The need to increase competition in retail banking hit the headlines once again today with Ed Miliband arguing that the UK’s five major banks should be forced to sell off a number of branches to encourage greater competition in the industry. Whilst efforts to increase competition in retail banking will benefit consumers and should be commended, the debate around how to do so has often been centred on the number of branches each bank has. This is far too short-sighted.
This overemphasis on branch distribution as a way of fostering competition in the industry fails to take into account the fact that consumer behaviour has, and continues to be transformed by digital technologies. Whilst 10 years ago, the branch was the epicentre of banking relationships, this has changed. The majority of consumers have embraced online banking and increasing numbers are now using mobile to control their finances.
A cursory look around the globe illustrates how this transformation in consumer behaviour is both disrupting the industry and fostering innovation in retail banking:
The Netherlands – branch numbers drop as mobile banking increases at a dramatic rate
Over the last ten years, more than half of the country’s branches have closed. But rather than being replaced by new competitors, they’ve been replaced by a new channel. Consumers in the Netherlands have embraced the shift to digital banking at a dramatic rate – in fact, last year mobile was the dominant channel for the Netherlands Retail Bank ABN with over 1 million people using it each day.
Poland – online banking proves to be popular with customers
The shift towards online and mobile banking is illustrated by the transformation of BRE bank in Poland. In 2012, the company dropped its existing branding due to the success of their online venture mBank and relaunched under the mBank banner.
United States – retail banking disruptors on the rise
The US is home to a multitude of retail banking disruptors, including Simple, a start-up that has done away with the ideas of branches altogether. Instead, all banking interactions take place either online or through a customer’s mobile phone, allowing them to control their money whenever and wherever they want. The company are also ahead of the curve when it comes to paying in cheques, allowing customers to do so by simply taking a photo.
The UK – mobile payments service Zapp positioned for success
Mobile payments service Zapp (covered in this month’s digital trends round-up) is pushing more traditional banks to innovate their services and keep up with rising consumer expectations. They’ve partnered with 5 major UK banks to facilitate mobile payments so that consumers can pay both in-store and online without having to use a card or cash.
These examples demonstrate how digital technologies and the resulting change in consumer behaviour is already driving innovation in banking institutions. With this in mind, surely the debate around competition needs to move away from discussing the number of branches. In fact, it could be that digital is set to solve the competition conundrum. If some banks in the UK are unable to adapt to changes in technology, it’s only natural that they’ll become less relevant, opening the door to new alternatives for consumers.