Summer Reflections – Banking in 2019 So Far

Summer Reflections – Banking in 2019 So Far

2019 in Banking

With summer now upon us, we’ve looked back at some of the key trends in banking so far this year

Back in January we outlined our predictions for banking in 2019. It’s fair to say it’s been a busy year for financial institutions across the UK so far! Seeing that it’s already August, we’ve examined how the industry has progressed and what new developments have come to the fore.

Bank branches as digital hubs

As expected we’ve continued to see bank branches across the UK close, one of the most recent announcement being that both Lloyds Bank and Santander’s Plymouth city centre branches will close by the end of the year.

We also predicted that banks would focus investment on their remaining branches, deploying more technology to enhance the in-branch experience and reframe locations as digital hubs. However, apart from NatWest, Lloyds and Barclays – piloting the UK’s first business banking hubs, which were announced last march set up to make it easier for businesses to deposit large volumes of cash – there has been little news of investment into digital branches.

What’s more, with banks such as Lloyds Bank turning locations into ‘micro-branches’ that do not accept coins, access to cash is falling as noted by the Treasury Committee’s Consumer Access to Financial Services report published in May.

Location, location, location

As anticipated, banks are closing underperforming areas and focusing on city centre locations.

For example, Lloyds Bank has announced the closure of its Cardiff Bay branch in Wales, citing that counters are 7% quieter than a year ago. It has however chosen to keep other branches like Roath Park in Cardiff, which receives higher footfall due to proximity to Cardiff University, open. These branch closures aren’t the only ones though – in fact Which? has found that 1,080 bank branches closed between 2018 and 2019. It has also found that access to ATMs has been falling – around 250 free-to-use cash machines are disappearing each month – leaving consumers miles away from cash in many rural UK areas.

It isn’t all doom and gloom though – in July Barclays announced it would be turning its branch in Pickering, Yorkshire as the first of ten pilot ‘community branches’, extending opening hours to Saturdays and reinstating local branch managers. Other key trends we are seeing include the increasing use of white label ATMs – ATMs owned and operated by non-banking organisations or more than one bank. This strategy offers a way for banks to drive efficiencies by consolidating ATMs, sharing them with other organisations to save money but retain convenience of location for customers.

We are also observing ATM ‘externalisation’, also known as outsourcing, where an ATM is fully managed by a third-party provider in order to reduce costs while maintaining consumer access to a bank’s services. Although outsourcing could mean the bank being charged a fee each time the ATM is used, this is usually worthwhile given hardware upkeep and replacement can be so expensive.

Open Banking and PSD2

While the September 14 deadline for UK banks to comply with PSD2’s SCA guidelines has been delayed by 18 months, this should not mean banks can rest easy.

Work to comply can require significant investment in time and money, in fact in April, the Open Banking Implementation Entity revealed only four of nine mandated banks had met a former Open Banking deadline. What is certain is that over the next few years Open Banking will open up a host of benefits and opportunities for consumers, third party providers and financial institutions, some of which have yet to be even discovered. By capitalising on open APIs, banks can create new added-value services to offer customers superior experiences, and benefit themselves by creating additional revenue streams.

Collaboration over competition

One of the reasons the Competition and Markets Authority mandated banks in the UK to comply with PSD2 is because they noticed there wasn’t enough competition in the market. It has been great to see Open Banking encouraging organisations to tackle the development challenges through collaboration, for example with fintechs to offer new services, generate new revenue streams and help banks better compete with big techs like Amazon and Apple.

In fact according to Capgemini and Efma’s WRB 2018 report, 70.8% of banks see the collaboration with fintechs an opportunity to create new services. For example, since the start of 2019 challenger bank and FinTech Starling has partnered with payments platform, Tribe, to open real-time consumer access to large UK and European payment schemes.

High street banks challenge back

In January we remarked that 2019 should be the year high street banks respond to the challengers. The advice remains the same.

Traditional banks need to focus on digital transformation and delivering superior customer service, invest in key bank branches and remember their strengths. For example, challenger banks may be more digitally advanced but may lack the same level of trust of more longstanding players.

It will be exciting to see how fintechs and high street banks alike adapt to their challenges, but one thing’s for sure – collaboration and creativity will be key.

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