Consumers’ access to financial services Contents

4Bank branch closures

77.In 1988 there were 20,583 bank branches in the UK, but the number remaining has reduced to 9,690 based on the latest estimates available in 2017.68 The House of Commons Library research on bank branch closures states that:

The forces driving closure programmes are varied, but financial innovation and trends in society towards falls in demand for the use of cheques as a payment means and increased use of electronic payment services have all played their part. […] It is feared that the impact of closures will be felt most in rural areas and places where no viable alternative exists.69

78.The ‘Access to Banking Protocol’ was put together by the banks, interested stakeholders, Trade Associations and the UK Government70 to manage the way the closures are done. This protocol was replaced with the ‘Access to Banking Standard’ which came into effect on the 1 May 2017 following an independent review led by Professor Russell Griggs OBE.71 The Lending Standards Board oversees the ‘Access to Banking Standard’.

79.The Standard aims to ensure that customers are better informed about a branch closure and what options are available to ensure that they can continue to access banking services in the local area. Once a year the Lending Standards Board publishes a high-level report on compliance with the Access to Banking Standard.72 However, this report does not publish a breakdown of non-compliance by financial services provider.

80.Sian Williams, Director of the Financial Health Exchange, Toynbee Hall, told the Committee that if efforts are only made to preserve a bank branch presence in a community once there is only one bank left, it is often already too late:

The Access to Banking Standard is about the last bank in town leaving. If we brought the conversation up the food chain a little bit, before the last bank is left to be the last bank, once banks start to see that their business and their footfall is starting to fall—it is not accounts but footfall in the branch—that is the point at which we need to be able to have the conversation. Financial services providers in an area need to be able to talk together and say, “We are seeing footfall in our branches drop. It is uneconomical to have staff and a branch.”73

81.During this inquiry the Committee heard from a range of witnesses who had differing views on the impact of bank branch closures on consumers. UK Finance noted the changing nature of banking in the UK:

The way customers are choosing to do their banking is changing rapidly, with ever-growing numbers opting to use new technologies to manage their money at a time and place that is convenient to them. While branch visits have fallen by a quarter since 2012, they are still an important part of local communities, and banks want all customers to be served, so the decision to close one is never taken lightly.74

82.Robin Bulloch, Managing Director, Lloyds Bank and Bank of Scotland Retail, in oral evidence to the Committee, described their process for closing branches:

The first element is a local review, which has local management, local directors and regional directors in discussion with our central team around the branches in a locale […] Those particular branches in those discussions are then reviewed by a central team. They look at a large range of data, in fact over 100 pieces of data. The important element and piece you referred to is the expert team visiting that location to see the use of the branch and the alternatives in the event of that branch being closed. That includes evaluating transport links to the next-nearest branch. It includes assessing the availability of the Post Office and its services. It includes the provision of ATMs in the locale and, in rural locations, we evaluate whether a mobile branch would be a suitable alternative in the event of a branch closure. The final part, as you would expect, is that a senior executive team, including myself, takes formal decisions around branch closures. On some occasions, we decide that it is not appropriate to close a branch.75

83.In order to mitigate against the negative impacts of rural branch closures, Robin Bulloch told the Committee Lloyds use 44 mobile bank branches76 to service customers:

We like to think that the alternatives that we provide, such as the mobile branch and other provisions, demonstrate our ongoing commitment to support these customers.77

84.Despite the processes put in place by banks to protect customers from branch closures, the FCA’s written evidence to the committee indicated that the impact of bank branch closures are not felt evenly across socio-economic groups:

Nearly two in three customers used in-branch face-to-face services and nearly half (45 per cent) used in-branch self-service machines in the last 12 months. Together with the survey results that older consumers (65 years and over) and those on lower household incomes (less than £15k per year) use their branch at least once a month, branch closures are likely to inconvenience these groups more than others. They are also less likely than other consumers to be using alternatives, such as mobile banking.

