There’s no refuting the fact that mobile and online banking has soared in recent years, with footfall to local bank branches dropping around 10 per cent each year,according to recent research. So what does the future hold for traditional retail banking? Exploring some of the themes of the Day Before Tomorrow ﬁlm focused on money, Natalie Mortimer investigates the trends in the marketplace and whether the end of the branch is looming.
Pingit, Paym and Square – just a handful of digital banking innovations that have burst onto the modishly dubbed ‘fin-tech’ or financial services technology scene in recent years, representing the massive consumer demand for mobile banking. Long gone are the days of visiting your local bank branch for simple day-to-day transactions. People want to bank on the move and organise their finances 24/7; something a physical location with restricted opening hours struggles to offer.
According to a report by industry body the British Bankers’ Association (BBA), customers of the five biggest retail banks used their mobile phones for
18.6m transactions per week in 2013 – double the figure of 9.1m in 2012, and made nearly 40m mobile and internet transactions each week last year, an indication that the reinvention of the branch model is already afoot.
Metro Bank, which emerged on the scene in 2010, was the first new bank to open in the UK in a century, and has now amassed more than 400,000 consumers who take advantage of its seven-day flexible opening hours, instant printing and replacements for lost or stolen debit cards and the overhauled in-store experience.
Anthony Thomson, Metro Bank co-founder, believes that traditional banking is being held back by two hurdles; culture and legacy.
“What’s wrong with traditional banking? Well, where to start?” he says. “I think there are two big things that I would point out. First, and probably most importantly, is around culture. Most banks think that they are in business to make money, and I believe, passionately, the great businesses are those that set out to give customers a better product or a better service, or a better experience, and profit is a by-product of doing that well.
“The second issue is around legacy, IT and infrastructure. So banks, frankly, have branches that nobody wants to use, in all of the wrong physical locations, and customers have to pay for these.”
The digitisation storm and consumer call for better service in banking has led Thomson to take his disruptive fin-tech model further to create Atom, a mobile-based bank due to open in 2015 with a full range of products including current accounts and mortgages.
Atom, which will not open any physical retail branches, nor offer telephone banking, will instead allow consumers to transact purely online or via a mobile phone.
“What makes Atom Bank different is it’s based upon a couple of consumer insights, and the most important insight is this incredible change that digitisation has made into people’s lives,” reveals Thomson. “Bank branch usage has fallen off a cliff, and even using telephony as a means of accessing bank accounts is in decline.
“All of the growth, and it is really explosive growth, is in the use of digital devices in general, and mobile in particular, so Atom will be the first mobile-based bank. It will be the first bank that is literally in your pocket, or in your briefcase.”
While ramping up digital services is good for banks, both in terms of reducing cost and improving customer service, Neil Dawson, chief strategy officer at SapientNitro, believes the move could eventually sever close relationships between banks and their consumers.
“Banks want to accelerate the uptake of digital services and it’s good for them, from the point of view of reducing costs. It’s good for customers; it creates a simpler and easier experience, more efficient. So there are benefits for all parties concerned,” says Dawson.
“One downside, which is quite significant, is of course that a digital-only bank potentially increases the likelihood of you switching – you potentially have less of a relationship than historically you may have had with the people in your branch or your manager,” he adds.
So does the emergence of digital native banks like Atom or Metro sound the death knell for the end of the branch as we know it? If Thomson is to be believed, retail branches will be but a distant memory in the next decade.
“If one looks at digital adoption it’s roughly 60 per cent of 21-31 year-olds, 40 per cent of 31-41 year-olds, and then it decreases slightly. But of course, every generation is getting older and is getting more digitally literate.
“For those banks who have not adopted it, the sad fact of life is that they’re dying out, and in 10-15 years’ time children will be saying, ‘Daddy, tell me what a branch was’.”
While Thomson is unequivocal about his vision for the future of banking, RBS’s digital managing director Chris Popple disagrees, saying that despite the ongoing axing of its branches as customers move to online and mobile banking, the human connection bank branches provide will always be desired by consumers, especially when in need of advice.
“Will branches be around in five or 10 years? There will absolutely be physical spaces where customers will come to interact with the bank: no question. There are some things in life that it is really helpful to sit down and talk to somebody about, and look at them in the eye.”
Echoing that point of view, Dawson predicts the role of the branch has a “hugely significant” role to play in the future of banking, with a definite place in the industry going forward. “It becomes a place for experience,” he concludes, “and for emotional connection, for a degree of theatre around what money and banking is from the consumer point of view, and how the bank can help the customer achieve their goals.”
This feature first appeared in The Drum's 10 December issue.
Watch the full six episodes of the Day Before Tomorrow here.