This week RBS announced plans to close 162 of its high street branches. With the well-documented TSB technology fiasco – and new technology poised to revolutionise the sector – are we seeing the beginning of the end for retail banking?

By Mark Richards

For much of the last 12 months, we have been writing about the coming wave of bank branch closures, and the impact that will have on our town centres.

At the beginning of this week, the first waves splashed up on the shore as the Royal Bank of Scotland announced the closure of 162 branches throughout the UK, with the loss of 800 jobs. The full list is here if you would like to see if your town is affected.

Mine is – in a town centre where RBS and NatWest are less than a hundred yards apart. We also have a branch of the Halifax, Santander, Nationwide, Barclays, TSB, HSBC and Yorkshire Bank.

It must be 20 years ago that my wife announced she had had enough of HSBC and opened an account with Smile: at the time it seemed a brave move. An internet-only bank? I scoffed and carried on walking round to RBS to pay cheques in.

The TSB Fiasco

But over the last 20 years, my wife has consistently been proved right. The high street banks have lurched from one mis-selling scandal to the next, punctuated by regular technical problems and security breaches.

Now we have the complete cock-up – fiasco if you want a more polite term, but I have no doubt what the TSB customers are calling it – where 40,000 customers have lost access to their account. TSB customers have been unable to log on or gain access to their bank accounts and – in one case – a client found himself with another client’s money, all £35,000 of it. Matthew Neal said all he had wanted to do “was check how much I’d spent at the pub last night.” £35,000 extra in your account. The sort of hangover we all dream of…

TSB boss Paul Pester has generously announced that he is giving up the £2m “integration bonus” he was due to be paid.

“If there is one decision in my life that I could change it would be the decision to go ahead with the [computer] migration,” he said. “Clearly that was a terrible decision for our bank, our customers and for me personally.”

(You suspect it was possibly also a terrible decision for the suppliers, plumbers and plasterers who were looking forward to working on the Pesters’ new kitchen and bathroom…)

Commonwealth Bank go one better

But however incompetent TSB appears to have been, they are a distant second to Australia’s Commonwealth Bank. The country’s largest lender has admitted losing the banking records of 20m people. According to Google, the population of Australia is only 24m, so that is a fairly spectacular loss of data. The bank had names, addresses, account numbers and statements stored on two magnetic tapes, which it gave to a sub-contractor to destroy in 2016. You know what comes next: the bank did not receive evidence that the tapes had been destroyed – it thought “they probably had been” – and decided not to tell its customers.

The bank’s head of retail banking apologised for any “inconvenience and worry” – and while there is no evidence that any customers lost money, there must have been a significant erosion of trust.

Banks and millennials

As we have written previously, given instances like these – coming on top of years of mis-selling scandals – it is no wonder that the millennial generation is doing everything it can to avoid the traditional banks. Privately people are moving more and more towards the internet, and entrepreneurs needing to raise money for business are increasingly finding more attractive offers from the rapidly-emerging challenger banks and alternative lenders. Besides, isn’t Kickstarter a lot more fun than preparing a cash flow forecast for a bank manager who you know will simply refer it to “our specialist lending team?”

The simple fact is that the banks are not offering clients what they want, and despite their best efforts continue to come across as organisations that are inefficient and untrustworthy. Retail banking (and, by implication, town centre planning) is in real trouble – and that is before blockchain comes along to further damage them.

How blockchain will impact retail banking

If we go right back to basics the banks are essentially selling trust and acting as a middleman. Someone deposits money with the bank – who they trust to look after it – and I, in turn, come along and ask to borrow some money. But if the bank erodes that trust by losing customers’ data or constantly trying to sell unsuitable products, then depositors will start to look elsewhere. Similarly, borrowers will look to alternative sources of finance.

Blockchain will offer the security that will allow depositors and borrowers to deal directly with each other: there will be no need for the traditional middleman.

As we have written many times over the past year, we are likely to see a crypto (or virtual) currency operating alongside traditional currencies in the next five to ten years. It may or may not be Bitcoin, but it will certainly happen. And there goes the need for foreign exchange – I am absolutely certain that my children will one day go on a foreign holiday with nothing more than their phone. And a virtual currency opens up a whole world of peer-to-peer lending. Need to expand the business? Not only do I have Kickstarter, the security offered by blockchain means I can borrow money as easily from someone in Singapore or Sao Paolo as I can from someone in Scarborough.

Where do we go from here?

The simple answer is that we go online. Ten years from now there are unlikely to be any retail bank branches in the centre of smaller towns. As we wrote in our recent article about Sweden and the end of cash, quite where that leaves vulnerable groups like the elderly is anyone’s guess. But the elderly are not the target market: financial institutions want the millennial market. High street branches are costly to maintain and require expensive staff: with retail in a downward spiral and even catering and hospitality chains contracting, there are going to be some big holes on the national high street.