When will high street banks disappear?

UPDATE: HSBC closes a quarter of its branches in two years, but the decline has been underway for decades.

by Adam Gale
Last Updated: 04 Jan 2017

Research from Which? found that HSBC closed more than a quarter of its branches since January 2015. The Asian banking giant is hardly alone. The bank is a dying presence on the British high street, and has been since at least 1990. 

In this piece from July 2016, MT explored why this trend accelerated since 2013 and where it will end.

Some bank branches are closing. Is that news? Gloomy tales of the decline of high street banks have become so normal over the last few years that they risk becoming background noise.

So when Lloyds said it was going to axe another 200 branches by 2017, on top of the 200 it already announced for the period in 2014, the focus was on the why – boss António Horta Osório blamed Brexit, yawn – than the what.

But the what matters, because decline can’t go on forever. Either it will slow to a stop, or there won’t be anything left to decline.

Source: Campaign for Community Banking. In the absence of year-by-year statistics, the figures for 1990-2005 and 2006-2012 show the annualised decline for the period as a whole.

The graph above shows the percentage of the UK’s bank branches that were open at the start of a given year, but gone by the end of it. To put it in perspective, there were 17840 branches in 1990, 9755 in 2013 and 8340 by the end of 2015.

You'll notice that the pace of decline has substantially accelerated in recent years, and is continuing to do so, something that's all the more notable when you factor in the several thousand building society branches that became banks in the 1990s, offsetting the decline then.

The reasons for the recent fall are varied, but not too hard to guess. The rise of internet and mobile banking has reduced demand for high street branches – HSBC said footfall had declined by 40% over the last four years.

At the same time, tough conditions since the economic crisis – fines, persistently low interest rates, higher capital ratio requirements and the rise of disruptive fintech firms and challenger banks – have made cost-cutting a matter of some urgency. In that context, cutting underused branches is a no-brainer.  

As these conditions are not getting any more favourable for the big banks, this doesn’t bode well for your local branch, or the small, largely cash businesses that depend on them. Extrapolating the graph, it’s feasible to imagine high street branches disappearing within 10-15 years.

The reality is more complex, however. For the foreseeable future, banks will still want branches in the big cities and in affluent areas, where new branches are occasionally opening.

And banking on the high street doesn’t have to disappear per se – the Post Office offers basic banking at over 10,000 locations, and it’s possible that with a few incentives, the major banks could enter into branch sharing arrangements, as have been pioneered in the US.

The future of banking

Physical banking will become less accessible, particularly in remote areas. That’s almost certain. But to disappear entirely, it would require the cash economy to disappear first. Most research indicates no sign yet that cash will disappear, at least based on existing trends and technology.

If bitcoin and/or blockchain take off, though, then who knows? Their promise to transform the economy may seem wacky now, but if you’re talking about 50 or 100 years from now, the reverse is true.

It’s somehow hard to imagine our futuristic descendants paying for their flying cars and tin-foil catsuits with crumpled up pieces of paper that they had to go to a physical building to get, after all.  

Why Metro Bank's Vernon Hill isn't afraid of Lloyds, Barclays or Blockchain

Image credit: Bryan-Mills-Flickr


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