Quarter of bank branches will close in coming three years

14 September 2020 Consultancy.uk 3 min. read

The number of bank branches in Europe has declined dramatically, from 240,000 a decade ago to around 165,000 today. While this might seem dramatic, however, a new report argues that banks still haven’t reached the end of their branch rationalisations.

The study from Kearney suggests that as many as 40,000 branches could close across Europe in the next three years. This represents around 25% of all branches in Europe today. Researchers from the consultancy believe that this is because the role of the bank is becoming less relevant for customers in its current format, meaning that branch numbers will continue to decrease – and possibly at an even faster rate thanks to anxieties surrounding public spaces following the coronavirus pandemic.

Following months of lockdown restrictions, customer uptake of online services has skyrocketed. Recent research from FoolProof found that eight in ten UK consumers expect to change how they engage publicly with technology, having suddenly become aware that they could be hastening the spread of potentially deadly microbes.

Regional branch network evolution

This means that the touch-screen systems many banks have spent the last decade rolling out to decrease wait time at bank branches may already be obsolete, along with the branches they are hosted in.

Kearney’s study found that 53% of European banking customers do not use physical channels at all any more when researching and buying products. Meanwhile, as customers become more familiar with digital services thanks to the lockdown, Kearney anticipates that this could rise to 65% by 2025.

The UK is already a leading example of this, as at present 67% of product research is already carried out online there. Meanwhile, 50% of sales take place digitally – meaning UK banking has passed the threshold where digital banking can be considered the preferred way for customers to engage with their bank. To this end, Kearney expects that 70% of account openings, deposits, consumer loans, and credit card applications will happen digitally over the next three years.

This move will be further accelerated by the continuing trend toward a cashless society. While the transition away from physical tender has been occurring for some time, this has also been exacerbated by the pandemic. In the lockdown months, not only have people become increasingly dependent on digital payments to order life’s essentials – either via e-commerce payments or contactless transactions at the supermarket – the idea of passing cash between strangers has become extremely undesirable, due to its hygiene implications in the middle of a major public health crisis.

Preferred channels in product research vs sales

In an effort to reduce human contact for in-store payments, the contactless payment limit has already been increased in 29 countries across Europe.

Further reading: Contactless payments win out among health and safety concerns.

Meanwhile, as cash withdrawals decline in line with this, cashiers and onsite security in branches will be less in demand – meaning most banks will move to cashless branches, providing access to cash only through self-service machines via smaller branches and larger urban centers.

Banks closing branches will of course predominantly be driven by the need to cut costs. It is very likely that sales will decline by 35% to 40%, depending on the duration of the corona outbreak and the composition of the income stream. As a result, changes in demand and the move to online banking mean that banks can afford to slim down their physical presences, as a means to saving money.