The increased adoption of digital banking by commercial banks is putting the existence of physical branches at risk, with recent years seeing a wave of closures and staff redundancies across Europe. Since 2008, the number of branches in European Union countries has fallen by 31%, with Spain and Germany the hardest hit, a report by the European Banking Federation shows.
But instead of making branch staff redundant, could banks reskill workers so they can also benefit from the automation of their jobs? And will a digital-first banking model exclude certain population groups? Tech Monitor spoke to experts to find out.
Digital banking redundancies: inevitable?
BBVA announced in April its plans to lay off 3,798 workers (or 12.6% of its overall workforce) as its closes 530 branches across Spain, or 22% of the branch network. Although the bank agreed this month to keep 863 of those jobs after a strike and negotiations with trade unions, BBVA’s move is just an example of a consistent trend among banks in Europe and the UK. Spain is one of the European countries with the most bank branches per capita, so the advent of digitisation was always likely to hit hard.
CaixaBank, another of Spain’s main commercial banks, said that it will be cutting 7,605 jobs (down from the 8,291 originally planned) and closing 1,500 physical branches this year. In the UK, Virgin Money, HSBC and Lloyds are among the banks which have announced redundancies as they continue decreasing their high street presence, and across the pond, experts forecast that US banks will be cutting 200,000 jobs over the next decade.
The Covid-19 crisis has accelerated the redundancy of banks’ physical presence during lockdowns, but the move to digital-first banking pre-dates the pandemic as consumer behaviour changes and financial services companies see the cost benefits of digitisation. With this comes the automation of bank clerks’ jobs, but the question remains on whether these workers could be reskilled or upskilled within their organisations.
Ged Nichols, general secretary of Accord, a union that represents clerks at several major banks, says his union and others have been working hard to ensure staff at branches under threat of closure don't find themselves unemployed. "Branch closures don’t necessarily lead to redundancies – many staff are redeployed into other branches," Nichols says. "Many branch staff have been redeployed and are now supporting customers through other business channels including some now working from home on telephony."
Indeed, during the pandemic many banks temporarily repurposed idle branch staff as call centre employees, says Stephen Walker, lead analyst at GlobalData. “There’s a slightly different skill set to serving customers by phone than in-person but with training (otherwise) redundant bank clerks with years of experience can offer excellent rich remote advisory services (video, chat, phone, screen-share, etc),” he tells Tech Monitor. However, Walker adds that in a scenario where one relationship manager can serve 1,000 customers instead of just a few hundred “some redundancies will be necessary to realise the cost reductions”.
But Dr Gary Slater, associate professor in economics at the University of Leeds, disagrees with the inevitability of these job losses and stresses the employers’ duty to reskill workers affected by automation. He says banks that are making redundancies as a result of branch closures have an obligation (“and certainly have the funds”) to reskill displaced workers so they can contribute elsewhere to the organisation or in their local economies.
“While workers displaced by previous waves of automation that affected back-office functions may have found work elsewhere in retail or administration work, these opportunities are also now shrinking making it harder for those displaced by bank branch closures to find good alternatives,” Slater tells Tech Monitor.
The consequences of digital-first among digitally excluded groups
Another question posed by the demise of physical bank branches is how it will impact those who do not have access to digital skills or means to make use of online banking, particularly among an older population used to banking in a branch. In the UK alone, millions of people still live in areas without sufficient quality of internet access, lack relevant digital skills, and cannot afford to get online.
Danyaal Rashid, associate analyst at GlobalData, says that regardless of how good chatbots or apps may be, there will always be a demand to talk to staff and, without proper training, certain population groups might find it very difficult to access banking services.
“[The banks’ move to a digital-first model] has resulted in an alienation of a marginal portion of the population who are not yet digitally savvy and who appreciate the personal experience of going in-branch,” says Rashid. However, he adds that these concerns, which are concentrated among the older population, will become less relevant to banks as younger customers demand more digital banking services.
His colleague Walker adds that the digitisation of financial services has been the primary enabler of financial inclusion and in the medium to long-term, older customers can benefit from the digitisation of financial services in the same way as other clients. Some banks, including Lloyds and Barclays, have run campaigns in Europe to help older customers navigate digital banking. Although Walker says neglecting these customers could lead to significant reputational risk to banks, keeping branches open to serve rural areas with mainly older customers “wasn’t justifiable from a cost perspective pre-pandemic, and it’s even less justifiable now”.
But Slater says there is a wider impact on the community to consider when it comes to branch closures, which in some areas can mean a total loss of banking services - something that could be prevented by government intervention.
A survey conducted by Ipsos Mori on behalf of Lloyds Bank found that lack of digital skills is not just an issue among older people but something that affects one-in-11 adults in the UK, raising questions about the effectiveness of ‘digital-by-default’ services offered in areas such as financial services.
“Not all people are willing or able to 'go digital' with their banking and there is a kind of market failure in play, as each individual bank closes branches in their own interests leaving local communities worse off,” says Slater. “Usually with market failures, there is a role for regulation or state intervention and that may well be appropriate in the case of local banking services.”