Could the FCA and Fintech Rewrite the Rules for Branch and ATM Cuts?

On 26th July 2022, the FCA ended  its consultation on whether its guidance on how banks close branch and ATMs services should be changed.

This consultation was significant because it acknowledged current guidelines on these services were cut or altered were not working.

So what should happen next?

More Transparency

From the FCA and the banks, we do need to see clearer formulae for why a specific branch should be shuttered.

Banks tend to roll out general numbers of customers who no longer use branch services but these are not directly applicable to an individual branch at risk of closure. There is little evidence that banks do an in-depth analysis of a branch’s customer base to understand the real proportion of customers who would be affected. Even when that percentage may seem small, it may account for a relatively substantial number of people and those customers are likely to over-represent groups who are most vulnerable to the loss of access to cash and financial services locally.

Quite simply branch and ATM service reviews need to be done in a much more considered fashion than currently. The current justification and solution is too simplistic -  too few people use bank branches and those that need in person banking services can go to their local post office. But, despite the best efforts of the post office, this is a degraded service to the one that’s being closed down. Few post offices have the facilities to match a closed branch and access to bank services must compete for attention with everything else a post office must offer.

No More Phony Branches

Some banks are offering micro banks as an alternative to closed branches. While these are typically branded branches, the reality is they are simply information shops without the staff or systems to help a customer with a range of specific everyday issues.

Phony branches without  in-person banking services demonstrate how some bank’s omnichannel strategies are broken or at best confused.

Banks should be encouraged to roll out pop up branches to offer proper banking services in new locations quickly and easily. But it is critical that these have banking facilities, and these can be cost effectively provided by next generation self-service digital banking systems.

Mandate Digital Self Service

In whatever new guidelines are produced, the FCA does need to ask if a bank  accurately assessed how automation and digital self-service could bring down branch operating costs while keeping services available.  There are proven cases of this new branch model delivering impressive results like how Italy’s Banca Carige is rolling out new digital and smart bank branches that cut operating costs by more than a third.  Branches like these can be wholly automated, staff-less 24hour, and even shared.

Shared  Opportunities

Sharing infrastructure among different banks is an option that can reduce the damage from branch and ATM closures. A “white label branch” model means a single location acts as a shared service centre for all banking-related activity, regardless of which bank the customer holds an account with. Similarly, multiple banks could pool their investment in new ATMs to assure the widest local coverage of free ATM services. ATM pooling is already a feature of banking in Belgium where there is a top-down commitment to providing access to cash at ATM’s within five kilometres of their citizens’ doorsteps. Other countries are taking a similar approach and the UK could learn from them.

Overall banks are too keen to rush at branch closures regardless of how they create access to cash and financial service deserts. There are alternatives that should be explored before closures are considered.