels they need to go into branch these days on a regular basis?
However, while there are some people that believe banks can ride out this period of change, so long as they adapt and create a customer-centric business model, there are others that are not so optimistic. The founder of mobile banking app Moven, Brett King, believes that the banking sector will experience a greater level of disruption in the next decade than it has for the past 300 years. So, what do Brett King, Peter Diamandis, and other experts with the same view think the future will hold?
They believe that technology businesses will be the biggest banks across the globe by 2025. They also predict that there will be a huge problem for banks that grew by physical bank presence, i.e. via bank acquisitions in the 1980s and 1990s.
The reason for this is because of the dominating force that is the World Wide Web. It is predicted by PHD Ventures that at least 66 per cent of the worldwide population will by online by 2020. This means that there will be at least another three million global customers, which are not accounted for at present. In addition to this, you also need to take a look at the significant investment in Fintech as opposed to traditional banking industry investment. We are seeing more and more Fintech start-ups pop onto the scene all of the time.
You also need to consider the increasing number of people that are using their mobile phones for their banking requirements. There was a 54 per cent rise in this last year, and continued growth is expected. Thus, by the time we reach 2020 there will have been huge advancements in the way we are able to bank, with convenient options and exciting features, including blockchain, robotics, and artificial intelligence.
The time to act is now
Banks need to realise that the time to act is now. If they do not meet the needs of their consumers, banking companies as we know it will be gone for good. The problem is that a lot of banks are misplacing their efforts to counteract this issue. They have re-designed their branches to make them more modern, replicating an Apple store to a degree. However, it’s a behavioural issue, not a design one, and banks should be focusing on how they can meet customers’ needs.
Photograph by Sean Whitton
