Empty high streets and mass redundancies: The truth of digitalisation in the Retail Banking sector?
I recently had the opportunity to hear Michael Panavicz talk about his experience of leading two European retail banks from branch based networks to digital operations with a hugely reduced property estate. First with mBank in Poland and currently for Nordea in Scandinavia, Michael has overseen wholesale transformation projects leading to huge cost savings, increased profits and, in his view, offerings which more accurately reflect the needs of modern customers.
For many in the audience at The Financial Services Club Michael had some uncompromising feedback. He believes that UK retail banking is being far too slow in its take up of wholesale digitalisation, and had an impressive range of screenshots (albeit seemingly rather similar to PayPal from a layman’s perspective) to emphasise the point. If so much could be achieved at mBank in 18 months, why can’t global powerhouses like HSBC or Barclays move more quickly?
For me, the pace of change for UK retail banking isn’t being inhibited by a lack of desire to migrate to a more efficient and financially rewarding model. Like all major corporates, UK banks will seek to maximise profits if they can and digitalisation should reduce costs, even if, as Michael asserts, it’s really all about finding different way of engaging with customers. No, the reason for caution over clambering aboard the digital bus is more about the wider implications for the larger banks.
HSBC in the UK currently employs about 20,000 staff across its 1,000 branches. On one level, slashing at its physical and human infrastructure sounds like a good thing, but are they really prepared for the reality of what this means? True, banks have cut staff before - think of all the middle/back office jobs replaced by IT in the 90s/00s - but never on this scale. Not only would there be a whole generation of banking employees coming to the market at the same time, but they would also find themselves with skills which were no longer in demand. The human cost would be catastrophic.
However, the impact of these changes wouldn’t just affect the employees and their families. Every town and city would be affected, as bank branches are shut. Many high streets are feeling the effects of eight years of poor retail trading, with only coffee and charity shops appearing to buck the trend. While I doubt that the big retail banks will ultimately make decisions based around considerations of this nature, they equally won’t want even more vacant retail property on their balance sheets.
So I think it’s understandable that there is some hesitancy to embrace wholesale digitalisation in the retail banking industry. For many banks, the numbers might well add up but the implications might be too unpalatable.
Steve Rutherford is the Managing Partner at Interim Partners.