F. Barciela / F.G. Ljubetic | Although the crisis put pressure on the Spanish banks to close over 15,000 branches between 2008 and 2015, it was by no means enough. Spain’s banking industry cut its number of branch offices from 46,000 in 2008 to 31,000 at end-2015, the lowest figure since 1983.
But when almost everyone thought the downsizing was finished, now it’s technology, the Internet and mobile which will force the banks to continue reducing their branch networks, considered too large according to European standards.
Everything points to Banco Santander taking the first shot in this latest reestructuring. The banking group, chaired by Ana Botín, will close 450 smaller bank branches in Spain, 13% of its total 3,467 offices. It has attributed the decision to rising regulatory costs, combined with its plans to focus on digital banking.
Santander won’t be the only Spanish bank to cut its network. In fact several of them have already announced similar plans.
And this seem to be a general trend. A report from Citi expects the number of bank branches in the US to drop 33% by 2025. The same source said the global financial services industry could also see a 30% reduction in jobs by 2025.
And in the United Kingdom, consumer association the Campaign for Community Banking Services said the big banks were using ‘trickery’ to justify abandoning towns and villages across the UK. The association reported that dozens of banks are cutting opening hours so they can later close branches for good.
Santander and the other banks explain that, in their opinion, the fact that the trend in client behaviour is moving towards new technology requires them to speed up their commercial transformation and startd scaling down their branch network.
At the moment, clients already make more visits to their banks via Internet and mobile than to the actual physical branch office. A study by Accenture Banking Customer Survey says that clients interact with banks an average of 17 times per month and 15 do not include human contact.
In the United Kingdom, research by consultancy firm CACI shows that current account customers visited their bank branch 427 million times last year, compared with 895 million logins on a mobile app and 705 million on a computer. This trend will deepen in the near future.
The number of branch visits is expected to fall to 268 million by 2020. And mobile app usage is on track to more than double to 2.3 billion.
The main consecuence is that mobile phone apps are contributing to killing off the British bank branch network.
But technology is not the only driver for banks to trim their networks. The industry is being forced to step up the transformation of its business model to improve profitibility.
The lenders are fighting low interest rates, stiff competition from each other and historically lacklustre demand for mortgages.
Their profitability margins are extremely low compared with 2008. The seven big Spanish banks had a ROE (Return on Equity) of 6.1% in 2015, a far cry from the average 12.1% in 2000-2008.
Santander and other Spanish banks, on the hunt for revenues, are increasingly weary of the fact that branches can be expensive to maintain And they also know that the digital transformation will produce gigantic savings in staff costs and office rentals.
Branches and staff costs make up about 65 percent of the total retail cost base of a larger bank and a lot of these costs can be removed via automation. Banks in Europe and the US are equally compelled to slash their costs, closing branch networks to improve their margins.
Moody’s said the UK’s seven largest banks face a £129 billion shortfall if they are going to satisfy new Bank of England rules by the time they come into effect in 2019.