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Bricks versus clicks: when fintech meets real estate

Are you visiting your bank branch more or less often than five years ago? Let me guess – it’s less. But what’s driving this trend?

According to the Royal Bank of Scotland, customer high street bank usage has fallen by 40% since 2014. This is consistent with figures from UBS that point to around a 10% decrease in footfall per year in the industry. In addition, the number of retail bank branches has shrunk by one third over the past seven years.

The perfect storm

So what’s driving this trend? A rapid change in customer behaviour is the fundamental change. People are visiting branches less often because they increasingly prefer to self-serve digitally.

Technology has both enabled and accelerated this process. For instance, challenger banks and the wider fintech universe are disrupting the banking model, providing superior user experience and convenience. It’s now possible to open a bank account in just a few minutes using your mobile phone, search online for your mortgage from 60+ lenders, or manage your investments online. These changes are adding further pressure to a banking model which has already faced cost-cutting since the financial crisis, and has been challenged by the need to rationalise post-merger banking networks.

Regulation has also contributed. The open banking initiatives brought forward by the Competition and Markets Authority (CMA) have the potential to be a game-changer. Under the new rules, users will be able to share their personal financial information with companies other than their bank. This data can be used by the third parties to provide a wide range of services, including loans, mortgages or credit cards. This has the potential to relegate banks to mere infrastructure providers.

Implications for real estate landlords

Bank closures create challenges for landlords, too. Units are generally located in old, sometimes purpose-built, Grade II listed buildings. They are often on high streets but, despite the central location, are normally difficult to reconvert because of the structure of the building. Having small windows, they are not suitable for showrooms, for instance. The constraints around the building don’t leave many conversion options, save for restaurants, bars or other types of leisure destinations, which are very location dependent.

Research from Nottingham University suggests branch closures tend to happen mostly in rural locations where high streets are already struggling. Losing banks in these locations might also jeopardise retailers, as people normally go to the bank and then spend in other stores, causing a contagion effect.

What will the branch of the future look like?

This – again – will be very location dependant. We are already seeing a polarisation in branch restructuring, with banks experimenting with very different solutions. For instance, in some branches counters have been replaced by tablets and cashpoints / deposit machines that will give customers access to day-to-day banking services such as withdrawing and depositing cash, opening and closing accounts, arranging an overdraft or applying for a credit card.

However, this is not the whole story. Some flagship branches have extended their opening hours and been completely refurbished, with super-modern design, a café and cutting edge technology for customers, such as fingerprint technology to access safe deposit boxes.

The banking revolution continues

A mix of shifting customer preferences, the fintech revolution, cost-cutting programmes and regulation is behind the recent wave of bank branch closures. We believe the revolution will continue, with physical networks increasingly divided into large, full-service hubs in high footfall areas, alongside micro branches in smaller locations.

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