We now understand bank branch use better from talking to vulnerable consumers and their advocates through our UK programme of regional engagement. We have heard that for some consumers, for example with learning difficulties and conditions such as autism, bank branches provide greater security and a source of support that can help them to meet their financial needs better than online channels.78

Similarly, Which?, an independent consumer body, submitted written evidence to the Committee stating:

A Which? survey found that nearly nine in ten adults (86 per cent) had visited a bank branch at least once in the last year. Retirees were the most likely to say that communities shouldn’t be left without access to a range of bank branches (91 per cent vs 83 per cent of those in employment), and that banks aren’t considering the impact on rural communities when they close branches (90 per cent vs 78 per cent). Eight in ten adults (83 per cent) said branches should stay open for those who are unable or unwilling to use alternatives, while three quarters (77 per cent) said we need branches in case there are technical problems with digital alternatives.

Which? concluded that:

Vulnerable consumers risk being excluded as the double blow of bank branches and ATMs can leave them without easy, free access to cash to pay for essential goods and services.79

85.The benefits of maintaining a branch network were made clear during the TSB I.T. system failures in April 2018. During the Committee’s inquiry into TSB’s failures, the Committee heard that customers were told to go to their local branch or speak to the bank on the phone in order to access their accounts, in lieu of the mobile and internet banking channels which were not working. Almost a year on, customers still cannot apply for loans through TSB’s website.80

86.In a speech on cyber resilience, Megan Butler, Executive Director of Supervision (Investment, Wholesale and Specialists) at the FCA, said that incidences of IT failure were increasing rapidly, and the FCA did not expect such incidents to disappear:

In the year to October, firms reported a 187 per cent increase in technology outages to the FCA, with 18 per cent of all the incidents reported to us cyber-related. […] The FCA does not expect ‘zero-failure’. A point that is explicitly made in July’s FCA and Bank of England discussion paper on operational resilience. The true test of the resilience of UK Finance is not the absence of incidents. It’s how well incidents are managed.81

87.As bank branches are closing, banks and building societies are expanding the ways in which they can service customers. The Money Advice Trust used the Nationwide Building Society as an example:

Some financial services providers have demonstrated the potential for technological innovation to keep bank branches open. We would in particular cite Nationwide Now, which uses video conferencing technology to provide in-branch customers with access to a range of centrally-located specialist staff, such as mortgage brokers and specialist collections staff. This reduces the cost of the branch network and has allowed Nationwide to keep branches open.82

In written evidence to the Committee the Building Societies Association gave the example of Newcastle Building Society who chose to co-locate with the local library in Yarm near Stockton-on-Tees.83

88.Sian Williams told the Committee that banks cannot expand on the idea of physically sharing their branch space to sharing it with other banks because anti-competition measures prohibited them from doing so:

[The banks] are not allowed to talk about co-operation and collaboration. We have to come to an agreement that, in order to solve that, there has to be a permissive space to talk about collaboration to meet the needs of under-served communities. […] When a bank is told that they cannot collaborate to make sure [keeping a branch open] happens, and the competitive framework and the legislation around antitrust means you cannot talk to anyone about making that happen, I think we have created an impossible conundrum.84

89.In August 2016 the Competition and Markets Authority published its investigation into competition in the retail banking sector. In its review it noted that banks sharing branch facilities could reduce barriers to entry:

While the cost of building and running an own-branded branch network may deter or prevent entrants from doing so, there are a number of alternatives that may act as a substitute channel of interaction with customers. These include inter-bank agency agreements (IBAAs). Though they do not carry the brand advantages of traditional branches, these arrangements can act to reduce barriers to entry or expansion where branches are deemed necessary for customer acquisition and / or account maintenance.85

In its submission to the CMA review, the Campaign for Community Banking Services had noted that:

The use of improved IBAAs, and Post Offices if and when improved, would be a big step towards increasing competition in ‘no choice’ communities. Given the continued importance of branches to customer acquisition and retention, especially for SMEs, in its view shared service branches would open the door to new entrants and smaller banks as well as improving competition between established players.86

90.The CMA concluded that methods for sharing a branch network could be part of the solution to promote new entrants:

