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July 28, 2022

UK bank branch closures: FCA ought to leave well alone

When it comes to defining banks' channel strategy, the FCA ought to leave the existing arrangements well alone

By Douglas Blakey

This week, 26 July to be precise, marked the deadline for input into the FCA consultation on how banks manage branch and ATM closures and conversion and  whether its guidance on these matters should be changed. 

The FCA will review responses to this consultation and aim to finalise guidance by the end of 2022.

There are informed industry observers, such as Mark Aldred, bank industry expert at Auriga, who argue that it is significant that the FCA is looking again at its guidance.

Commenting on the consultation and what he hopes might happen next, he says previously agreed best practices on how banks plan and communicate the change of in-person banking services have fallen short.

Banca Carige smart branch model

Moreover, he argues that banks need to show a much clearer formulae for why a specific branch should be shuttered.

There is also the example of banks such as Banca Carige that have demonstrated how new branch models can provide a return while cutting operating costs by more than a third. The Banca Carige model, winner of Best Branch strategy at the 2022 RBI Global Annual Awards, does merit further consideration by banks in the UK and elsewhere. 

But on balance, while respecting Aldred’s views, I’d argue for the status quo. 

Only this week, Lloyds Banking Group has taken some flak in local press for announcing plans to close another 48 Lloyds branded outlets and 18 Halifax branches. The flak was, I would submit, unmerited. LBG retains by far, the largest branch network across its three brands in the UK.

Lloyds Banking Group: 1 in 3 branches close since 2017

After the latest LBG closures go through, LBG will operate 1,321 outlets across the UK comprising 646 Lloyds, 510 Halifax and 165 Bank of Scotland branches. By contrast, just five years ago at the end of H1 2017, the LBG branch estate comprised 2,038 stores made up of 1,140 Lloyds, 657 Halifax and 241 Bank of Scotland units.

That means that 717 branches, more than one-in-three, have shuttered inside five years. The closures will have been examined in great detail by LBG. Whether a specific bank branch remains open or is axed should remain a matter of market forces. A prudent bank is not going to shutter a bank branch if it is viable to remain open. As a simple matter of public policy, it would be intolerable for a regulator to try and define a bank’s channel strategy-in particular as the incumbent multi-channel banks increasingly compete with digital only neobanks.

Even Metro Bank, the champion of the branch or store as it insists on calling the physical channel, has had to bow to the inevitable in three cases. But it was interesting to hear Metro Bank CEO Daniel Frumkin this morning on the bank’s Q2 earnings call with the media rule out further store closures.

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