Lloyds Banking Group’s decision to close 200 branches and axe 9,000 staff was to be expected – but the firm’s digital plans highlight the changing nature of retail banking and the bank branch in general.
The closures will bring the total headcount lost at the firm to 43,000 since 2008. The bank identified reduced demand for branch services and a slide of consumer interaction towards mobile internet as the drivers for the decision, which will be implemented over the next three years. Lloyds also plans to open 50 new branches in the next three years, at the same time as the closures in other areas.
The bank also abandoned a prior promise to keep the last bank branch open in small towns that would otherwise lack one.
However, industry observers say that the move is simply an inevitable response to merger and acquisitions, changed consumer demand and the general state of the industry. “Lloyds are doing the same as other banks have been doing,” said Kieran Hines, practice lead for financial services at Ovum. “Branch numbers have been coming down for years. Transactions are moving to digital, and that inevitably reduces the need for branches. It makes sense to provide customers what they want.”
Other observers concur: “One can also see this as part of a more general retrenchment trend in European banking,” said Thorsten Beck, professor at Cass Business School. “As a recent ESRB background paper showed, banking systems across Europe are oversized. While this might refer to wholesale and investment banking, retail banking is also part of the problem. This is part of a more general trend away from traditional high street banking towards both digital delivery channels and “agency banking” where financial services are not provided in stand-alone bank branches but by non-bank entities, such as post offices, little shops etc. A trend we have seen across Europe and the globe.”
Earlier this month, Lloyds set out its digital strategy, which talked about building up its digital team and moving staff towards digital operations. Lloyds already has a chief digital officer role in its business, and has recently created a number of related positions.
“Over the next three years, our focus will be to adapt to the changes in financial services brought about by shifts in technology, changing customer behaviour as well as the evolving competitive and regulatory environment,” said António Horta-Osório, chief executive at Lloyds Group.
The history of Lloyds recent business in the UK also contributes to the decision to cut back branches. Hines at Ovum added that Lloyds acquired a lot of branches when the bank took over HBOS in 2009 – the holding company for Bank of Scotland and Halifax, among others. Those businesses were already in a difficult position when acquired, and Hines believes that even simple overdue rationalisation measures such as closing down duplicate branches and getting rid of duplicate job roles would inevitably lead to job losses. When these are added to the changing role of the branch from a centre for mainstream transactions to a place for more complex special advice, the news of closures is unsurprising.
“We are still a long way from the personal touch disappearing completely,” he said. “We will see more versatile forms of banking in the coming years, including more kiosk banking and video links. But are we at the point where nobody wants to go to the branch? No. It’s not the size of the branch network that matters now – it’s what you do with it that counts.”
Mobile banking evangelists such as Moven founder and author Brett King have often talked about the demise of the branch and a future in which mobile services will dominate. Some banks, such as mBank in Poland and Moven in the US, have adopted a mobile-only business model and abandoned the concept of branches entirely. However, others, such as the UK’s Metro Bank, have invested in building a new branch network focused on customer service. It remains to be seen which model will be proved right.