Branch usage has significantly declined in recent years and multi-channel banking (branch, telephone and digital) is now the most common way in which customers use their bank. Branches remain important to customer acquisition for personal current accounts and in particular business current accounts, and establishing an own-branded branch network involves significant costs. We have not found, however, that new entrants or smaller banks have a cost disadvantage or other difficulties relative to incumbent banks if a branch network is part of their strategy. In addition, as shown by our case studies, new entrants are able to adopt alternative business models including the use of digital channels as well as the Post Office, IBAAs and/or existing retail networks. We do not therefore find that access to a branch network is a barrier to entry and/or expansion.87

91.Evidence received by the Committee made clear that certain groups who are likely to be more vulnerable, such as older consumers or those on lower incomes, are more likely to be impacted by bank branch closures.

92.The increasing number of IT failures within banks, and the inability of financial services providers to serve their customers digitally during such service failures, provides a strong rationale for why banks cannot rely on their online and mobile channels replacing their physical presence through branches entirely.

93.The banking industry has justified the closure of branches by highlighting the large increases in the use of online or mobile banking. It may be the case that for certain categories of customer a visit to their local branch is now an unusual occurrence. However, there are still large sections of society who rely on bank branches to carry out their banking needs. A bank branch network, or at the least, a face-to-face banking solution, is still a vital component of the financial services sector, and must be preserved.

94.It is up to the industry to determine how best to maintain face-to-face banking, but options such as a greater expansion of mobile bank branches; sharing bank branch facilities with other banks, shops or community buildings; or pooling staff of different banks within one premises should all be considered. The Committee has not seen compelling evidence that competition law would prevent banks from sharing facilities. In its response to this report, the Government should set out whether this is the case. If it is the case, the Government should make changes to competition law to allow banks to share facilities in order to maintain a sustainable branch network. If the financial services market is unwilling to innovate to halt the closure of bank branches, market intervention by Government or the FCA may be necessary to force banks to provide a physical network for consumers.

95.The Committee recommends that the Lending Standards Board—through its oversight of the Access to Banking Standard—should publish the examples of non-compliance by providers within its annual report on the Standard, to increase transparency and the potential for external scrutiny over branch closures.

96.Efforts to maintain a bank branch presence on the high street should begin prior to the last branch in town announcing its departure. By the time the last branch in a community is announcing its closure, the process to retain a physical presence in a community may often be too late.

The Post Office network

97.The Post Office has a network of 11,547 branches in the UK as of March 2018.88 As part of its financial services proposition, the Post Office offers cash deposits and withdrawals, change giving and cheque handling to customers whose retail bank or building society is signed up to the Post Office ‘Banking Framework’.89 However, Martin Kearsley, Banking Director at the Post Office, told the Committee the Post Office does “not currently” make a profit from offering such services:

We are in discussions with the banks to change that position. What we do is charge the banks for the provision of the network and the transactions their customers do with us. We then share that model with our postmasters.90

98.Which? in written evidence to the Committee offered some insight into the use of and perceptions of the Post Office, stating that:

Which? research found that while seven in ten (72 per cent) customers thought it is suitable for the Post Office to offer banking services to UK bank customers, only 55 per cent of adults were aware that they could use Post Offices for banking. And 47 per cent of adults said they are unlikely to bother doing so in the future—retirees (50 per cent) and workers (48 per cent) were more likely to say this than the unemployed (34 per cent). When we asked them to explain their reluctance, a few comments suggested uneasiness that the Post Office sells its own financial products, backed by the Bank of Ireland, though six in ten (59 per cent) said they simply prefer to deal directly with their bank. More than a quarter (28 per cent) were worried about staff expertise in financial services. Others voiced concerns that Post Offices have long queues (42 per cent) and aren’t private enough to deal with personal finances (32 per cent). Three-quarters (77 per cent) of those who had previously used a Post Office for banking said they would likely do so again.91

99.Citizens Advice also raised the issue of lack of awareness of the services that Post Offices can provide:

Our research shows that more than two in five people still don’t know about banking at Post Offices. The Government has promoted Post Offices as a solution to bank branch closures, but there has been no reliable review of the quality of the service being provided.

