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Beyond banking hubs – how banks can overcome the challenges of branch closures

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Tom Philbedge and Erika Hawker, banking experts at PA Consulting

 

For many, mobile and online banking have become an everyday part of life. But the price of digital connectivity has come at a cost through branch and ATM closures. According to Which?, from January 2015 to the end of 2023, 5,155 branches have closed or are scheduled to close, representing over half of the branches across the UK. With digital adoption increasing through the COVID-19 pandemic, and the rise of digital-only challenger banks experiencing promising returns, this trend is likely to continue and represents a real challenge to those who rely on physical banking services.

Figure 1: Breakdown of branches that have closed (or are planning to close) since January 2015 versus those that remain open (Source: Which?)

Without access to a bank, some people are at risk of being left behind, furthering the digital and financial divide. According to the FCA’s Financial Lives Survey, there are 22.5 million people still intending to use bank branches and a quarter (27%) of adults with a day-to-day account regularly using a branch.

With updated guidance on closing branches published by the FCA, it is clear that the physical banking network and cash economy is here to stay and financial services firms need to ensure they can meet this demand.

Opportunities remain open for bank branches

As people and businesses are impacted by the cost-of-living crisis – banks have an important role to play in supporting their consumers.

The greatest opportunity for banks is recognising the value of brand loyalty from branches; humans need access to humans. Branches offer a huge driver of customer satisfaction, and many people choose a bank on its branch proximity and the ability to deal with complex issues- paving a way for banks to reinvent branches as part of their corporate social responsibility (CSR). Face-to-face interactions provide opportunities including:

  • Building relationships with new customers and the younger generation

Demographically, branch users include both the older and younger generations. In a survey of 150 graduates (average age 22-25) 66.1% visit a branch at least once per year, 51% chose their bank either through their parents’ recommendations or because of branch proximity and 66.1% are still banking with their first bank.

They are seeking advice around future financial decisions such as: investing, pensions, mortgages, insurance, savings. In-branch clinics are a great way to meet this need.

  • Providing financial and economic advice to retail customers
    The FCA’s Financial Lives Survey showed that over 10.7 million UK adults have low financial resilience, offering in-person money and financial advice – particularly for those without access to digital banking – can help people improve their financial resilience.
  • Facilitating entrepreneurial workshops for local businesses
    Banks can use branches to take an active role in supporting local businesses, helping to build relationships between the community, businesses, and branches including:

    • Providing generic business advice;
    • Specific financial advice including cash flow management and suitable banking products
    • Face to face digital services training;
    • Hosting workshops and introductions between potential local investors and businesses looking for funding;

When branches have closed, what other solutions are there?

At present, banking hubs are one of the best alternatives to branches. 14 new hubs are set are to open in the next year bringing the total 26 across the UK. However, it will take years for enough banking hubs to replace the existing branch network and there are other things banks can do in parallel with hubs, or as alternative measures:

  • Offering physical banking experiences where banking hubs aren’t set up

Some of the alternative branch solutions that are already being rolled out across the UK include:

  • Self-service machines in branches for simple transactions – such as paying in cheques and deposits at Intelligent Depositing Machines (IDM)– offering a speedy way to undertake essential banking needs and manage cash with help close by if it is needed.
  • Mobile branches: Banking being provided from mobile facilities, such as vans, scheduled to visit different communities on different days of the week.
  • Reduced opening times for branches: Reduced opening times or days to reduce running costs, without sharing the facilities.
  • Creating accessible banking kiosks

Erika Hawker

OneBank is an example that offers accessible banking kiosks for all banking brands. Utilising Open Banking technology, they allow users to access many of the key banking functions available in branch, but from the convenience of a kiosk hosted in large shopping centres or high street shops.

  • Customer technology upskilling

Upskilling around digital must continue at pace, with a focus on helping those who may need additional support to adopt technology. Offering training is also a direct line of communication, and an opportunity to capture direct feedback to ensure banking experiences are accessible for all.

What do banks need to do differently?

Capitalising on branch opportunities is certainly not an overnight feat but by incorporating branches into their CSR strategies, branches start to offer value in other ways including:

  • Improving banking access to those who need it most;
  • Offering retail advice to improve the UK’s financial literacy and mobility for those who can’t access online advice;
  • Providing local businesses with entrepreneurial support;
  • Regular free money advice and budgeting sessions;
  • Improving the UK public’s trust in the UK’s banking system.

