News of bank-branch closures hits the headlines on a regular basis, affecting people living everywhere from Pittsburgh to Preston to Potsdam. The United States lost almost 2,000 branches a year from 2016 to 2018. European bank branches dropped 21 percent in the decade to 2018. In the United Kingdom, consumer group Which? has been tracking branch closures since 2015 and has reported more than 3,000 closures during this time. This represents a rate of about 70 a month.
Branch closures are often greeted with alarm by those claiming to represent consumers in the market in question. While some of the opprobrium is to be expected and is understood, the closures are driven by changing customer demand.
But the response of the banking industry is certainly not beyond reproach, either. In retail banks, we have sometimes been guilty of communicating changes in how we conduct our business in impersonal terms. So, branches have been shut, and some customers have felt neglected. We need to recognise this. There will be more change coming down the line—we can’t hold back the tides of technological progress or financial pressure, King Canute style. But we can adapt with an eye on human need and provision of excellent customer service. We all must try harder to explain what we’re doing and why—to consumers, regulators and other interested stakeholders.
The reason for this shape-shifting in the banking sector goes beyond the obvious answer of cost-cutting. This is primarily a matter of adapting to evolving customer preferences. We are still investing in branches and opening new ones, but they’re different branches. And there will be fewer than in the days of multiple branches on every High Street.
Banks in the future will have to adapt to consumer demand in parallel with harnessing the potential benefits of the extraordinary technological progress we are currently experiencing. The range of products and services that we can, and will, provide digitally is increasing. Digitisation has a huge role to play in helping banks to become more efficient and boost profitability. Despite suggestions that it will make customers more fickle, digitisation could also play a role in entrenching customer loyalty by providing new products and services.
To help us understand what the bank of the future might look like, CYBG in conjunction with futurologist Foresight Factory produced a report, Bank to the Future, looking at likely developments in three to five years and in five to ten years. A comprehensive study of successful innovations in the financial-services industry was combined with data forecasts of changing consumer needs in order to anticipate how banking infrastructure might evolve. To accompany the futurology report, we also commissioned consumer insights from market researcher Censuswide.
The research painted a picture of consumer enthusiasm for the use of technology in future banking but also an appetite for human connection. The report explores attitudes towards artificial intelligence (AI), robotic advisors, voice technology, virtual reality (VR), biometric identification and wearables. It found high current take-up rates, and even higher medium-term take-up rates, among the young and the affluent. These early adopters are likely signposts to wider market penetration in years to come. The Bank to the Future report provides the insight that currently 35 percent of consumers own, or are interested in owning, a VR headset. This rises to 60 percent among 25-to-34-year-olds. Seventeen percent own a wearable device, rising to 29 percent among Millennials and 39 percent among those earning more than £75,000 per annum. Use of these technologies has great potential to change the way we deliver banking services.
The Censuswide report probed motivations for using technologies and demonstrated clear findings about attitudes towards particular technologies. It is striking that all demographics, including the over 55s, see fingerprint technology and retina identification for authorising payments as far safer than the established technology of chip and pin. (Censuswide, The Survey Consultants: Additional consumer research to support the Bank to the Future report was carried out among more than 2,000 respondents from all demographics and regions of the United Kingdom from March 8 to 11, 2019.)
More than 80 percent of those asked said that they would want to talk to a human being for a complex or sensitive interaction, such as being a victim of fraud or arranging a mortgage. And an overwhelming 88 percent had visited a branch within the last year.
This points to the fact that banks need to intertwine the age-old value of trust with new technology to improve the lives of our customers. The staff we employ is a cornerstone of this. But so is brick and mortar. By providing a service within a bank, we can evoke trust and underline brand values. But the branches of the future won’t look like the branches of the past.
Like several other banks across the world, at CYBG we have innovated with both digitisation and physical branches. In 2016, we created a new app-based digital banking service called B. It was conceived from consumers’ feedback, which said that what they wanted from a bank was something as simple but fundamental as taking the hassle out of money and making life a bit easier.
CYBG customers tell us that they still want to visit branches. This was backed up by the Censuswide survey, which showed that only 7.7 percent of banking customers rely on a digital bank with no physical presence. In the UK, we still believe in brick and mortar for our banking. But preferences have moved on from the days of oak paneling and marble. Now at CYBG’s B Works branch in Manchester, we provide working space, advice to start-ups, great coffee and even yoga classes. Visitors are more likely to see iPads than cheques or ledgers. Our customers tell us that there’s a blurring between work and social activities, and this is our response.
We are creating the bank branch of the future, but the bank of the future will also harness technology to meet customer demand—sometimes even anticipating future customer demand. We were the first British bank to process a cheque via a mobile app and the first to be fully ready for Open Banking account aggregation, through which you can see the details of all accounts across different banks in one place. We are collaborating with fintech start-ups to meet consumer demand. For example, we have partnered with Salary Finance to provide affordable staff loans and with Ezbob for fast, efficient loan authorisation for small-and-medium-sized enterprises (SMEs). We also launched our PayPal partnership last year, designed to enhance digital payment options for customers. The partnership will enable B customers to seamlessly link their debit and credit cards with their PayPal accounts directly from the B mobile-banking app.
In its study “Retail Banking: Transformation & Disruptor Opportunities 2017-2021”, Juniper Research forecasts that by the end of 2021, three billion bank customers will be able to access retail-banking services through their smart-phones, tablets, personal computers and smart-watches. This represents half of the global adult population. The challenge for banks is to provide a frictionless digital experience to their customers seeking the convenience of rapid multi-channel digital services.
The insight into the future of banking in the UK, as outlined in the Bank to the Future report, is clearly echoed elsewhere in the world. Goode Intelligence predicts that by the end of 2020, 1.9 billion bank customers around the world will be using biometrics and e-identification to access financial services. These will include accessing an increasing number of “Internet of things” devices, including smart home devices and connected car and smart city services. Technology is changing the way we live across the world, and banking must recognise and facilitate this. The experience in Europe shows us how fast uptake can change, with the use of internet banking increasing from 29 percent in 2008 to 51 percent in 2017.
The opportunities of digitisation also come with risk. Customers fear fraud and want to feel secure. Banks are investing heavily in cybersecurity measures so that they can provide the necessary reassurance.
It’s impossible to tell exactly which direction technology-led banking will take. Two decades ago, who would have predicted that internet banking and contactless payment would become quite so ubiquitous? Thirty years ago, we might have predicted that we’d be travelling to bank branches by flying car or hoverboard. But that’s not the way things have turned out.
Branches have a future, but there will be fewer of them, and they will look and feel different compared to the branches of the past. In parallel with developments in other retail businesses, customers will look for experience as much as functionality. When most financial transactions can be carried out digitally, there has to be a positive reason to visit a branch.
In these fast-changing times, it is hard to predict the future with any certainty. A choice of digital or brick and mortar for the future of banking is a false dichotomy. Clearly, there is room for both. But I am confident that the warmth and good judgment of human beings are the most important ingredients in the future of any successful bank. Our talented, committed staff members are what differentiates banking services; without their ingenuity to harness technology and ability to make customers feel welcome and valued in our branches, our future products would be nothing more than commodities.