[…] The Post Office is well placed to provide a simple range of basic banking services. However, this may not be the case for the wider range of banking services that people need, such as setting up direct debits, which the Post Office doesn’t currently offer.

Our previous research raises questions about the reliability of banking services at the Post Office. Despite nearly all customers being able to withdraw cash at the counter, in nearly one in four (23 per cent) visits staff were unsure how to complete a banking transaction. In over one in five (22 per cent) visits customers couldn’t access services that should have been available, such as depositing cash.92

100.In its written submission to the Committee, UK Finance stated it undertook two media campaigns, in northwest England and in Dumfries, Galloway and East Ayrshire; in October 2018 to promote the Post Office services and during the same period, the Post Office ran an in-branch campaign to promote awareness of the banking services across all of its branches.93

101.The ability of Post Office staff to cope with the diversity of needs required was also raised in oral evidence to the Committee by Katie Evans, Head of Research and Policy at Money and Mental Health Policy Institute, who said:

It really is about a diversity of needs. Particularly for people with more severe needs, the branch can be a really important part of that puzzle. For us, the Post Office just is not a substitute for that. We know that banks, not universally but broadly, have invested in training their frontline staff and have good protocols developed. A bank cashier and a Post Office clerk are different people with a different range of things they have to do as part of their job. As to whether someone working in a Post Office can give the same degree of support to a person experiencing a particularly serious mental health problem when they turn up a branch looking for help, I am not always convinced.94

102.The Scottish Affairs Committee took evidence from banks as part of its own Access to Financial Services inquiry. As part of its evidence, it asked a group of high streets banks what practical steps they were taking to ensure the viability of Post Office services, to which those witnesses were unable to give firm examples.95

103.The Committee commends the positive role that the Post Office plays in providing basic banking services to customers, especially in more rural communities.

104.Despite its best efforts, the Post Office is not the optimum environment for consumers, particularly the vulnerable, to carry out their banking requirements for a number of reasons. Post Office staff are primarily trained in dealing with postal inquiries, and are not banking specialists. The Post Office cannot help customers set up basic banking transactions such as direct debits, and the layout of many Post Offices is not conducive to giving customers the privacy required to carry out basic banking transactions. In its present form, role the Post Office plays in providing private banking services to customers can be compared to that of an ATM and should not be seen as a replacement for a branch network, but a complementary proposition where available.

105.There is a general lack of awareness of what the Post Office offers. The Committee welcomes the work done by UK Finance to promote the Post Office in two specific locations, but this campaign should be extended nationwide. Awareness of the Post Office should be considered and monitored as part of the remit of the Financial Inclusion Policy Forum. If awareness does not improve, the Committee will expect the Government to act by launching a nationwide promotional campaign.

106.The Post Office, a Government-owned company, is making a loss on offering its basic banking services on behalf of commercial banks. Such an arrangement cannot continue in its current form. The Post Office should not be subsidising the big six banks’ lack of a branch network. In conjunction with its owners (the Department for Business, Energy and Industrial Strategy and the Treasury), the Post Office must ensure it receives adequate funding for the service it provides and places its services on a sustainable footing. If a renegotiation of the current arrangements is necessary to make the scheme profitable, the Post Office should do so, with the full support of the Government.

107.Many small towns and rural areas have seen bank branches close, leaving them with no high street banking services. The bank branches were closed in the knowledge that the Post Office would not be able to provide some key services. In these “last bank” cases, the banks should be required to make provision for “banking hubs” within the local Post Office. The “hub” should be properly funded, with an agreed private and business banking provision set by the Department for Business, Energy, and Industrial Strategy (BEIS) and the Treasury. Postmasters must be trained, equipped and compensated to make the hubs viable. BEIS should make an immediate assessment of what the banking provision should be, the indicative cost per hub, and propose how the banks should fund it.

Use of cash and the impact of ATM closures

108.In July 2018, an independent Access to Cash Review was launched, chaired by Natalie Ceeney CBE, to consider the future of access to cash in the UK.96 The Committee took evidence on this report as a separate inquiry on 12 March 2019.

