Can banks halt the decline of the high street?

Originally published in Finance Derivative.

By Chris Labrey, Managing Director UK & IRL, Econocom UK

The economic contribution of the retail sector to the UK economy is a sizeable one. The recent House of Commons briefing paper shows that retail businesses account for 9.5% of our employment figures and 5% of our economic output.

Unfortunately, the retail sector is under tremendous pressure and in the current year to August 2018, 2,085 stores and 39,000 jobs were lost from our retail economy. These closures are having a dramatic impact on the appearance of our high streets. Boarded windows and closing down sales are an all too abundant feature in many of our traditionally thriving towns and cities.

Some blame the banks for this. According to Which, NatWest and HSBC alone closed over 1000 high street branches between 2015 and 2018 and without the high street bank, consumers are less likely to venture into the town centre. Indeed, Labour’s John McDonnell has said he will change the law to stop banks closing high street branches if Labour comes to power.

Should we blame ourselves?

None of this is surprising. Our banking habits are changing; we no longer need a face-to-face interaction to carry out simple transactions. We can do this from the comfort of our own home; over the internet or using mobile apps on our smart phone. And most of us are happy to do this.

But mobile and internet banking is not for everyone. There are occasions when customers will need to, or want to, visit a local branch. So, what can banks do to encourage their customers into branch more frequently, thus preserving their physical presence and halting the demise of the high street?

Future-proofing the branch

At a recent conference Celnet cites that most consumers still value the brick and mortar branch. They may visit it less often, but when they do they are expecting meaningful interactions.

Samsung expands on this by describing branches of the future as immersive, advice-driven financial centres that give customers what they can’t access on their own. In addition to incorporating existing technologies such as smartphones, tablets, self-serve kiosks and wearables, these branches will incorporate newer technologies such as virtual reality and virtual desktop infrastructure.

This is all well and good, but the technology cost implications can be huge, especially when there may be thousands of branches to consider. Also, many banks have legacy-based infrastructures which do not always align well with new platforms and technologies. It can become cost prohibitive and uncompetitive to keep high street branchs open, but there is a solution.

Technology as a subscription-based service

Retail banks can learn a lot from the general retail industry. Stores have learnt that customers want the same experience across every channel, whether in-person or online. Customers’ expectations are that retailers know and understand them; they can anticipate their needs based on past interactions. Banks are finding their customers want those things too.

This is where subscription models can prove their worth. In much the same way that many of us pay for our mobile phones or cars, there are models available to banking and finance companies, using OPEX rather than CAPEX, to invest in technology and infrastructure for offices and branches.

These subscription models also allow banks to spread costs evenly and regularly and update their technology assets, meaning that customers can have a consistent and compelling customer experience every time they visit a branch.

The future

Our online spending increases year on year. Department stores experienced an increase of 25.2% in internet sales up until April this year, according to statista. If they want to maintain their physical presence on the high street they will need to adapt their services.

John Lewis’ retail report of 2017 shows that 20% of their online purchases were researched in store before making a purchase. They have embraced this knowledge in some of their larger stores by offering unique user experiences to complement the shopping experience and encourage them into store.

High street banks should learn from this. Future high street banks need to be more like retail outlets. They may be smaller than the traditional high street banks but expect them to be more efficient; improved by digital transformation where customers have access to highly personalised services.

All of this is underpinned by digital. It needs to be financed and a subscription-based model can ensure that customers get the experience they expect, sooner rather than later. Get it right and we will all be returning to the high street.