London - A boom in mobile banking, regulatory change, pressure on costs; bankers are not easily excitable but the rate of change is prompting some to detect a “historic moment” for the industry.
Among senior executives at this week's Reuters Financial Regulation Summit, the talk was of ripping up business models and prioritising digital services, with branches closing or taking on a technological new look.
“This is a big shift,” said Graham Beale, chief executive of Nationwide, one of Britain's top-three providers of home loans and savings products.
“There are not many historic moments when you look at the nature and shape of retail financial products and I think we're on the cusp of a big change here,” Beale told the Summit.
“It (mobile growth) really is quite incredible. I can see in the not-too-distant future the dominant channel will become the internet bank, with access through mobile devices, with other channels becoming supplementary to that digital channel,” Beale told the Summit, which took place in Reuters' offices in London, New York and Washington.
Christian Clausen, chief executive of Sweden's Nordea , said executives face strategic decisions on their business models due to the jump in digital use by customers, alongside demands to hold more capital and more stringent regulation in other areas.
“It's a huge change ... you will come out with a completely new banking sector,” said Clausen, head of the biggest bank in the Nordic region, where customers use online or smartphone banking more than anywhere else in the world.
The surge in the take-up of mobile banking has taken many banks by surprise, prompting some to accelerate plans to close branches or adapt how their costly bricks-and-mortar branches are used.
Granted, some executives said talk of the death of the branch is premature. Banks will push routine transactions on to tablet PCs or other automated platforms, but some branches will stay - albeit with a new look.
Many lenders have introduced remote services where customers at a branch get advice on mortgages, other products and more complex transactions from consultants at a central location via a TV screen - cutting costs and providing a quicker response.
Beale said his remote service had led to Nationwide keeping open some branches whose viability was declining. “We've found it is bringing life back to the smaller, remote branches,” he said.
Many lenders are wary about the risk of public or political backlash when branches are shut, but Clausen said it is a natural and inevitable outcome.
“I don't think there's a political problem with us being more efficient,” said Clausen, asked about the reaction to the closure of hundreds of branches.
Bank executives said the pace of change is being dictated by consumers, who were taking to banking via smartphones significantly faster than they adapted to online banking. Most mobile banking services are barely two years old.
The trend is good news for banks. Handling a transaction at a branch can cost 50 times the same transaction on a mobile phone, or 20 times its cost on an online platform, according to a study of U.S. transaction costs by Diebold.
It also opens up options. Establishing a leading digital platform will make Nordea more nimble and give it greater flexibility on strategic options, including in mergers and acquisitions (M&A), Clausen said.
Nationwide has been considering expanding into small and medium business banking and Beale said if it proceeds it is likely to be with an online platform only, which can be set up and run on far lower costs.
Nationwide, whose 700 branches represent the sixth-biggest network among UK lenders, said its customers will now on average visit a branch once a month and use internet banking six times and a mobile app 18 times.
UK rival Barclays said it had 59 million mobile banking transactions last year, a six-fold increase on 2012.
Such trends are driving a sharp drop in “footfall” or visits to branches. In Britain, the reduction in branch usage is running at between 8 and 10 percent a year, industry sources said. Royal Bank of Scotland said it has seen a 30 percent fall in branch transactions since 2010.
Banks across Spain, Italy, Britain, the Nordics and beyond are expected to shrink branch networks to cut costs, potentially saving up to 15 percent of their retail banking expense.
Nordea has cut its number of branches to 800 from almost 1,400 at the end of 2010; that represents a 32 percent cull in just two years, excluding branches sold in Poland, and Clausen said more will go.
Europe's top banks shut or sold 5,300 branches last year and consultancy Bain & Co reckons as many as 40 percent of the region's branches could close by 2020, which could see 65,000 fewer outlets.
“It is not an issue because this is what is wanted,” Clausen said. “They (politicians and regulators) want us to provide cheap services and have a lot more capital, and the only way we can absorb that equation is to be more efficient. Otherwise we have to increase margins, and that's not popular.”