Written evidence submitted by Which? (RBS0016)

Written evidence submitted to the Scottish Affairs Committee by Which? on the issue of bank branch closures

About Which?

Which? is the largest consumer organisation in the UK with more than 1.7 million members and supporters. We operate as an independent, a-political, social enterprise working for all consumers and are funded solely by our commercial ventures. We receive no government money, public donations, or other fundraising income. Which?’s mission is to make individuals as powerful as the organisations they have to deal with in their daily lives, by empowering them to make informed decisions and by campaigning to make people’s lives fairer, simpler and safer.

Summary

• Despite an increase in customers using online banking services over recent years, Which? remains concerned about the significant numbers of people who continue to rely on access to face-to-face banking services.
• Bank branch closures disproportionately impact vulnerable consumers, particularly those in rural areas, those without access to good broadband, and those on lower incomes.
• Banks have a responsibility to guarantee continued access to alternative banking services and easy access to cash in communities where bank branches have been closed. This includes raising awareness of those services available through the Post Office, online, and via ATMs.
• The proposals from LINK to reduce the interchange fee for ATMs across the UK risks a significant reduction of free-to-use ATMs. Such a reduction would have a detrimental impact on consumers who rely on cash in their daily lives.
• The Payment Systems Regulator (PSR) must conduct a market review to ensure that the consumer demand and need for free-to-use ATMs is taken into consideration and guarantee that consumers are able to access their cash free of charge.

Introduction

1. More than 900 UK bank branches have shut in the past two years as more and more customers go online. However, while government figures show 56% of adults used online banking last year, Which? is concerned that those who continue to bank in person - approximately 20 million adults - will be impacted by a reduction in access to face-to-face banking services.

2. Whether or not a bank chooses to close a branch is a business decision. However, it is critical that banks work with customers and communities to minimise the impact of branch closures, put in place alternative banking services, and ensure that customers are aware of the other options available to them.

3. Branch closures disproportionately impact vulnerable consumers, those who do not have access to online banking, and those living in rural areas. Banks need to maintain access to vital banking services for all, particularly the most vulnerable consumers who often rely on face-to-face contact in branches.

Bank branch closures

4. Research from Which?[1] found that 1,046 bank branches across the UK were shut between January 2015 and January 2017. Of these, HSBC has cut the most branches, closing 321 (a quarter of its network), followed by RBS Group, closing 191 branches (10% of its network) and Lloyds Banking Group (Lloyds, Halifax and Bank of Scotland), closing 180 branches (14% of its network).[2]

5. The regions with the most bank branch closures per 100,000 people are Wales, South West England and Scotland - all of which have extensive rural areas. In Scotland, a total of 89 bank branches were shut during the same period, the equivalent of almost one a week. These areas are often also characterised by poor broadband speed, further impacting access to banking services. Which? has created an online map[3] that shows areas where a high number of bank closures is coupled with poor broadband speed.

6. Most banks cite the growth of online banking as the reason for closing branches, however, Which? is concerned that a significant proportion of the population are either not online or have a poor broadband connection. 10Mbps is the minimum download speed proposed under the Government’s Universal Service Obligation (USO) that anyone in the UK would be entitled to request. However, Which? research[4] found that, in total, the average test in 11 local authority areas did not reach this speed, which is regarded as necessary to meet the typical demands of a family or small business.

7. The same research also found that the majority of slow download speeds being recorded are in rural locations with the Orkney Islands, Shetland Islands and Highlands ranked as the worst places in the UK for broadband speeds. Ryedale in Yorkshire and Purbeck in Dorset also finished in the bottom five, with the average recorded test in all those locations falling below 10Mbps.

8. In Scotland, almost 2 million adults do not use online banking services, with bad broadband identified as a key reason. According to an Ofcom report on digital connectivity in 2016[5], 8% of Scottish properties still only have download speeds of less than 10 Mbit/s. Whilst 83% of Scottish properties, which is still the lowest across the four nations, have access to superfast broadband (30 Mbit/s), only 40% of properties in rural Scotland have access to superfast broadband. Even where consumers may notionally have higher download speeds, the reality is services are struggling at peak demand.

Access to banking services

9. 2015 Which? research[6] highlights the importance of banks introducing alternatives for customers:
• Four in ten (41%) people said they used the local branch of their high street bank at least once a month.
• 37% said it would inconvenience them if their local high-street bank branch closed and three in ten (30%) said they would consider switching banks - showing the importance of introducing alternatives for customers.
• The most popular alternatives for consumers, if their high-street bank closed, were: ATMs providing other services (41%); the bank operating in another location e.g. supermarket (39%); banking provided in the Post Office (35%); or shared branches (35%).
• Banking in a nearby location (e.g. in a supermarket) was most popular among older age groups. 47% of 55-64 year olds and 46% of people aged 65+ said they would like to see this, compared to 39% for all age groups.
• In rural areas, banks providing services at the Post Office or in another location were the most popular alternatives (both 41%).

