As branches continue to close, what are the alternative ways to bank?

This week, consumers were faced with more bank closures as TSB announced it is planning on closing 82 of its branches across the UK. These closures are part of an ongoing trend that has seen thousands of high street branches close their doors, as banks look for ways to cut costs and focus their attention to online and mobile banking.

Here we take a look at how bank closures are impacting consumers and what alternative banking options are available.

According to data from the Federation of Small Businesses (FSB), over half (53%) of bank branches have closed since 1989, resulting in less than 8,000 open in the UK in 2017. This figure has been further reduced over the last two years, with many banking giants closing branches. Rural communities have been hardest hit by bank closures, not only with many customers struggling to access their bank, but also by the fact that these communities also have to deal with poor internet signals, making online and mobile banking challenging. In addition to this, many people on lower incomes and older people have struggled to carry out everyday banking once their local branch closes.

Unfortunately for those most affected by branch closures, this trend is likely to continue, especially as online and mobile banking becomes more accepted by consumers. Indeed, this week’s announcement from TSB shows how vulnerable local branches are to closures, especially as the former TSB chief executive had attacked rival banks for ‘savagely cutting branches’ and had committed to expanding the TSB banking network.

Furthermore, these bank closures are being compounded by many existing branches only opening part-time, along with a reduction in the number of cash machines.

Post Office has provided consumers with an alternative to banking in branch by offering a service that allows them to carry out everyday banking at their local Post Office branch instead. Under the Banking Framework agreement, customers from all the major high street banks (29 in total) will be able to do everyday banking such as deposit cash, cheques, withdraw cash and access change and balance enquires at their local Post Office from 8 January 2020. While this is good news for consumers, with many Post Office branches also under threat from closure, some rural communities are still likely to be left without this in branch banking option.

As branches have closed across the UK, many banks have been focusing on online and mobile banking as an alternative banking option for their customers. The growth in online banking has not only led to a change in how consumers bank, but also seen the rise in challenger banks.

Consumers looking to get the top rate on savings accounts will now likely have to choose one that can only be accessed online. For example, research carried out by Moneyfactscompare.co.uk earlier this year found that while in 2014 just 29% of easy access savings accounts could not be opened without branch access, in February 2019 this number had increased to 34%.

At the moment, savers looking for the top rates on easy access savings accounts and notice savings accounts will have to opt for one that cannot be opened or managed in branch, however those looking for an ISA can currently get the top rate on accounts that can be opened in branch, but the top-paying fixed rate ISA can only be managed by post.

While on the surface this looks good news for savers, looking further into the products available and it shows that consumers wanting to bank in branch face much less choice than those willing to bank online.

Of the top five rates being offered in the five year fixed rate chart, just two can be opened and managed in branch. While just a single one year fixed rate bond, easy access account and notice account offering a top-five rate can be opened and managed in branch.

The ISA chart shows a similar picture, with just two in the five year fixed ISA chart offering a top-five rate that can be both opened and managed in branch, while two easy access ISAs can be opened and managed in branch. Only one ISA in the notice chart can be opened and managed online. 

Although the rise of challenger banks has not directly impacted high street branch closures, the fact that these banks are becoming more popular, particularly with younger customers, has helped the growth of online and mobile banking. Monzo Bank, for example, is one of the success stories among challenger banks and is estimated to have expanded by 150% in the last year, growing from 1 million to 2.5 million customers.

One of the reasons that could explain why challenger banks have become so successful in the last few years is that they offer much more competitive rates than traditional banks and building societies. Research carried out by Moneyfactscompare.co.uk last month found that challenger banks were offering a significantly higher AER on no notice accounts, one year fixed bonds and five year fixed bonds compared to building societies and high street banks.

Over the last few years, there have been a number of banking IT glitches that have been making the headlines, most famously TSB customers being unable to access their accounts last year. This has understandably made some customers wary about depending on online and mobile banking for their everyday banking needs.

In fact, data released by the Financial Conduct Authority has found that in the 12 months between 1 October 2018 to 30 September 2019, every major bank had reported an operational and security incident affecting mobile or internet banking, with the only exception from M&S Bank. Barclays Bank reported 15 incidents that impacted internet banking, the most recorded by all banks. This was followed by Tesco Bank (13 incidents), Santander (12 incidents) and Lloyds Bank (11 incidents).

Although TSB had the highest-profile internet banking incident, over the 12-month period, it recorded just five incidents. Bank of Scotland, including Halifax, recorded nine incidents, NatWest recorded six incidents and HSBC UK recorded four incidents. Although the challenger bank Monzo Bank did not record any incidents that impacted internet banking, it did record one incident that impacted mobile banking during this 12-month period.

Although banks have a duty to ensure that they provide a secure and efficient online and mobile banking service, for consumers who do not want to bank online or via mobile and who cannot bank at a local branch, the only other option is to use postal and phone banking. Fortunately for consumers, banks are still offering the option to bank by post and by phone, but, as with in-branch banking, they may find their choice of products more restrictive.

Within the five year fixed rate bonds chart, for example, of the top five rates being offered, only one provider offers accounts that can be opened and managed by post, however a further three offer accounts that can be managed by either by phone or by post once they have been opened online. Of the five top-paying one year bonds, all can be either managed by post or by phone but must be opened either online or in branch first.

Those looking for an easy access account will find that, while one of the top-paying easy access accounts can be managed by phone, it must be opened online. Another account offering a top-five rate can be opened by phone and by post, as well as online, but must then be managed online.

In the notice chart, one account can be opened and managed by post, as well as online and in branch, and a further one account can be managed by phone after being opened online.

Currently, despite the continuation of branch closures, many high street banks are still offering products that can be opened and managed in branch. As well as this, with agreements such as the one with Post Office that allows customers to bank in branches not owned by their banks, there are still ways for consumers to continue banking in a branch. Saying this, with the growth of online and mobile banking, being led by the increasingly popular challenger banks, in-branch banking could become much more challenging for consumers in the future.