Since the turn of the decade, our lives and livelihoods have been subject to ceaseless, sweeping change. But even before the onset of the pandemic – and the radical digital transformation it sparked – the UK’s business landscape was shifting, particularly for financial services.
Krista Griggs is Head of Financial Services and Insurance at Fujitsu UK. With over 20 years’ experience in designing and implementing digital transformations across various business domains, she shares her thoughts on bank branches and the socio-economic impact of their closures.
For some years now, fintechs have been chipping away at the customer base of established players. In fact, the City Watchdog found that nearly 10% of all bank accounts are now held with a so-called digital “challenger” bank. And now ‘more traditional’ banks have responded by embracing the same approaches to technology and innovation that enabled their digital-native counterparts to flourish. But at what cost?
Because, while digital transformation has helped banks to keep up with the evolving needs of many consumers, it’s also seen the most vulnerable being left behind. Owing to the nearly half of brick-and-mortar branches they depend on disappearing from the high street since 2015, according to recent research by Which?
Perhaps more worrying, however, is the rate at which branches continue to close (220 are scheduled to shut in 2022). But this cannot endure if banks are to fulfil their duty and ensure there is continued access for those who need it – requiring a delicate balancing act between digital transformation and physical branch preservation.
Bank branch closures are widening the digital divide
Brick-and-mortar banks used to be the beating heart of the high street. But the move towards a cashless society and digital banking services has seen a steep decline in traditional branches and ATMs, which has only been amplified by the pandemic’s acceleration of the uptake in digital payments.
Such is the extent of this decline, bank branches could be extinct by 2034 if current footprint reduction trends continue. And while this shift to digital has enabled banks to keep pace with FinTechs, it has severe implications for the most vulnerable in society who depend on cash.
For example, adults who are digitally excluded are nearly five times more likely than the UK average to rely on cash, according to the Financial Conduct Authority – and this is only widening the digital divide. Whereby, Lloyds Bank research found that an estimated 11.7 million UK citizens lack the digital skills needed for everyday life, 9 million are unable to use the internet and devices by themselves, and 2.6 million people are still offline.
Banks can’t exclusively look at consumers through a city lens
And it’s not just the most vulnerable in society that are being impacted. Looking across the UK, the concentration of banking in large urban areas has always been a contentious point for consumers living in peripheral regions, whose lives and livelihoods have only been made more challenging by this economic and social exclusion.
In an increasingly digital world, there’s now a very real risk of history repeating itself, with regional variations in the infrastructure (or lack thereof) needed to cope with more digital transactions. The rollout of 5G – which supports the speed of transactions – is a perfect case in point, with it largely being reserved for the UK’s most populous cities.
Ultimately, there’s no doubt our world is changing, and digital banking is part and parcel of this. But we must question if consumers are truly yet ready – 38% of people used cash to buy Christmas presents in 2021, for example. So, the onus is on financial services and the government alike to collectively bridge the digital divide and ensure no single person is left behind in the process.
Steps are being taken but they need to go further
Financial services institutions and the UK Government are at least aware of the implications digital transformation brings. With the introduction of cashback without a purchase in shops, major banks agreeing to share services, and pilots such as the Community Access to Cash, the UK is on track to help fill cash access gaps and bridge the divide.
Yet more needs to be done. There are clear limitations to these schemes and if more decisive action isn’t taken, bank branches will continue to hurtle towards extinction, while access to cash will only become more difficult – having a huge socio-economic impact in the process.
Looking to the future, the decline of cash and the disappearance of banks from the high street may be inevitable as society progresses, but we need to understand what we can do to bring people with us.
This begins with a more collaborative, inclusive approach between banks, governments and businesses alike, to ensure digital transformation is balanced with the preservation of physical banking services and easy access to cash.