109.The Review’s final report, published in March 2019, notes that around 17 per cent of the UK population—over 8 million adults—would struggle to cope in a cashless society.97 The Committee received written evidence from the Royal Society for the encouragement of Arts, Manufactures & Commerce (RSA), that many people use cash as a budgeting tool, particularly those on low incomes:

People who rely on cash are far more likely to come from low income households, with cash dependency rising to around 1 in 6 for a household with income of less than £10,000 per year. In addition, those on lower incomes seem more dependent on cash for storing their savings as well as for payments. Research from the Family Resources Survey and the Department for Work and Pensions shows that whilst informal savings in cash outside of the banking system remains a niche choice, used by only 3 per cent of households, this preference more than doubles for households on a low income to 7 per cent.98

110.When giving evidence to the Committee separately as part of the Committee’s Access to Cash Review inquiry, Sian Williams, Director of the Financial Health Exchange, Toynbee Hall, noted the link between a person’s income and their reliance on cash in oral evidence to the Committee:

If you are on an income lower than £10,000 per annum you are 14 times more likely to depend on cash than someone who is on an income of £30,000 per annum. We can definitely see that cash reliance increases the lower down the income scale you are.

She went on to explain some of the reasons behind this:

First, if your income is very tight, you need to be able to monitor every penny that moves through your hands and through your household. It is much easier to count with a physical tool than a digital tool. A digital tool can go wrong; it can say in your account that you have a certain amount there, but it has actually failed to account for some payments that are going though, so you can leave yourself short by accident, or you can incur a cost that you were not expecting. If you are budgeting with physical cash, the only way it can go wrong is if someone steals it off you.99

111.90 per cent of cash withdrawals are from ATMs. However, the overall volume of ATM transactions is declining as cash usage in the UK continues to fall.100 In the face of a continued decline in ATM usage, LINK, the operator of the UK’s ATM network, announced changes to the funding and operation of the network in January 2018, in an attempt to boost its sustainability.101 The changes prompted concerns that access to free ATMs in the UK would be materially diminished, leading to consumer detriment. Reporting by LINK shows that between June and December 2018 the number of free ATMs has fallen by 1,500, a fall of approximately three per cent.102

112.A survey of over 1,200 Which? members in January 2018, conducted to understand the impact of a potential reduction in free-to-use ATMs on the millions of consumers who use the network, found that:

Four in five (80 per cent) said that access to the free-to-use network was important to their daily lives and paying for goods and services. Removing free-to-use access would leave one in ten (9 per cent) struggling to make payments, shutting many consumers out from local shops and services.

A reduction would also lead to one in seven (16 per cent) being deterred from using outlets that accept cash only, placing a strain on consumers and retailers alike.103

113.In written evidence, the Association of Convenience Stores echoed the importance of the ATM network. However, they also also raised other ways in which consumers can access cash:

Reductions in LINK interchange fees are having a negative impact on access to financial services for vulnerable consumers by reducing the coverage of the ATM network. LINK itself states that there has already been a 2.8 per cent decline (1500 ATMs) in the size of the ATM network from January 2018 to September 2018. The LINK Financial Inclusion Programme is also failing to prevent ATM blackspots and closures of isolated ATMs.104

114.Positive Money, a not-for-profit research and campaigning organisation, submitted written evidence to the Committee proposing that access to cash should be protected as a statutory duty of the Payment Systems Regulator.105

115.The Access to Cash Review noted that maintaining access to cash will require policymakers to look beyond the UK’s ATM network:

The debate about cash access and use in the UK often focuses very narrowly, just on ATMs. There is no doubt that the UK is starting to see a decline in the number of ATMs, and that problems are arising where people can no longer access cash. But our research shows that this is simply the most obvious symptom–the underlying issues being far bigger and more complex.106

116.The Review concluded that a stark decline in cash acceptance, rather than cash access, will be what drives the death of cash in the UK if left unaddressed. The Review therefore argues that reducing the costs to retailers and merchants of accepting cash will be necessary to keep cash widely accepted and available. Doing so will require a “rethink [of] the economic model underpinning [cash handling and distribution]” to deliver a simplified and more efficient wholesale cash infrastructure.107

