Small businesses in the UK are suffering the fallout from a prolonged period of bank branch closures, according to a new report issued today by the Federation of Small Businesses.
‘Locked out: The impact of bank branch closures on small businesses’ has taken a look at the results of the last twenty five years’, when the UK has seen a halving of its bank branches to a little over 8,000. And that is predicted to continue, with some forecasting a further 50% drop in the coming decade as technology changes the way banks serve customers, business and retail.
The FSB is clear that the trend has damaged small business. “The rapid pace of bank branch closures across the UK presents some very real and tough challenges for small businesses,” its executive chairman Mike Cherry said, on the launch of the report.
“FSB members highly value the face-to-face interaction they receive in-branch, particularly when making complex financial transactions, with staff who often have a greater understanding of their business and the local economy. In addition, many of our members deal heavily in cash and cheques and need access to over-the-counter banking facilities on a regular basis.”
Awareness and access fundamental issues
A closer look at the report shows a number of structural problems are arising from the reduction in branch numbers. They summarise the key issues as follows:
Low awareness and confidence in the Access to Banking Protocol – Small businesses affected by branch closures receive limited communication from their bank with regard to support and signposting towards alternative banking services. Awareness of consultation or engagement exercises on behalf of banks is effectively zero.
Importance of access to cash and cheque clearing facilities – In spite of the increasing range of payment methods used by small businesses, cash is still vital to the operation of many local economies. Reduced footfall as a result of customers being unable to access cash is having an economic impact on local economies.
Unreliable service quality of ATMs – The limited provision and unreliability of ATM machines in some communities is a serious problem. There have even been several instances of villages and towns literally running out of money during peak periods of economic activity.
Inconsistent service offering across the Post Office network – Business banking services provided at some Post Office branches and franchises are too limited. Some services, such as cash and cheque clearing facilities, also appear to be processed more slowly than in bank branches. Other services, such as inter-account transfers and currency exchange, are not available. As the future of the network moves away from full-service post offices to franchises there is concern about the impact on small business access. This lack of access to such services has a direct impact on small firms, particularly those whose business is dependent on tourism.
High cost of small electronic transactions – Some small businesses do not recognise the benefits of investing in new payment technology, such as card machines, due to the cost of fees on individual transactions.
Poor internet connectivity in areas affected by branch closures – Internet access to online services is often challenging due to unreliable connectivity. Activities such as processing a bill payment or registering for a service are often compromised as a result.
Concerns about cyber fraud and security – Some small businesses are concerned about the risks of accessing banking services online. A lack of confidence in the cyber resilience of digital services leads to some small businesses avoiding relevant communication channels altogether.
Branches are recognised as valuable for advice – Small businesses identify branches as an important source of advice, particularly in advance of major banking decisions. Closures create an advice gap in some communities with limited access to alternative support.
Digital skills gap – Small businesses identify a lack of digital skills as a key obstacle to their doing more online. This was a more significant issue for older small business owners. Partly as a result, businesses in rural areas are disproportionately vulnerable to both financial and digital exclusion – particularly where branch closures have recently taken place.
‘Barriers to digital adoption still a problem’
“Small businesses are keen to embrace the opportunities of the digital economy – 94 per cent of small businesses already use internet banking,” Cherry says. “However, barriers towards digital inclusion, such as unreliable broadband connectivity, and a lack of confidence in using digital services creates serious challenges. These are some of the reasons which explain why the protection of in-branch banking is so important for financial inclusion.
In response to these concerns the FSB has laid out a series of proposals. “We believe there is a sensible middle way,” says Cherry. “Our research highlights as good practice, those banks incorporating new technology in-branch, in order to both develop their digital offerings and better meet customer needs.”
Communicate the terms of the Protocol to small businesses more effectively – When designated banks notify customers about a potential reduction in banking services that may affect them, there should be a requirement to clearly explain the terms of the Protocol.
Increase the notice period for informing customers of a branch closure – The 12-week minimum period in which banks must notify customers before a branch is moved or closed should be extended to 24 weeks, to give small firms sufficient time to organise alternative banking arrangements.
Pre-closure assessments should involve public engagement with affected customers – The Protocol’s “pre-closure assessment” should involve a public consultation with customers, specifically targeting small businesses.
Banks should communicate details of all relevant engagement activities – Details on local engagement activities and impact assessments are often hard to find. Banks’ communications to affected customers should enclose comprehensive information on all of these activities.
Post Office information needs to be accurate and up to date – Banks should clearly detail any limitations to alternative banking services after a bank branch closes, and should also do more to communicate with the Post Office to ensure information signposting is accurate and up to date.
Transport information should be included – The numbers and schedules of bus services and other transport links to named alternative banking sites should be similarly communicated to affected customers as part of the Protocol.
The full report can be found here