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Could automation stem UK branch & ATM closures?

The UK’s FCA recently concluded a consultation on how banks close branches and ATMs services should be modified. Auriga’s Mark Aldred shares his thoughts about how any changes guidance might lead banks to be more ambitious and committed to preserving and improving in-person banking services and ATM provision

  • Mark Aldred
  • September 12, 2022
  • 5 minutes

On July 26, 2022, the UK’s  Financial Conduct Authority (FCA) closed its consultation on how banks should manage branch and ATM closures and conversion, and whether its guidance on these matters should be changed.

This consultation was significant because the FCA suggested that previously agreed best practices on how banks plan and communicate the change of in-person banking services were not working well.

This should not surprise us. Auriga has remarked on previous occasions that customers are often not consulted if a branch closure is made; this loss of channel is made for them. While banks preach about the importance of omnichannel banking, they forget in-person banking services are also a channel.

Banks often simply cut these services or underinvest in how in-person and in-branch self-service banking are integrated with other digital channels.

So what might come out of this consultation?

Ideally, the consultation should mandate banks provide clear evidence for why a specific branch should be shuttered.

Currently, banks rely on customer digital service figures. These, however, do not provide a clear picture of which customers never visit a branch, versus those who only sometimes use in-person services.

There is little evidence banks conduct in-depth analysis, let alone a consultation 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 substantial number of people and those customers are likely to over-represent groups who are most vulnerable to the loss of in-person access to cash and financial services locally.

Indeed, one could argue the definition of “vulnerable” customers is far too narrow and ignores groups who are massively inconvenienced by closures.

It is a matter of infrastructure

Quite simply, branch and ATM service reviews need to be done in a much more considered fashion. Banks take a ‘sausage machine’ approach, pumping out a one size fits all justification and solution.

Typically, reviews produce the same findings: not enough people visit the bank branches, and those who require in-person services can use their local post office. However, services offered by the post office are limited compared to those offered by bank branches given it is not their primary objective.

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 from stamps to posting parcels to ordering a passport.

One of the other issues that should be addressed by the FCA, and the wider financial services industry, is how some banks are promoting new micro branches as a response to closures. While these look like branded branches, the reality is they are simply information shops without the trained staff or systems to help a customer with a range of specific everyday issues.

Banks should be encouraged to rollout pop-up branches that can provide banking services in new locations quickly and easily. However, it is critical these branches have appropriate banking facilities, which can be cost effectively provided by next generation self-service digital banking systems.

‘Phony’ branches that lack in-person banking services are counterproductive and again illustrate how some bank’s omnichannel strategies are a broken mess.

Banks will continue to make the case for closures because of changing customer demographics and the cost of keeping a branch open. The FCA needs to ask banks if it has accurately assessed how automation and digital self-service software could bring down branch operating costs while keeping services available.

There already successful examples of this new branch model operating in Europe;  Italian retail bank, 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 24 hours, and even shared.

Using #NextGenBranch solutions, customers can access all the branch services in assisted self-service mode around the clock and interact with the bank’s consultants via video banking for both easy and complex transactions in a safe and personalised way.

This technology allows customer-facing employees to be able to spend more time focusing on more complex activities that require the added value of human interaction, as well as more time to train themselves in new skills, with positive effects on customer experience.

These types of changes  reduce branch management costs, while maintaining access to financial services, and generating new revenue streams through add-on services.

White label branches

Sharing infrastructure among different banks could also play a role in minimising the impact of branch and ATM closures.

Banks could adopt a “white label branch” model, where 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 Belgium’s banking system, where there is a top-down commitment to providing access to cash at ATM’s within 5km of their citizens’ doorsteps.

Other countries are taking a similar approach and the UK could learn from them.

What is next?

Overall banks are too keen to rush to close their branches, regardless of how they create access to cash and financial service ‘deserts’.

There are alternatives that should be explored before closures are considered. Let us hope any new guidance from the FCA helps banks be more ambitious and committed to preserving and improving in-person banking services and ATM provision.