High Street presence

Think local banks are unprofitable? Think again.

There is a growing orthodoxy that bank branches are a thing of the past, and that mainstream banks are justified in closing them en masse. After all, when was the last time you visited a bank branch?

It’s not surprising that the demise of bank branches seems inevitable in a society that has lost more than half of them in the last 30 years.

What is perhaps more surprising is how willing we have been to believe the banks’ justifications for closing them, without taking a more critical view. It’s almost as if, as a society, we have internalised the banks’ narrative to such an extent that the mainstream has begun to parrot it back to them, and to us.

In fact, the arguments that support the massive closure programmes barely stand up to scrutiny. Conversely, arguments in favour of continued and broad-based branch provision carry great weight both economically and socially.

Firstly, bank branches are profitable. The retail operations of the ‘big five’ banks are turning multi-billion pound profits, at their current level of branch provision. Where banks are losing money, it is from their investment arms – which explains why the big five have been so keen to undermine the ringfence that would have kept them separate from the day-to-day retail activities (efforts that have been largely successful).

Another myth is that branches are only for the old, or that savvy consumers shun bricks in favour of clicks. Again, while it is undeniable that online and mobile banking have revolutionised the ways in which we interact with our financial service providers, people still prefer branches for big financial decisions.

Whether it’s taking out our first mortgage, opening a new current account, or dipping our toes into the investment market, research suggests that millennials are actually more likely than older people to use branches for such decisions, not less.

Of course, banks know this already and are continuing to open branches in urban, densely populated, and affluent areas. In such locations branches are manifestly profitable, which is why you’ll still see five or six of them tightly packed and highly concentrated in large urban centres.

The problem is in those areas that aren’t so obvious to the mainstream – rural areas, the shires, the post-industrial blue-collar belts. Branch closures have been happening disproportionately in these areas for years, and it’s not just those too infirm or vulnerable to travel to the next big urban centre who suffer.

In such communities bank branches provide access to the financial system for those that struggle to achieve it in their absence. Yes, this includes the elderly, the sick and the disabled, but it also includes small businesses who are predominantly reliant on cash, and who are the lifeblood of our economy.

Bank branch closures are a serious problem for businesses across the country that already have small margins, tight cashflows, and which provide the majority of employment in this country. Despite what the London financial bubble will tell you, cash is not a payment method in decline – if anything it is growing. Outside metropolitan urban areas, bank branches are needed to process and facilitate the cash economy, and their removal is seriously undermining businesses and employment in areas that already suffer from imbalances in employment, prosperity and wealth.

Moreover, bank branches provide and distribute lending, which is fundamental to thriving and healthy communities.Recent research from Move Your Money shows that postcodes that lose a bank branch suffer a 63% drop in lending growth, whilst postcodes that lose their last-bank-in-town suffer even more, seeing lending actually turn negative in those postcodes (meaning that banks are actually withdrawing money from those areas).

On average, postcodes that suffer last-bank-in-town closures lose around £1.6m in lending – which is a significant and often devastating drop in lending, particularly given that these are more often than not some of the poorest areas in the UK already. Similar observations have been found in the American context.

Consequently, we are seeing the development of a two-tier financial system in this country. Overprovision and ease of access to finance for the wealthy, urban and privileged – particularly in London and the south-east – and increasing destitution, isolation, and local economic decay for everyone else. In a society that is already bitterly divided in terms of affluence, opportunity and development, we need a financial and banking system that can help address and alleviate these imbalances, not entrench and exacerbate them.

Reversing the tidal wave of bank branch closures isn’t about nostalgia or rose-tinted glasses; it’s an urgent imperative to save our abandoned communities, and to prevent the social fabric of this country from splitting apart at the seams.