In response to the planned closure of Seahouses and Alnwick branches of Barclays Bank Councillors Gordon Castle, Wendy Pattison and Guy Renner-Thompson wrote a joint letter of objection in the Northumberland Gazette of April 27th. In this letter they stated:
“We think that banks are not businesses that come and go, but are national institutions with an important social function for residents now seemingly brushed aside by sharp suits far away whose only objective is to cut costs. We on Barclays to think again and recognise that they should be aligning their business with public needs and expectations, not requiring the public to realign their lives to the digital ambitions of a world of high finance that already threatens to overpower them in many other respects.”
This is a subject of great interest to me about which I have had much direct experience. I worked for Barclays Bank for over thirty years and much of the first half of my career was spent working in and running small local branches in South Lincolnshire. Practically all the offices I worked in have closed and I anticipate those that remain even in larger towns like Spalding may follow suite in the future. Indeed the reduction of opening hours is never a good sign. It is with a sense of irony that I note in a recent press article that Barclays Bank is seeking to standardise opening hours to 9.30 to 3pm – this is very close to the standard opening hours I experienced in 1986 when I first started working for Barclays and the standard opening hours were 9.30 am to 3.30pm.
To compare banking in 1986 to 2023 is to look at a totally different industry. In 1986 a lot more processes and decisions were done and made locally. This was labour intensive. You could phone and speak to your local office directly. Large volumes of cheques were dealt with by a largely manual process – the volumes dwarf today’s figures with the number of cheques dealt with nationally today being approximately 0.75% of the number dealt with at their peak usage in the early 1990’s. Add to that the fact that today’s cheques are dealt with by an imaging process that requires little human intervention and you see how I had entered a profession that was a contracting industry, at least in the number of employees required.
Add to this the many other processes that have increasingly become automated, cash handling, loan applications, account opening, call handling. I entered banking in a world where the mobile phone and the computer was a rarity. I left it where these items were not just common place but a necessity.
Another factor is in 1986 bank charges were not just common, but the norm. It was a staff “perk” to have a free current account. Personal customers paying fees to have a current account was the norm, although this soon changed. Interest rates were also higher enabling the turn or profit to be made on deposits to be much greater. There was also less competition and choice. When I looked at the hand-written ledger in Barclays Bank Holbeach in 1990 the family names that banked with Barclays Holbeach 90 years prior still banked with Barclays. Nowadays, such loyalty both to and from customers is highly unlikely with 341,000 people switching Bank accounts in the first quarter of 2023 and the Nationwide Building Society, the institution with the highest commitment to maintaining its branch network, being the one to have the most gain. However, to this should be added a warning, these accounts gained by Nationwide Building Society are possibly little or no financial loss to the other institutions, at least in the short term.
Three factors happened in retail Banking that were to diminish the value of a customer; Free banking, a race to the bottom on price and a sustained period of low interest rates. This is where the good councillors stating “Banks are not businesses that come and go…” is a little naïve. Banks are businesses that have to justify there existence by dealing with customers in such a way that is profitable to the shareholders to whom they are ultimately responsible. The three factors that affected retail banking so greatly diminished the financial value of the individual customer:
Prolonged low interest rates: One of the basic functions of a Bank is to enable those that have money – savers to loan money to those that need it, lenders. To do this with confidence it has to build up large deposits either from customers or by buying deposits on national and international markets. For ever £1 lent it will need many pounds to cover that debt to cover the risk of default and to ensure the saver can withdraw their funds upon request or as they fall due. Prolonged low interest rates mean that the “turn” or the difference between collective interest paid to savers and that taken from lenders has been reduced. On top of this liquidity regulation meant that the ratio of deposits held compared to lending has had to be much greater than in the past.
Free Banking: This started to come in in the late 1980’s at the same time as increased growth in both the Banking industry and the number of transactions. For the first time personal customers had Banking free of fees and transaction charges. What this meant was that the typical personal customer’s banking was a loss leader in the hope of hooking further sales from them in the form of deposits, loans, credit cards, insurances, business accounts etc. In 1990 the typical individual personal customer whom had no other financial products lost their Bank about £200 a year. This in itself, at that time, was not necessarily a threat to the smaller branched who often thrived and were more profitable per head of staff due to local conditions. Examples of this abounded at the various offices I have worked in either temporarily or for a prolonged period. For example: Burton Latimer branch existed due to the Weetabix Factory and was jokingly called the Weetabix Social Club by staff; Sutton Bridge thrived with profitable amounts of international trade being serviced through the Branch for the local port; Long Sutton had one of the highest profitability per head of staff due to commercial insurance products taken out by farmers; similarly Holbeach branch benefitted from the wealth and working capital requirements of local farmers alongside a then highly significant grain milling business in the town; the tiny sub-branches of Gosberton and Crowland were primarily in place to service the seasonal cash requirements of valuable farming customers; some factories even had sub-branches set up within their premises. The provision of services to many was subsidized by a lesser number of profitable customers. This was to soon become unpicked with greater competition and a race to the bottom on price.
