Years of bank branch closure programmes have left some towns and rural communities with no adequate banking facilities, causing practical difficulties for small firms and affecting local trade. Tim Smedley investigates.
Britain's banks are abandoning the high street. Between 2015 and the end of 2016, around 1,300 local bank branches will have closed. In January 2014, Barclays announced that it was closing a quarter (about 400) of its branches. In February 2015, RBS too announced that 99 branches would close within a year (in fact, it closed 166). Similar news followed from other banks, including Bank of Ireland, HSBC, Lloyds Group, Santander and TSB.
In 1988, there were 20,583 UK high street bank branches. By the end of the latest round of closures, there will be fewer than 8,000 left.
These closures are causing problems for small businesses, says Mike Cherry, FSB National Chairman. “2016 is looking like a record-breaking year for closures, and this is leading to financial exclusion for small firms,” he says. “Our members are having to spend more money and time away from their businesses to deal with banking needs, especially those that physically handle cash.”
In response, FSB is demanding that the terms of the Access to Banking Protocol be strengthened – and that all banks adhere to it. Issued in March 2015 by the then Business Secretary Vince Cable and supported by FSB, the protocol requires banks making closures to provide “access to banking and financial inclusion in the community… offering an alternative way to bank that helps customers and small businesses to continue to bank locally”.
In particular, the protocol specifies that in the event of a closure, banks must carry out a “pre-closure assessment” of local access to free ATMs, Post Office branches with adequate banking capabilities, alternative bank branches, alternative outlets such as cash-back and Pay Point, credit unions and – if internet and mobile are offered as alternatives – the local availability of broadband.
An independent review into the protocol was announced in May 2016. Its findings – combined with FSB pressure – could help to resuscitate the concept of financial inclusion and local banking, before it dies out completely. FSB is putting together a report on the impact of branch closures on small businesses, and finds that banks are often just paying lip service to the protocol. “It invariably just means a letter saying “your nearest branch is now X miles away, with no additional guidance provided,” says Martin McTague, FSB Policy Director.
“That is not good enough. There needs to be advice for small businesses on how to access alternative banking services, and how to upskill if required. Typically, what happens to businesses is that they are left to rely on the Post Office. But the provision of banking services in Post Office branches is inconsistent. Far more needs to be done by the banks to support those being left behind.”
Banking has undoubtedly changed. In 1988, 25 per cent of adults were paid in cash and around four billion payments were made by cheque. But in 2015, Cheque and Credit Clearing Company statistics show that just 558 million cheques were “used for payments and to acquire cash”. However, depositing and withdrawing money, often via cash, is one of the main reasons that small businesses still require physical access to bank branches.
In evidence to a Treasury Select Committee on the treatment of financial services consumers in February 2015, Moray McDonald, a Managing Director at RBS, described the shift as “a revolution in how our customers want to bank and interact with us”. “In the past three years, 300 million transactions that would have taken place in branch now take place online or on mobile,” he said. “We have 6 million habitual online users and 3 million mobile users. There are locations where the footfall is getting so low that our customers are not using them.”
Changing consumer trends were also highlighted in the British Bankers Association’s The Way We Bank report, published earlier this year. The number of people logging into their bank accounts through an app rose by 54 per cent in 2015 compared with the previous year, at an average of 11 million a day. Technology business CACI, meanwhile, found the average bank branch received 71 visitors per day in 2015 – a drop of 32 per cent from 2011.
FSB and small businesses are not resistant to technological change or alternative methods of banking, argues Mr McTague. “We welcome diversity in the market, and want small businesses to take advantage of digital services,” he says.
“But a lot of local economies are still cash-dependent. Many of the businesses I have spoken to visit their local bank branch every day, or every other day, to pay in cash. To walk around the corner to the high street takes 10 minutes, whereas visiting their next nearest branch can be tens of miles away. In some areas of rural Scotland, it can involve a 200-mile round trip.”
There is also evidence that, rather than helping customers move towards alternative banking methods, banks are simply abandoning rural communities altogether. A report published by Move your Money called Abandoned Communities finds that “far from responding to demand pressures, the major UK banks are simply closing branches in poorer areas and opening or retaining them in more affluent areas”.
By mapping bank branch closures against postcode lending data, it found that bank lending to small firms fell by 63 per cent on average in postcodes that lose a bank branch. This figure grows to 104 per cent for postcodes that lose the last bank in town. “On average, postcodes that lose their last bank in town receive almost £1.6 million less lending over the course of a year,” the report concluded.
“Banks have a responsibility to small businesses to offer a basic service,” says Mr McTague. “A bank branch in a rural village or town is likely to understand the local economy and the challenges that local businesses face. A digital platform, or call centre hundreds of miles away, would find that hard to replicate.”
That has nothing to do with being resistant to new technology, he says. It’s “simply wanting to have confidence in the products and services that you are purchasing”. And wanting the banks to keep the promises they signed up to.
MALCOLM HARRISON, Crazy Horse Coffee Shop, Invergordon, Highlands, Scotland
Malcolm Harrison has run the Crazy Horse Coffee Shop since 2003. Located on the high street near to the local branch of RBS, it was also a useful spot for business banking.
But following the closure of the branch in 2015, Mr Harrison now has to travel 12 miles to the Tain branch – a journey he can make only once a week. “I have difficulty with day-to-day change for the till, as we cannot justify holding hundreds of pounds in a float,” he says.
The only alternative left in the town is a local Post Office, but it isn’t up to the task, he says. “The Post Office cannot cope with the numbers. Cash takes three days to clear and it is too small, with long lines waiting to be served.”
Mr Harrison has seen a direct impact on the local economy since the RBS closure. “The lack of a bank in town has meant customers travelling to Alness and doing their daily shop there,” he says. “The local jeweller closed his shop as a direct result of the bank closure. Another craft shop has recently closed. There are six vacant shops in a small high street, and two further commercial units have been granted planning permission to turn them into residential accommodation.”
All small towns with independent high street traders should have “at least one bank or a viable, fit-for-purpose Post Office”, argues Mr Harrison. Otherwise, he says, small businesses will die out, to the detriment of the economy.
Deborah Hurst owns the Market Place Drycleaners with her husband Peter. They have worked in the dry-cleaning trade for 17 years, and took on the shop in 2004.
They are long-standing Barclays customers, but the bank’s branch in town closed in February. So she switched to NatWest – only for it to close its branch in July. “Nothing was offered as an alternative,” she says. “We do have a Post Office in the town, and that was what Barclays expected customers to use. But it’s just a small sub-branch, and it can’t handle main bank transactions in a lot of cases.”
Customer footfall, she says, has dropped. “A few customers have said that they now go to the nearby town, that can offer everything, when they go to the banks.”
There are longer-term concerns, too. “A lot of small businesses don’t earn huge sums of money for the hours we put in,” she says. “When we decide to sell, we may not have a business left to sell. If the larger towns are attracting the footfall, then why would someone choose to buy your business?”
The banks have no idea what rural living is like, argues Ms Hurst. “We have hardly any public transport, no good internet service, and now the banks are going. The banks need to come together and work out of one building, share the costs and keep customers happy, and allow us to still be able to conduct our banking in the small towns.”