Banks have been re regulated as an outcome of the global financial crisis and their costs are going up. At the same time the ultra low interest rate environment has decimated their profitability. The net outcome is banks are looking to slim and generate new forms of revenue.
Banks are subject to the same technology revolution as the rest of society, and the future of banking is likely to be less bricks and more clicks, as they increasingly move their services online.
Society is shaping this change in Europe with an internet savvy population ageing and becoming increasingly urban. Online banking is responding to customer demand through innovations such as contactless payment systems and mobile phone banking. The extent to which personal consumer activity is moving online is reinforced through the experience of online retailers. Amazon is reported to have secured around 25% of the retail electronics market in the UK over the seasonal period, powerful evidence of the march of the net.
These are powerful societal forces beyond the gift of governments to address in any meaningful way. Governments in many countries have tried to quietly dissuade an exit from the high street mainly in depopulating rural areas and run down urban outliers. But banks, used as a political footballs by many, may just have the opening they need to face up to economic realities. The recent proposal by Ed Miliband looks increasingly ill informed as his recommendation to sell off high street networks assumes willing buyers will rush forward and create new highly competitive challenger banks. In the UK the reality is that bricks and mortar banking provides low returns outside of the main centres of affluence such as the capital or the better off provincial cities. Clearly if banks can hang on to their deposits and loans without the overhead of property related outgoings they are going to be more efficient and less costly to run. So Barclays will beat a retreat from some high streets and tie up with Asda. The other big banks will be watching carefully as their strategy units pull the dust sheets off branch divestment plans.
Mr Miliband has invited the break up of the UK retail branch networks, it seems that Barclays at least are going to take up his invitation. I predict the divested real estate will not form the basis of bright shiny new banks, but instead redundant premises will give way to betting shops, fast food takeaways, and pop up stores.
Market intervention invariably has consequences, but rarely those intended.