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Research fires warning at banks over branch closures

Traditional retail banks cannot rely on customer loyalty if service levels drop as a result of branch closures and staff cuts

Karl Flinders
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Published: 06 Apr 2017 13:06

As Lloyds Bank gives details of its latest tranche of branch closures, worrying research has found that a significant proportion of UK consumers are considering changing who they bank with because of impersonal services and communication.

Lloyds Bank this week announced more branch closures in the UK, with 54 Lloyds Bank branches, 22 Halifax branches and 24 Bank of Scotland branches set to go, as well as around 200 jobs. This is part of its previously announced large-scale plans to close branches and cut jobs.

“Our branches will continue to play a vital role in our multichannel approach to meeting the full range of customer needs, and we expect to continue to have the biggest branch network in the UK,” read a statement from the bank following the latest announcement.

The increased use of digital channels is encouraging multiple retail banks to cut back on physical channels. For example, Royal Bank of Scotland (RBS) and HSBC have made similar announcements recently. These banks want to redirect spending and customers to digital channels.

For good reason it seems. The British Banking Association (BBA), in its Way We Bank report, revealed there were 11 million log-ins to banking apps every day in 2016, and 4.3 million log-ins to internet banking via bank websites.

But a TNS survey of more than 2,000 Brits, commissioned by GMC Software , found that banks cannot rely on the loyalty of customers who crave the personal touch. It revealed 43% are considering switching banks due to impersonal customer services and communication.

Read more about bank branch closures

  • The Royal Bank of Scotland is “taken aback” by ever-increasing take-up of digital banking and announces additional branch closures across UK.
  • Bank branches are being used less and less, but that doesn’t mean customers are getting a less personal service.
  • The chairman of Santander is confident banks can fight off the challenge in financial services from tech giants.
  • Customers of all UK banks can receive branch services through the Post Office after a deal agreed last year takes effect.

According to the survey, 68% of respondents said they felt like they were “just a number” to their bank. The removal of physical branches and staff is a contributing factor to this.

Other findings included that 79% were concerned that customer service levels would fall due to the increased focus by banks on online and app-based services. Meanwhile, 62% said they were only comfortable using apps for basic banking services.

Fintech is a game changer 

The research also had some better news for traditional banks, in that only 32% of people interviewed said they would trust one of the new challenger banks with their money. But this will inevitably change as these banks become more mainstream, which gives traditional banks a stay of execution and some time to balance their customer services offering.

Challenger banks often come under the fintech (financial technology), banner and use modern technology such as big data, artificial intelligence and mobile software to improve and personalise customer services.

Their presence is being felt across the financial services sector. According to research from PwC, 88% of existing financial services companies are worried they’re losing revenue to fintech startups.

According to a recent Economist Intelligence Unit report, more than half of financial transactions will be made through fintech companies rather than traditional retail banks by 2020.

“We are on the cusp of a huge upheaval in both how consumers communicate with their banks, and the expectations they have of them,” said David Webster, financial services specialist at GMC Software. “When it’s easier than ever to compare banks’ offerings and switch or spread your accounts across multiple providers, banks will need to offer something very special to hang on to their customers.”

Read more about fintech

  • How increasing competition in the financial services sector has fuelled Barclays’ 18-month, company-wide campaign to increase its use of agile and DevOps methodologies.
  • Global financial system stability group FSB will take a closer look at financial technology companies.
  • Consumers are quickly adopting fintech products and services, with young high earners leading the charge.

Adding more urgency to the task at hand for traditional banks is the scheme introduced by government to make it easy for people to switch accounts. In September 2016, the Banking Commission introduced a regulation to simplify and speed up the process of changing bank account providers for consumers, small businesses and charities. It slashed the length of the switching process from 30 days to seven days.

While the number of people switching banks has not increased dramatically, the increasing maturity and publicity of alternatives to traditional high street banks is likely to encourage more people to switch bank account supplier or spread their custom across multiple suppliers.

Read more on IT for financial services