Closure of high street banks: Impact on local communities

On 25 January 2024, the House of Lords is scheduled to consider the following question for short debate:

Baroness Tyler of Enfield (Liberal Democrat) to ask His Majesty’s Government what assessment they have made of the impact of the closure of high street banks on local communities, and the need for a national network of banking hubs.

1. Closure of bank branches

Since 1986, significant numbers of bank branches in the UK have closed. Data from the British Banking Association (BBA) from 1986 to 2012 and the Office for National Statistics (ONS) from 2012 to 2023 revealed that the number of bank branches in operation in the UK fell from 14,689 in 1986 to 5,745 in 2023.^[1] Over the same period, the number of building society branches in operation fell from 6,954 in 1986 to 1,925 in 2023.

The following chart details the total number of bank branches and building societies in the UK since 1986.

Chart 1. Total number of bank branches and building societies in the UK since 1986

The decline of bank branches in the UK has been attributed to banking consumers’ changing habits and technological changes. In 2021, the then chair of the House of Commons Treasury Committee, Mel Stride, wrote to several high street banks about branch closures and the factors leading to their closures. In a letter responding to Mr Stride in August 2021, the chief executive of Barclays UK, Matt Hammerstein, stated that:

Profound technological changes, and the ease with which customers can access their accounts digitally means that our physical branch network is experiencing a sustained fall in demand. In fact, the majority of our customers (74 percent) now choose to interact with us via telephone, online, or mobile banking.^[2]

Similarly, TSB Bank said that over 90 percent of its transactions were done digitally and over 67 percent of its customers used mobile, online or telephone banking.^[3]

2. Impact of closures

The closure of bank branches has reportedly impacted many groups, including people with disabilities, older people, those living in rural areas and small businesses.

2.1 People with disabilities

In June 2023, a survey of 2,700 banking customers with a disability or impairment by the consumer group Which? found that 52 percent of respondents said they had been negatively impacted by bank closures.^[4] The survey also highlighted several challenges faced by people with disabilities when using both in-person and digital banking services:

• Lack of alternative access. 35 percent of those surveyed found it fairly or very difficult to speak to their bank over the phone, and 21 percent struggled with security features, such as card readers or remembering passwords.
• Accessibility issues. 13 percent reported problems with wheelchair access, 12 percent with accessible debit cards and 10 percent with hearing loops at their local bank branch.
• Security measures. 39 percent had issues with customer authentication checks for online card payments, with some respondents attributing this to poor mobile signals or time constraints.

Responding to the survey’s findings, the deputy editor of Which? Money, Sam Richardson, stated that bank closures could have “significant impacts on local communities”, in particular, those living with disabilities, who were “among the most likely people in society to rely on both cash and in-person banking services”.^[5]

2.2 Older people

The charity Age UK has warned of the negative impacts of bank closures on older people. In May 2023, Age UK published the findings of a survey of 2,632 people aged 65 years and above, which revealed that 39 percent of respondents (equivalent to 4.09 million people if extrapolated to the whole UK population) with a bank account in Britain were not managing their money online and could be at “high risk of financial exclusion”.^[6] The survey also found that 75 percent of respondents (equivalent to 7.86 million people) wanted to undertake at least one banking task in person at a bank branch, building society or post office.

In response to the findings, the charity director at Age UK, Caroline Abrahams, said they demonstrated “the huge and continuing demand for face-to-face banking services among our older population” and that it was “crucial” that banks respond.^[7]

2.3 People living in rural areas

The Rural Services Network (RSN), a special interest group of the Local Government Association, has warned that the closure of bank branches has also negatively impacted rural communities. In an article from April 2023, the RSN argued that reducing bank branches made it more difficult for those in rural areas with poor broadband or mobile telephone signal to access banking services.^[8]

2.4 Small businesses

The Federation of Small Businesses (FSB), an organisation representing small- and medium-sized businesses in the UK, has expressed concern at the closure of bank branches. In a report evaluating the impact of bank closures on small businesses, published in 2016, the FSB stated face-to-face interaction between bank branches and small businesses had continued to provide businesses with “greater reassurance over how they make their banking decisions”.^[9] Additionally, small businesses had raised concerns that branch closures meant reduced productivity due to time spent away from their business having to travel further to access banking services. The FSB has also stated that bank closures have led to a reduced ability to manage cash flow. In April 2022, the FSB reported that four in 10 small high street businesses said that cash was the main payment method among customers, with six in 10 businesses needing to make regular cash deposits.^[10]

Speaking to the Guardian in January 2023 about the potential impact that branch closures could have on the aforementioned groups, a spokesperson for NatWest stated that:

We understand and recognise that digital solutions aren’t right for everyone or every situation, and that when we close branches we have to make sure no one is left behind. We take our responsibility seriously to support the people who face challenges in moving online, so we are investing to provide them with support and alternatives that work for them.^[11]

3. Recent government policy on maintaining banking services

The government has previously stated that decisions regarding the closure of bank branches are made by the management of each bank on a “commercial basis”.^[12] However, it has called for the impact of branch closures to be “mitigated where possible” so that banking customers “wherever they live, continue to have access to appropriate banking services”.

