A revolution in retail banking is needed to drive competition and innovation says the Social Market Foundation (SMF) in its report, Branching Out: The evolution of retail banking, supported by Barclays.
The report draws on the results of a new SMF/ComRes survey of attitudes towards retail banking which shows that face to face service in a branch is still the preferred mode of accessing bank services for 62% of people. But digital channels have become a common preference for simpler transactions.
Bank branches will change over the next decade, prompting greater use of self-service for simple transactions – just like supermarkets – and uptake of new technologies; while allowing bank staff to be focused on more personalised service. There will be fewer branches but a higher proportion of visitors will be likely to know the name of someone who works at the one they use.
With the overall number of branches in decline, the report calls for more technological innovation in mobile and online services, to increase competition and reduce banking costs for customers and businesses.
More lenders is not the answer. Instead the market must reorient towards innovators in payments – from PayPal, Google and Apple, peer to peer networks and new online tools such as Zopa, to the banks themselves. Branching Out suggests that Oyster – with tried and tested pre-paid debit cards and an extensive branch network – follows the lead of its Hong Kong equivalent and apply for a banking licence.
Emran Mian, SMF Director and the report’s co-author said:
The most profitable customers for banks – the young and the affluent – are shifting online. Branches will have to adapt. At the same time, cheap new technology creates the potential for more competition. Mobile transactions are 50 times cheaper than doing the same thing in a branch.
It must be only a matter of time before technology companies become the new entrants to banking. The Mayor could shake up the market too. Most Londoners already carry a pre-paid debit card that wasn’t provided to them by a bank – it’s called Oyster. The Hong Kong equivalent already has a banking licence.
These changes rather than capping market share or the number of branches, are the way to create competition in the future. Ensuring that no one is left behind will be harder. Financial inclusion may require that banks offer smartphones to their customers who don’t already have one; and soon it may be that the local Post Office becomes the bank branch for many people.
Commenting on the SMF’s research, Steve Cooper, Head of Personal and Business Banking Barclays UK, said:
This report shows that branches will remain a vital and popular way for people to do their banking for decades to come, which we wholeheartedly endorse. What happens in branches will change dramatically: as transactions become more mobile and seamless, customers will choose branches when they want to have face-to-face conversations with people they know and trust. Barclays is testing a number of new ways to make banking more convenient and relevant to customer lives, for example by partnering with supermarkets so that people can bank while they shop, to providing new formats for banking that supports all communities.
Key results from the SMF/ComRes survey:
- Eight out of ten people would prefer to go to a branch to seek financial advice;
- Almost seven out of ten people would prefer to go to a branch to open or upgrade a current account;
- When asked about simpler payments transactions, other channels, primarily online banking, become a common preference;
- While people on the whole prefer bank branches, only a quarter strongly agreed when asked if they knew the name of someone in the branch they use most often;
- The affluent (AB social class) and the young (25-34 year olds) have a weaker preference for the branch than others, with more than half of these groups preferring other channels.
Notes to Editors
- The Social Market Foundation/ComRes ‘Future of Banking Survey’ conducted phone interviews with 1,008 adults on 24-26 January 2014. The data is weighted to be representative of adults over 18
- The report includes responses from Adrian Harvey, Head of Consumer and Public Services Policy, Citizens Advice; Adam Marshall, Executive Director of Policy and External Affairs, British Chambers of Commerce; Mark Mullen, Chief Executive Officer, first direct; Ged Nichols, General Secretary, Accord; and Steve Cooper, Head of Personal and Business Banking, Barclays
- This report is sponsored by Barclays and the SMF retains absolute editorial control over its outputs
- The Social Market Foundation (SMF) is a leading independent UK think tank which develops innovative ideas across a broad range of economic and social policy, champions policy ideas which marry markets with social justice and takes a pro-market rather than free-market approach smf.jynk.net
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