Treasury Today Country Profiles in association with Citi
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January/February 2018

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Editorial

2018: the year of digital banking

So, farewell then bank branch; the end is nigh. Is that a problem? When NatWest in the UK recently announced the closure of 197 branches as part of a major cost-saver by its parent company, RBS (along with 62 of RBS’s own branches), the hue and cry from those who still see value in bank branches was loud and clear.

In the wake of the announcement, the Financial Times quoted Mike Cherry, Chairman, at the Federation of Small Businesses, who said that many small businesses – particularly those in rural areas with poor broadband access – relied on their local bank branches to seek personal advice as well as to deposit their cash takings. Whilst there are those who find change difficult to manage and people for whom cash and cheque are still viable means of payment, it is clear that the world is going digital.

The statistics make this very clear. RBS, for example, have said that since 2014, the number of customers using its branches across the UK has fallen by 40% as mobile transactions have increased 73% over the same period. The Office for National Statistics also points out that internet banking is now used by 63% of UK adults.

This is by no means a UK phenomenon; the same story is replicated across the world. In the Nordics, for instance, banks have been culling branches since 2010 as part of the region’s drive to go cashless. Most branches that do remain are ‘cashless branches’ – high street offices that are fitted with self-service cash machines.

In the United States – a country that still relies heavily on paper-based forms of payment such as the cheque – branches are also closing at a rapid rate. The Economist notes that since the financial crisis banks have closed over 10,000 branches, an average of three a day. In the first half of last year alone, a net 869 brick-and-mortar entities shut down in the US, according to S&P Global Market Intelligence.

Even the developing markets are in on the act. In India, for example, DBS has recently launched digibank – a fully smartphone-based retail banking service. Also, on the institutional side, J.P. Morgan has rolled out its Virtual Branch solution across a variety of Asian markets. This eliminates the need for a corporates finance staff to be physically present at traditional bank branches, allowing them to conduct all manner of financial activities digitally.

Beyond these few examples, the financial sector is reflecting this pattern of digitisation across the spectrum of services. Corporate banking is certainly going digital; that is why it is one of the most ferociously debated topics at every conference. There are many positives to this, but the digitisation of banking goes hand-in-hand with the death of the branch.

The more people use digital, the more branches will be run down. The more branches are run down, the more people will use digital; thus it continues until the branch is no more.