A race to the bottom on price: We see this in so many walks of life. Indeed, if I buy milk from a supermarket its price is deliberately supressed as a loss leader (with the loss largely felt by the impoverished dairy farmer) in the hope of getting me to buy a more profitable item at the same time. As a result certain food items are expected to be very cheap. (Hence I buy 1 pint of milk from Hauxley Dairy for £1 when at the supermarket four points cost £1.55!) In banking free personal banking is the expectation. Increased competition was a wonderful tool as it meant you could pay your jam jar of cash into your current account with Barclays, but have the cheapest insurance via a broker, the highest deposit rates at Landsbank and the lowest mortgage rates at Northern Rock. This meant that the value of personal customers, especially for smaller areas was becoming diluted. Indeed, when Sutton Bridge branch closed I was asked to man the Branch during a protest. Whilst not a pleasant experience it was good natured with over thirty people filling the Banking hall with placards protesting the closure in front of the press whilst I sat at a desk and one of my bosses hid in a corner. Whilst the press were still there I went to the centre and addressed them asking those that had a Bank account with Barclays to raise their hand. Only half a dozen were able to raise their hand. I responded, “I rest my case.” My boss held her head in her hands cringing whilst the press photographer followed the protesters out the door chuckling. My criticism, on reflection, was a little unfair as the last branch to close in any town has a massive impact on the area. There is an element with anything that if you don’t use it you lose it, but in Banking using an office or service is not enough, it has to justify its presence commercially.
However, this is where I have much agreement with the good councillors in that local Bank Branches do perform important “social” functions in addition to their transactional ones, furthermore I believe they can and should align with public needs and not just a digital agenda.
Working in rural branches was one of the most enjoyable experiences I had at work. If you are to get the most out of the job you become involved in the community, a trusted member of the suburb, town or village even if you don’t live there. I got to know everyone that walked through the door, whether seasonal workers visiting once or twice a year or regulars in every day. You would look out for them and they would be a great source of local knowledge and understanding. Person to person contact and relationships were key. Nowadays, much of banking pretends this is the case, but in fact, despite great efforts by their staff to achieve this, it is simply not possible. Indeed automated responses on the phone, online chat and endless queues are both the enemy of good service and customer care. Whilst accepting the benefits of a digital world I have a strong opinion that small branches can both fulfil transactional and service needs to the community whilst also justifying their presence commercially. What is needed is a development of Bank branches along the lines of Metro Bank.
Metro Bank has developed a niche around a unique relationship offering that seeks to get value by add-ons to a key service that used to be offered by the High Street Banks that is largely no longer offered by them – safe custody. Metro Bank Branches are typically opened in areas where there are historical immigrants. One of the legacies of immigration is that you, or your parents and grand-parents have often experienced great material loss. One example from my youth are Ugandasians being stripped of jewellery and watches by soldiers before boarding planes to Britain. Such experiences and similar mean that portable wealth and cash are trusted and the need for safe custody services can be identified to these historic communities and their ancestors. To be provided with such a service you have to have a bank account with Metro Bank. The branches are cleverly designed alongside their products to provide choice of contact. Online, telephone and face to face - even without making an appointment. The staff have that community feel. The branches are cash friendly, with a charity collector able to use their coin counting machine without charge. I particularly like the fact that they allow dogs in and provide water bowls and dog treats. Everything is geared to developing a meaningful relationship with the customer whilst at the same time giving the customer choice of how to contact and what services to use. They do, of course, guide people to online avenues, but the key element of this is that the customer has choice. However, Metro Bank is a niche Bank in a limited urban geography. What it does it does well from a customer point of view. Equally it does have its limitations in experience and ability that say a large commercial business, or a specialised industry such as farming and horticulture may find limiting.
The closing of Bank branches, that are often housed in old, costly, underutilised buildings is understandable, but in my opinion lacks a truly commercial viewpoint of looking at what can be achieved by developing relationships within a community. I genuinely believe that a new niche Rural Bank exploiting identifiable needs in the rural community could be highly successful. Better still if existing High Street Banks could adopt a viable niche model on a par with Metro Bank – the long term commercial gains could be considerable.
Finally I have a warning. Much of the withdrawal of Bank branches is done with the promise of being able to use the Post Office instead for transactional services on your Bank account. This relies upon an agreement signed up by 30 Banks and expires on 21st December 2025. Even with this agreement there are limitations on how you can use this service. This is NOT a worthwhile quality commitment to the community or to customers especially when you consider how badly run the Post Office has been in the wake of the Horizon scandal leaving it financially vulnerable.