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Bank branches, challenger banks and the future

Saturday, 16 June 2018

In a month when statistics have been released showing that UK banks are closing 60 branches a month as more consumers move online, the place of the bank branch in today’s technological world is becoming more and more precarious. The recently announced proposed merger of CYBG and Virgin Money will also add to this number, with the loss of a number of branches anticipated as a result. 

Nevertheless, it is a digital world today and banks will take steps to focus on those areas where they can be most profitable and gain best competitive advantage. The high street banks in particular are struggling to survive against the newer challenger banks who are less shackled by unwieldy infrastructures and outdated business models.

In a recent survey undertaken by Vendor FIS, it is the challenger banks – which tend to focus on digital services as opposed to high street offerings, who score highest in terms of overall customer satisfaction. The results of the survey showed that 76% of first direct bank customers are ‘very satisfied’ with their banking relationships, compared to 69% of those who bank with one of the ‘traditional’ banks.

With the continuing trend towards online banking, the use of mobile is becoming increasingly popular, particularly amongst millennials; the FIS survey shows that 76% of digital bank interactions by people in this age group were conducted via mobile, while only 21% prefer desktops and laptops.

Some banks have taken active steps towards encouraging customers to move online; ABN Amro reports that 90% of their customers over the age of 65 use internet banking, although only a quarter of customers access their accounts via mobile phones. As a result, the bank has introduced financial coaches to offer extra support and assistance to older clients migrating to digital, for whom a switch to online banking, particularly mobile, is too big a change to get to grips with.

Banking consumers are demanding ever-more consistent and convenient banking experiences, and it could be said that it is the mobile interface - not physical locations or even personnel - that is now the ‘face’ of a bank. 

This gives the challenger banks a clear advantage in today’s technological environment. The more traditional, longer established banks need to find ways of competing successfully with them to be able to survive longer term. Moreover, the other potential players in this sphere should not be forgotten – the likes of Amazon, Apple and Google, all of whom are making forays of their own into the payments arena and who also have a huge amount of data about their customers and their spending habits. In this context it seems unlikely that the old ‘bank branch model’ of banking will survive.

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