Eventually, leading to:

  • Improved customer satisfaction;
  • Higher retention of customers;
  • Reduced chances of retail and business customers defaulting through advice.

However, banks will still need to consider the cost of keeping branches open. Partnering with other common high street facilities, such as coffee shops or supermarkets, can help with overheads such as rent and utilities. Similarly, banks will need to proactively help the banking hub agenda through funding and providing proactive insights on branch closures.

Amid an unprecedented cost-of-living crisis it will be crucial for banks to restore their status as a symbol of trust, which means understanding that human beings use branches for a plethora of different reasons and that reliance on banks for support during this time will be crucial.

Banking

How Banks Can Boost App Innovation, Speed and Compliance

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Steve Barrett, Senior Vice President of International Operations, Delphix 

As new finance and banking applications disrupt the market each day, and customer expectations around speed, privacy and quality continue to grow, financial organization CIOs and DevOps teams have to innovate quickly to bring new apps and updates to market, while remaining strictly compliant to a myriad of regulations. DevOps innovation in financial services requires fast access to accurate, compliant test data, and as anyone who touches the industry knows, data privacy is a highly complex, critical process woven into the everyday world of finance.

Banks and financial services organizations collect vast amounts of data, but using that data for innovation can be challenging due to the vast size and complexity of test data. These challenges can inhibit the adoption of new and transformative technologies and hinder innovation if they are not addressed head on. To address these challenges, many organizations are integrating the use of highly innovative test data management (TDM) tools within their DevOps ecosystems. DevOps TDM provides access and delivery of lightweight, compliant data for DevOps initiatives including digital transformation, software upgrades, cloud migration, artificial intelligence and machine learning (AI/ML), and analytics.

Data – the last automation frontier

Historically, application teams manufactured data for development and testing in a siloed, unstructured fashion. Over time, large IT organizations began consolidating TDM functions to take advantage of innovative tools to create test data. With the rise of modern development methodologies like DevOps and CI/CD that demand fast, iterative release cycles and end-to-end API-driven automation, legacy TDM approaches are often no longer sufficient.

Reliance on a traditionally manual, ticket-driven, request-fulfill model creates time drains during test cycles and slows the pace of application delivery. Consider the payments industry, in which agile technology companies using optimized DevOps processes can release new code hundreds of times per month. In contrast, traditional banks with slow IT ticketing systems may take months to release new features. These manual, legacy TDM approaches exist in contradiction with modern DevOps practices and CI/CD processes that depend on automation and fast feedback to development teams.

TDM for the DevOps Era

DevOps teams rely on TDM to evaluate the performance, functionality and security of applications. However, while processes including storage, compute, and code have all been automated, data has eluded the reach of most DevOps toolchains.

Now, DevOps TDM can help accelerate app releases and increase compliance.by automating the delivery, provisioning, and compliance of data. These practices provide both development and testing teams with data APIs, including the ability to refresh, rewind, bookmark, group, tag, branch, and share test data, to accelerate DevOps productivity and improve application quality. DevOps TDM also includes copying production data, and the masking (anonymization) and virtualization of data through the DevOps pipeline, which helps accelerate app releases and increase compliance.

And as the pace of application development quickens, so does the pace of privacy regulations and efficiently ensuring compliance in DevOps has become a significant challenge for enterprises. Non-production data used for testing software applications, reporting, and analytics can contain up to 80% of an enterprise’s sensitive data. To solve this, DevOps TDM provides integrated data masking to de-identify personally identifiable information (PII) and other sensitive data in non-production environments, eliminating the risk of sensitive data exposure.

The World Quality Report 2022-2023[1] by Capgemini stressed the importance of an enterprise wide approach to test data provisioning (a core component of TDM). The report states, “Over the years, with stringent regulatory and security requirements around data, organizations have increased their focus on provisioning test data safely and securely.”

The report shows that secure test data provisioning remains a challenge, with only 20% of respondents having a fully-implemented enterprise test data provisioning strategy in place to address security and compliance requirements.

Data is the catalyst to innovation

Automation is fueling myriad digital transformations within the financial services sector, but without the right data, these application innovations cannot succeed. DevOps TDM can help further accelerate DevOps initiatives by automatically delivering fresh, complete, and secure test data wherever and whenever it is needed, in minutes. With DevOps TDM, banks and financial institutions can innovate faster, reduce time-to-market for updating legacy applications, and accelerate development and testing of disruptive fintech.

