Are high-street banks threatened with extinction? Some commentators think so.
The main threat apparently comes from new technology. Some of the biggest players in the technology world are encroaching on the traditional world of banking.
Google’s Wallet app allows users to pay for goods or services online or in stores and Facebook is planning a money transfer business in Europe akin to PayPal or Western Union. There has even been talk of Amazon moving into the market.
Less appreciated is the move by retailers into fully-fledged banking. This year both Marks & Spencer and Tesco launched current accounts as part of their banking operations, with the latter announcing its intention “to become the bank for Tesco customers”.
So it is no surprise that former Microsoft chairman Bill Gates has declared: “Banks are dinosaurs, they can be bypassed.”
Perhaps the high-street banks will fade away before too long.
But hold on. The last quote was a trick. Although it is a genuine statement by Gates it was made in 1994 rather than 2014. Two decades ago the Microsoft chief was already predicting that banks were facing extinction. He later backtracked from this claim and banks remain very much alive.
Instead the banks have evolved. It is easy to forget how much high street banks have changed over the years. It was only in the 1950s they were allowed to make unsecured personal loans, in the 1960s credit cards were introduced and in the 1980s they were allowed into the mortgage business.
Retail banks have also long faced technological challenges. The world’s first cash dispenser – which paid out cash in exchange for vouchers – was opened by Barclays in Enfield in 1967. Telephone banking was introduced in 1989 and internet banking in 1997. Much of the latest round of innovation is focused on mobile banking.
As a result of these changes, the design of high street branches has changed considerably. The new-style bank branch is meant to be a place where customers can discuss decisions such as taking out a mortgage. They are meant as venues for sales and advice.
New entrants to the market are also operating along these modernised lines. Metro Bank already has 26 branches and a stated goal of reaching more than 200 by 2020. Its branches are open seven days a week, 362 days a year.
But despite the success of banks in adapting to change it would be a mistake to assume all is well in the sector. Many were hit hard by the financial crisis with the Government bailing out Lloyds and RBS. Admittedly this was on the investment banking side, but as institutions they were weakened.
The sustained period of ultra-low interest rates has also hit the banks and helps to explain the squeeze on profitability.
Nor should the competitive squeeze on banks from non-banks be forgotten. Both Tesco and Sainsbury’s have bought out their former bank partners to make their banks wholly owned subsidiaries.
Some large high-street retailers are following a different path. Marks & Spencer Bank, complete with branches in some stores, is owned and operated by HSBC and profits are shared between the two parties.
Asda has gone in a different direction, allowing Barclays to open ‘Barclays Essentials’ in its stores.
The pattern is increasingly blurred lines between banks and other kinds of firms, although the regulatory and compliance costs of making a drive into retail banking are prohibitive for a lot of tech firms.
Banks should be able to avoid extinction but they are being forced to evolve into different types of beasts.
High-street banking technology
- 1967 – Cash dispenser
- 1972 – Online ATM
- 1989 – Telephone banking
- 1997 – Internet banking
- 2003 – Chip & Pin
- 2007 – Contactless cards
- 2010 – Mobile banking
- 2014 – Mobile payments
Shows the date of the introduction of each technology in the UK.