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Britain’s battle to stop banks’ disappearing act

bank closures
bank closures

Addressing a gathering of money men in Canary Wharf’s skyscrapers last week, the chief executive of Barclays’ UK bank made a surprise admission.

The “scale and pace” of branch closures at the blue eagle had dented the 330-year-old lender’s relationship with customers and Vim Maru wanted to fix it.

“We know that our focus on transformation over the past years has disrupted those relationships,” Maru admitted.

For a gathering of wealthy bankers more concerned about return on tangible equity, the comments offered a startling insight into a subtle shift in strategy.

Amid growing regulatory scrutiny and political pressure, banks are starting to pay closer attention to the need to plug the gap left by their branch closures.

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“We do recognise that as branches have closed…we need to find ways for customers to get access to cash,” Noel Quinn, chief executive of HSBC, said last week. “Although there is a strong growth in digital banking, people still want access to cash and therefore we need to jointly provide access to that.”

Lloyds chief executive Charlie Nunn echoed the sentiment, saying face-to-face service was an “important part” of Lloyds’ offering.

The change of tone, which has emerged since the end of Covid, comes amid a regulatory sea-change for banks around cash access.

The Financial Conduct Authority (FCA) is due to gain new powers this summer over how banks handle branch closures.

Under the current rules, banks effectively decide how to plug the gap left by closures but new powers would allow the FCA to undertake tougher checks on the procedure. That could have a big impact on the closure crisis.

More than 5,000 branches have shut over the past decade, equivalent to a 40pc decline.

Today there are just over 8,000 branches left, compared with 22,000 in 1986, when records began.

For younger and wealthier consumers, physical bank branches may seem an anachronism, but they are a vital service for the more vulnerable in society.

People most likely to use a branch include those with a household income of less than £15,000 a year, consumers in poor health and the over-75s.

That has pushed branches further up the agenda for consumer rights groups, MPs, grassroots campaigners and regulators.

“We need banks to have a presence in local communities across the country,” said Simon Youel, head of policy at consumer rights group Positive Money.

“If you’re a small business you are much better off if you can meet a bank manager. It really affects the economy.”

Following political pressure, banks introduced new cash sharing services across the country in 2020.

These hubs allow banks to merge all their branches into one outlet, and they have emerged as the most popular solution to the branch crisis.

Rachel Reeves, the shadow chancellor, has pledged at least 350 hubs across the country while Nigel Farage, the former Ukip leader, has also backed the idea.

But despite the widespread support, progress has been slow.

Banking Hub in the Oaks Shopping Centre, Acton.
50 banking hubs are on course to open by Easter, but that’s half the number urgently needed - Geoff Pugh

Cash Access UK, the body rolling out the hubs which is funded by nine banks including Barclays, HSBC, Lloyds and NatWest, is on course to build 50 of the sites by Easter, less than half of those urgently needed.

The issue has alarmed regulators. The FCA wrote to Cash Access UK and the big banks urging them to speed up the process last year.

MPs have also rounded on the slow rollout, with members on the Treasury Select Committee claiming the practicality of setting up hubs had been “absent”.

Central to the decision on whether to open a hub is Link, the interbank agency that acts as a clearing house for branch closures.

Anytime a bank shuts a branch, Link must be informed about its closure.

If the branch is the last in town, the agency must undertake an investigation to decide what comes next.

Most branch closures lead to no action being taken.

According to Link, 90pc of the 1,326 branch closures assessed over the past two years have led to a conclusion that no additional service is required.

When action is required, Link has the power to demand a banking hub.

Despite the slow pace, Link is “increasingly confident” about the scale of the rollout, according to the agency’s head of financial inclusion Nick Quin.

“You’ve got to recognise this is a relatively new process. We work with Cash Access UK to make sure they are ready to deliver them as quickly as possible and we’re going to see them rolling out very quickly across the country,” he said.

For communities losing branches at a rapid clip, the promise of a banking hub in future is unlikely to ease their immediate concerns.

Yet new powers giving the FCA greater authority over the branch closure process may solve some of the issues.

Under new laws set to be introduced this summer, banks will be banned from closing a branch until a hub is installed.

“We will be closely monitoring the new rules and will take action if banks don’t comply,” an FCA spokesman said.

The industry supports the new rules, with banks to be designated by the Treasury to ensure they comply.

Lloyds’ Nunn, who runs the country’s largest network of branches with 1,100 sites, said he had no concerns about the broad changes set to be rolled out.

“We’ve been working closely with the Treasury and with the regulator on the access to cash points,” he said. “We already have a very community-focused and detailed assessment that we do alongside Link and openly with the regulator when we look at branches.

“That’s a very detailed process that engages with the community and customers, and then is gone through with independent oversight from Link and the regulator.”

Still, Link’s role as a clearing house for branch closures has also been questioned given its ties to the banking industry.

While the investigations are undertaken by Link, the rulebook it uses to make the assessments is set by the banking industry.

The low rate of bank closures leading to alternative banking hubs has prompted fears about independence.

“[Link] has an incentive to keep the banks happy,” said Youel. “Link may not be well equipped to give an independent assessment. Arguably it could be left to the FCA.”

Quinn rejected the idea that Link is unable to offer an independent view on bank closures.

“We have absolutely no conflict of interest in this,” he said. “We are independent and not for profit. Every decision we take is in the consumer interest.”

Under its new rules, the FCA plans to collect its own data from firms on branch closures, giving more independent oversight.

The agency’s consultation said this would help it challenge banks if the regulator felt they were not acting appropriately.

Positive Money’s Youel says: “It’s not necessarily the case that we need to stop banks closing their branches at all. We just need to make sure there are alternative provisions. Banking hubs are the way to go.”

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