117.The Review made five headline recommendations and each of these were supported by numerous supplementary recommendations. The headline recommendations and some selected supplementary recommendations are included below:

(1) Guarantee access to cash

(2) Ensure cash remains widely accepted

(3) Create a more efficient, effective and resilient wholesale cash infrastructure which will support the UK despite declining cash volumes

(4) Ensure that digital payments are an option for everyone

(5) Ensure joined-up oversight and regulation of cash

More information can be found within the Access to Cash Review Final Report.108

118.It is important that consumers continue to have the freedom to pay for goods and services however they choose. In order to protect that freedom, free access to cash must be maintained for those that need it. While the Committee is concerned by the rate at which free to-use ATMs have been closing, it is clear that these closures are symptomatic of a wider issue. The UK’s cash infrastructure, including but not limited to the ATM network, was designed for a world in which cash is very widely used. As cash usage falls, it is important to consider how this infrastructure can be redesigned to better reflect cash’s declining popularity. The final report of the independent Access to Cash Review contains a number of recommendations to Government, the regulators, and industry which, taken together, are designed to ensure that widespread free access to cash is upheld. The Committee supports these and recommends that the Government, the regulators and industry implement the recommendations that are aimed at them respectively. All the stakeholders involved should provide a timeline for the implementation of the recommendations in their response to this report.

119.If no action is taken, the UK risks inadvertently becoming a cashless society. For a large portion of society, including some of the most vulnerable, this would have stark consequences.

68 Bank branch closures, Briefing Paper 385, House of Commons Library, 19 October 2018

69 Bank branch closures, Briefing Paper 385, House of Commons Library, 19 October 2018

70 Lending Standards Board, Access to Banking Standard Summary Report, September 2018

71 Lending Standards Board, Access to Banking Standard Summary Report, September 2018

72 Lending Standards Board, Access to Banking Standard Summary Report, September 2018

74 UK Finance (CAF0044)

78 Financial Conduct Authority (CAF0069)

79 Which? (CAF0065)

80 TSB, ‘Personal loans’, Accessed 5 March 2018

81 Speech given by Megan Butler, ‘Cyber and technology resilience in UK financial services’, 27 November 2018

82 Money Advice Trust (CAF0027) Para 5.8

83 Building Societies Association (CAF0022) Para 19

85 Competition and Markets Authority, ‘Retail banking market investigation’, 9 August 2016, para 9.186

86 Competition and Markets Authority, ‘Retail banking market investigation’, 9 August 2016, para 9.187

87 Competition and Markets Authority, ‘Retail banking market investigation’, 9 August 2016, para 9.291

88 Post Office, The Post Office Network Report 2018, March 2018

89 Post Office, The Post Office Network Report 2018, March 2018

91 Which? (CAF0065) Para 5

92 Citizens Advice (CAF0041)

93 UK Finance (CAF0044)

95 Oral evidence taken before the Scottish Affairs Committee on 30 April, HC (2017-19) 1996, Q202 [Mr Paul Masterson]

96 The review was commissioned and funded by LINK, the operator of the UK’s ATM network, but was independent from it.

97 Access to Cash Review, Final Report (March 2019), page 4

98 The RSA (CAF0040)

99 Oral evidence taken on 12 March 2019, HC (2017–19) 2011, Q10 [Sian Williams]

100 Access to Cash Review, Final Report (March 2019), page 14

101 LINK press release, ‘LINK moves to secure future of free ATMs, 31 January 2018

102 LINK, ‘Statistics and trends’, Website accessed, 4 April 2019

103 Which? (CAF0065) Para 12

104 Association of Convenience Stores (CAF0049) para 16

105 Positive Money (CAF0061)

106 Access to Cash Review, Final Report (March 2019), page 6

107 Access to Cash Review, Final Report (March 2019), page 7

108 Access to Cash Review, Final Report (March 2019), pages 114 - 123

Published: 13 May 2019