I was just reading a FT article covering a recent UBS report suggesting that very few customers will switch if a bank closes down branches. The article is at https://ftalphaville.ft.com/20...

The gist of the article is that branch networks are going to die and banks should go entirely online.

I would like to take the liberty of discussing this in more depth on these august pages as I think I think the 'consensus' opinion ('everything is going online; physical is dead') is somewhat flawed:

1. Value vs volume

In the table from UBS in the article it shows 22% of UK respondents will switch if a bank closes a branch - ie 78% would stick with the bank. However that is by number - by _value_ the impact could be much more significant. For instance the 22% might include a number of local high street shopkeepers who need to deposit their cash takings every night - so the bank might lose 40% (say) of its customers by value. (I am using 'value' loosely here - technically I  really mean overnight float).

2. Local Branch Structure

The other flaw in the analysis is that it does not analyse what the nearby bank branch structure is - eg sometimes in a major city like London there might be another branch of the same bank 500m in the other direction - so the real impact on customers might be minimal.

3. Sole relationship?

Furthermore how many of us bank with just one bank these days? If a bank closes its local branch I will probably still continue to use the bank - but my cash transactions might be diverted to one of the other banks I have accounts with. And so my account has not technically closed - but over time my 'focus' changes.

4. Differentiation

Having a pure internet based offering impacts your differentiation - or rather makes you less differentiated. With less differentiation you become more dependent on merely using price as a way of attracting customers. (And frankly I suspect most people are getting bored of ever 'cuter' ads to try to attract us to one bank over another).

5. Branches are a form of advertising

One thing that Metro Bank are good at is using high profile locations (ie often busy high street corner locations) as effectively 'billboards'. Switching to a 100% internet offering alters the structure…

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