Banking on change: how has COVID-19 affected high-street branches?

20 October 2020

by Isabelle Jenkins Banking and Capital Markets Leader, PwC United Kingdom

Email +44 (0)7711 773030

The coronavirus pandemic has not only changed the way we work, socialise and shop: it’s also changed the way we bank. As the UK’s response to COVID-19 continues to evolve, the Financial Services industry now faces an uncertain economic outlook. While banks went into this pandemic in a stronger position than 2008’s global financial crisis, the current environment presents particular challenges and disruptions. Many of these are already impacting high-street footfall and, with it, the future strategy for physical branches.

Changing customers preferences and behaviours

Many in the industry have long predicted a gradual move away from local branches and use of cash. Even before the pandemic, the foundations had been laid to shift away from cash: a rise in contactless payments, online transactions and use of digital currencies. But no-one could foresee how rapidly behaviours would change: For example, during April and May of the UK’s first lockdown, LINK Transaction Volumes dropped by over 50%.

There will be big changes to how customers interact with their banks, with an even greater shift to digital and remote channels, such as video. This will come at the expense of traditional branches and relationship managers as banks invest in improving digital and remote channels (in particular, mobile apps, online, chatbots, video). For some customers, this change will be disruptive but ultimately lead to a better and safer experience in the long term. As technologies improve, many will choose to access services on the go, in a way that suits them, rather than visiting a branch in person.

While some banks are working with regulators and other stakeholders to ensure access to cash for vulnerable customers and those in rural areas, ultimately, digital payments deliver a better and safer experience for customers. It’s no surprise to see a recent increase in debit card and digital payments: it’s much safer for a vulnerable customer to pay for something through a contactless transaction rather than handling cash or visiting a branch to pay in cheques.

As customers reassess what they want from their banks, organisations will need to transform their cost base and re-evaluate how they interact with customers.

What does this mean for high-street banking?

Our recent store openings and closures survey suggests that customers’ behavioural changes are affecting physical branch numbers on the high street. Reduced footfall - through a combination of COVID-19 restrictions, safety concerns and improved digital capabilities - means that banks are revising their branch strategies.

This year’s survey shows 235 branch closures compared with 222 closures in H1 2019. The wider trend points towards a steady increase in closures, influenced by the advent of open banking, allowing consumers to easily shop around for the best deals and products – prompting traditional banks to drive their digital offerings at the expense of high-street branches.

However, this year’s closures are offset with 18 more branch openings than in 2019. This points to an increase in strategic openings, with banks opening branches where they are most needed. It will be interesting to see how these numbers look in our store openings and closures results next year.

Future strategy

This year’s store openings and closures survey shows that banks are aware of customers’ behavioural changes and that they are implementing new strategies to provide an optimal service for all.

While banks need to revisit their branch strategy over the coming week and months, they also need to consider their real estate strategy. For example, as remote working becomes increasingly popular, some innovative banks may look to use certain branches as regional hubs and focused operational centres.

Whatever happens, banks now need to put customers at the heart of their strategy as they look to respond to changing customer behaviours, wants and needs.

To discuss any of the points raised in this blog, please get in touch.

by Isabelle Jenkins Banking and Capital Markets Leader, PwC United Kingdom

Email +44 (0)7711 773030