10. The Access to Banking Protocol was developed in 2015 to minimise the impact of branch closures on customers and communities. Under the protocol, banks must:
• Carry out a review to understand the impact on customers, plus the alternative banking options.
• Communicate any plans to shut a branch, consider concerns and make these public.
• Let you know at least 12 weeks before they close or move a branch, outlining alternative banking options available locally.

11. An independent review[7] of how banks consult local people before they shut a branch reported its findings earlier in 2017. It recommended that banks need to engage better with customers and help them find alternative ways to bank, and that they should be more proactive in supporting older customers, as well as small businesses that need to bank cash takings.

12. However, despite a requirement to point customers to alternative banking services, including the Post Office, the review found just 11% of customers used the Post Office more because their local branch had shut. This was largely due to a lack of awareness of the services offered and low levels of trust in Post Office staff training and knowledge. Additionally, Which? 2017 research[8] shows that while 72% of the people across the UK rated their experience of the Post Office as good or excellent, 41% said that they didn’t realise that it offered banking services. It is clear that banks must do more to communicate with their customers about alternative services available to them.

13. Banks should consult with local communities before closing branches to ensure the needs of their customers are being met. Banks should also continue to be challenged on how they identify key stakeholders, how they make them aware of the decisions to close, the quality of information provided, alternatives available, and the timescale for consumers to respond or engage.

14. Following the Griggs Review, it is important that banks are still held to account about their branch closure process. It would be useful to determine the extent to which banks take into consideration the feedback from these consultations including whether there have been any instances where a branch closure decision has been reversed as a result.

Free-to-use ATMs

15. LINK, the UK’s largest cash machine network is consulting on a reduction to the interchange fee, which funds the free-to-use ATM network, by 20%. Such a change could make many machines no longer financially viable, and Which? is concerned that such a reduction could lead to widespread closures of machines across Britain. This is a particularly pertinent issue given the significant numbers of bank branch closures over recent years.

16. Cash remains the most widely used payment method in the UK. With 2.7 million people in the UK relying almost entirely on cash, it is clear that ATMs are an important alternative to high street banks, particularly for those on low incomes, older people and those in rural areas. Despite LINK’s claims that Britain’s free-to-use ATM network should be reduced due to a perceived decline in demand for cash, the Bank of England figures show a 10% increase in the demand for banknotes in 2016, representing the fastest growth in a decade.

17.                                                                                                                                                                                              A 2017 Which? survey of over 40,000 supporters found that 89% of people rely on free cashpoints. Of these, 40% say that they withdraw money once a week, with a further 32% withdrawing cash once every few days. The main reasons cited for withdrawing cash were some shops only accept cash (41%) and using cash helps with budget management (36%). When asked whether they would be able to easily access cash should their nearest cashpoint close, almost half (46%) said that they would not.

18.                                                                                                                                                                                              The PSR should conduct an urgent market review to fully evaluate the impact this change could have on consumers, millions of whom rely on the free-to-use network to access cash. Which? is concerned that LINK’s proposals are driven by pressure from some banks to cut costs, rather than focusing on the needs of consumers. As such, Which? is seeking assurances from the regulator that all consumers can maintain access to free-to-use ATMs and can continue to use cash, which for many remains their preferred and sometimes necessary payment method.

Appendix I: Branch closures by bank

Appendix II: Quotes from Which? Members

‘My bank closed my local branch about two years ago, and I now have to travel 20 miles to the nearest one. It seems that banks are forcing people to bank online which isn’t attractive to those who aren’t computer literate.’

‘I will never do my banking transactions on line because I do not believe their systems are safe to handle my hard earned money.’

‘I visit my branch to pay in cheques. Usually I just put them in an envelope with the paying-in slips and post it through the door when I’m passing. It is comforting to know that if I had a problem I could talk face-to-face, rather than have to deal with a call centre.’

‘It’s vital that companies cater for all their customers and as I see it, there is still a clear need for banks to provide convenient branches. For many years, customers of different banks have been able to use the same cash dispenser, which is convenient for the public and presumably acceptable to the banks. Bank branches offering shared services could be the way forward to provide local banking facilities while minimising the costs for individual banks.’

Genevieve Lloyd, Campaigner, Which?,

January 2018