UK banks plan to ax branches, switch to digital

British high street banks' planned branch closures for 2021 already outstrip total closures for 2020, as lenders focus on boosting their provision of digital services to customers.

More than 4,000 bank and building society branches have closed in the U.K. over the past six years, according to a report from consumer group Which, at a rate of about 50 a month. "It's a question of viability," said John Lyons, banking specialist and partner at PWC.

There has been a huge pivot to digital over the last 18 months, particularly with COVID-19, he told S&P Global Market Intelligence, with many lenders investing heavily. "They see the percentage of transactions being completed digitally constantly rising [and they] simply have to think about how many branches they have," Lyons said. Banks are looking to balance their operations, because of the low-interest rate environment which has seen net interest margins squeezed, so they have to balance their operations to bring them in line with the realities of the economic environment, he said.

This trend is being seen around Europe. In 2020, as a result of a pause in closures during the pandemic, there was a slowdown in branch closures with 368 branches shutting - Barclays PLC topped the list by closing 105.

The scheduled branch closures so far this year, however, already outstrip the closures from last year with TSB Bank PLC set to close 155 branches, Banco Santander SA subsidiary Santander UK 111, HSBC Holdings PLC 82 and Barclays 63, while Marks & Spencer Group PLC's M&S Bank will close all its instore branches by the end of summer.

The growth in digital banking has clearly been a key driver for banks looking to reduce costs through branch closures. Indeed, the Financial Conduct Authority said the average cost of running a bank branch is £590,000 a year and some banks, according to the branch closure assessments which banks provide, have only a handful of regular customers.

Even before the pandemic struck, accessing banking services online had risen fast, particularly among younger account holders. UK Finance, an organization that represents banks, said nearly 10 million people, or 18% of the adult population, registered for mobile payments in 2019, with 79% of these registered users recording a payment. "Growing numbers of customers are opting to use new technologies to pay and manage their money at a time and place that's convenient to them, particularly during the pandemic," a UK Finance spokesman told S&P Global Market Intelligence.

"But technology is not for everyone and banks are committed to ensuring customers can continue to access the important services they need, including access to cash. Branches play a key role in the life of local communities, meaning decisions to close them are never taken lightly." In 2020, NatWest Group PLC, Lloyds Banking Group PLC and HSBC were among top five rated finance apps for time spent in-app, according to app research company App Annie.