 

[1] Source: https://www.capgemini.com/insights/research-library/world-quality-report-wqr-2022/

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Is traditional business banking the best option for SME finance squeezes?

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Airto Vienola, CEO, AREX Markets 

The pressures facing business and personal finances alike have been well documented.

Stories are now starting to emerge about how smaller enterprises around the UK – which make up well over 90% of the companies in the country – are coping with that mounting stress. The picture starting to emerge suggests, not well.

Personal borrowing is bridging gaps in business books

One survey released recently suggested that one in five of the country’s small businesses have taken out personal loans by the business owner to try to cover gaps in their incomes and profit margins. A further 43% said they were considering doing the same. This rush to secure additional funds by any means may be understandable for businesses feeling the pinch, but it’s neither sustainable nor savvy. Many of these enterprises are already burdened with additional debt from the Covid relief scheme, and given rising interest rates, soaring energy costs and rising cost of goods, taking on additional debt is not an attractive prospect. Add to that the fact that rates from traditional business banking providers are proving steep, smaller enterprises could be forgiven for looking to personal means to shore up the balance sheet. A recent study from members of the Federation of Small Businesses found that one in five small businesses are struggling to find business lending rates under 11%. To help these companies to survive, something clearly has to give.

Not all Alt-Fi options are equal

Alternative finance services have been proliferating in recent times, and yet almost half of small business operators have concerns about pursuing this option, despite actively seeking additional funding support. Clarity over terms and conditions is an often-cited reason for this reticence, which is only natural when undertaking proper due diligence on financial lending. This is a wise choice, especially as it has become so easy for business owners to quickly and simply access new services through embedded finance services, just a few clicks away on existing digital accounting and bookkeeping services. Many of these are still not clear about any detailed fine print, lengthy contract terms or potentially high fees, and yet these too can look like accessible and viable options to business owners facing mounting financial issues.So, it can be hard to pick the right provider without a lot of research. Those wary of the long tail of taking on debt should be particularly careful when it comes to business Buy Now Pay Later or BNPL offers, which are currently entering the UK market, though that isn’t to say that other alternative financing services won’t suit their specific needs whilst mitigating fears over risk.

A fresh perspective on an established technique

So, if debt should not be an option, and embedded finance can have downsides, where should SMEs turn if they don’t want to kick the can of cashflow problems just a few months down the road? One area to reevaluate, which has seen a tremendous shift given the fresh thinking from alternative finance is invoice financing or spot factoring. No longer the imbalanced option of last resort it was traditionally perceived to be, the option has become much fairer to the SME, in addition to providing a swifter and more flexible alternative. In years gone by, invoice financing was the purview of the banks, which led to low rates of return for businesses looking to unlock the value in their organisation, and often much better value flowing back instead to the lender taking on the risk. This is no longer the case. Likewise, invoice financing earned a bad reputation among some for tying businesses into lengthy contracts – another area which current services in the market have since addressed. Our service for example allows businesses the flexibility to access cash back on just a single invoice of their choosing – which could be the difference for struggling SMEs between dipping into loss or keeping the lights on.

One answer to the late payments problem?

Perhaps the most important area which services like invoice financing assist is overdue invoices – the bane of the British SME. Barclays claimed earlier this year that over a quarter of SMEs are finding late payments to be on the increase, and this was an already notorious issue for many business owners. Estimates show that SMEs on average have £6500 in unpaid invoices at any given time. Financing these invoices ensures that the cashflow of these strapped SMEs is healthier, gets the money back into the business without the concerns of lengthy payment terms or endless chasing, and certainly in our case, has no impact on the relationship with the other organisation. Our platform acts as a marketplace between SME and likely investors, with extensive insight provided to make sure that those investing in the invoice are matched to the right businesses. We take on the intermediate risk – removing any suggestion or potential concerns around unwanted debt collection, for additional business owner peace of mind.

While the pressures may be mounting on the SMEs around the country, one thing is clear. No business should rush into making long term financial decisions simply as the cashflow is drying up. Any savvy business would be well advised to make sure they understand the implications, short and long term, of any lending solution they look to employ. However, knowing that there are options and the business’ bottom line does not simply have to rely on traditional banking services, should provide business owners with a lot more options at their disposal to help them to face the coming months with greater cash liquidity confidence.

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