...Campaign for Community Banking...

THE BANKING CENTRE ©

An Innovative Approach to Branch Banking

This paper is a brief description of a radical solution to the traditional banking sector’s need for improved profitability in its branch networks, demonstrating cost reduction and income enhancement opportunities.

Introduction
The four biggest traditional high street banks in England and Wales: Barclays, HSBC, Lloyds TSB and NatWest (and to a lesser extent their Scottish equivalents) are experiencing problems with their branch network businesses:

profitability levels are proving difficult to maintain and increase: a trend unacceptable to fund managers and threatened further by regulatory action on significant revenue sources such as penalty fees and personal protector insurance
they face increasing competition from non-branched financial institutions
they are over-branched compared to aggressive competitors like Abbey, Halifax, Nationwide: largely restricted to town/city centre sites
the inherent sales advantage of the current account relationship has been substantially eroded through organizational change and market /behavioural development but
for individuals and small businesses they remain the primary provider of transactional activity which is still labour intensive
they are unfairly exposed to media and parliamentary attack as they uniquely service (despite branch culling) 95% of communities having only one bank.

To date they have tried to overcome the problems by selective branch closures and increasing investment in prime location sites where they aspire to replicate “the retail experience”, putting in more technology, very modest (never enough) increases in staff numbers (not necessarily quality or experience). This strategy is attempting to re-invent a past which no longer exists: the market has moved on.

Moving On
The UK retail banking market differs markedly from most others in the world, not least in the degree of consolidation, and the complex monopoly which exists in the provision of current account services which to individuals are generally free. Mere copying of banking delivery models from other countries is rarely appropriate, although experience drawn from other markets, and other service industries, can be relevant if used intelligently.

The Post Office’s strategic change, from neutral transaction channel to aggressive competitor nationally in the market for personal financial services, effectively removes it as a sustainable option when closing branches.

Dynamics
Banking trends are unlikely to reverse:

the continued growth in usage of other ways to bank: telephone, internet, cashback, ATMs, credit and debit cards; reducing branch footfall
new technology such as pre-payment and contactless smart cards could take off for smaller amounts
more competition from outside the traditional sector

and are likely to lead to larger and larger communities being unable to support individually branded bank branches which will close with damaging effects, and yet cash and cheques are not predicted to disappear for decades.

An Innovative Solution
For some years, CCBS, academics and consultants have advocated a neutral shared banking model as a means of servicing smaller rural and poorer urban communities where individual brands are no longer viable; increase footfall and share costs. Academically validated in the UK as operationally feasible and financially viable; and with technology proven in the USA and available here, bank resistance is hard to understand unless the banks are hopeful of abandoning such areas without any sanction.

However, for larger communities the more sophisticated shared branching model, The Banking Centre ©, could be developed from the basic one and this would:

save banks potentially hundreds of millions of pounds in operating costs, as Banking Centres substitute for hundreds of individually branded branches
increase the opportunity for each bank to sell profitable financial services products by focusing own staff in Banking Centres exclusively on sales and relationship building.
Release capital, reduce investment need for branch infrastructure, including the security risks peculiar to banks.

The concept is based on airports (where baggage handling, check-in etc is dealt with by a common outsourcer) and some fast food provision (where table servicing etc is common). There are parallels too with cosmetics and fashion concessions in department stores.

In a banking environment management of counters, cash and deposit machines, interview rooms, etc would be the outsourcer’s responsibility, as would be branch security, with sales/service desks (with appropriately protected exclusive IT links to cashiers) manned by individual banks. Enhanced transactional volume would justify investment by the outsourcer in the latest counter technology.

An Opportunity Being Lost?

Experience gained by the banks from operating the basic shared branching model in smaller and deprived communities would make easier the transition to high volume Banking Centres when considered necessary. In the meantime it would assuage politicians concerned about financial exclusion and community sustainability.

Derek French FCIB, Hon. Director, Campaign for Community Banking Services www.communitybanking.org.uk