The government has also expressed support for industry working together to provide alternative banking and cash services, for example, through banking hubs. These are discussed in greater detail in section 5 of this briefing. Additionally, the government has highlighted alternative options to access everyday banking services. This includes telephone banking, digital means such as mobile or online banking and through the Post Office, with the Post Office Framework (which is a standardised framework for the UK’s financial institutions) allowing 99 percent of personal banking and 95 percent of business customers to deposit cheques, check their balance and withdraw and deposit cash at its branches in the UK.^[13]

To seek to mitigate branch closures and maintain access to some bank services, the government has introduced legislation that included provisions aimed at protecting access to cash. Furthermore, it has published a policy statement detailing the minimum expectations it has concerning the accessibility of cash deposit and withdrawal services for both personal and business current accounts in the UK.

3.1 Financial Services and Markets Act 2023

In July 2022, the government introduced the Financial Services and Markets Bill in the House of Commons.^[14] The bill gained royal assent in June 2023 to become the Financial Services and Markets Act 2023.

The act includes provisions relating to cash access services, such as placing a requirement upon HM Treasury to produce and keep under review a policy statement on cash deposit and withdrawal services. The provisions also enable HM Treasury to designate persons involved in providing such services and provide the Financial Conduct Authority (FCA) with regulatory functions in relation to ensuring these services were maintained. Furthermore, the act includes provisions which give the Bank of England powers to oversee the wholesale cash industry. This involves establishing the market oversight regime whereby the Bank of England could regulate the market activities of the industry.

When the bill which preceded the act was considered at report stage in the House of Lords, the government introduced amendments requiring the FCA to seek to ensure “reasonable” provision of free cash access services for customers with current accounts.^[15] The amendments also required the government to include its policy on free cash access services for current accounts of personal customers in its policy statement.

3.2 Cash access policy statement

In accordance with section 54 of the 2023 act, HM Treasury published a policy statement on access to cash deposit and withdrawal services for personal and business current accounts across the UK in August 2023.^[16] In the statement, the government outlined its minimum expectations for banks regarding access to these services.

The statement revealed that FCA analysis had found that at least 95 percent of people in predominantly urban areas of the UK had access to cash deposit and withdrawal services within a mile of where they lived. Similarly, at least 95 percent of people in predominantly rural areas had access to such services within three miles of where they lived. The government stated that its aim was to ensure that this coverage was maintained.

To maintain reasonable access to cash deposit and withdrawal services, the government said that any proposed alternative service, pursuant to FCA rules and guidance, must be established before implementing any significant closure or change to an existing service. Additionally, the policy statement highlighted that the government had provided new powers to the FCA to protect the provision of cash access services, including protecting free access for holders of personal current accounts. The government stated that the FCA would also have the power to fine banks and building societies that were not “keeping up to these standards”.^[17]

In a press release published alongside the policy statement, the then economic secretary to the Treasury, Andrew Griffith, stated that:

People shouldn’t have to trek for hours to withdraw a tenner to put in someone’s birthday card—nor should businesses have to travel large distances to deposit cash takings. These are measures which benefit everyone who uses cash but particularly those living in rural areas, the elderly and those with disabilities.^[18]

The policy statement was welcomed by several organisations, though some wanted additional detail on how the measures would be applied. Martin McTague, the national chair of the FSB, stated that his organisation “welcome[d] these plans in principle”, although it awaited further details as to how many aspects would be implemented, such as the three-mile rule. Jenny Ross, the editor of Which? Money, also welcomed the guidance, stating that it was “good to see the government moving quickly and issuing guidance for banks to follow”. She also said that the FCA “must be ready to take strong action” against banking companies that “fall short of the required standards”.^[19]

Others were more critical. For example, the shadow economic secretary to the Treasury, Tulip Siddiq, argued that the statement was “not enough to protect in-person banking services for all communities”.^[20] Additionally, Derek French, a former NatWest executive and campaigner for protecting people’s access to cash, described the statement as “very vague”. He also said that it was unclear which institutions would be required to protect access services, describing placing an obligation on any one commercial bank as “unworkable”.^[21]

4. Action taken by the Financial Conduct Authority

In recent years, the FCA has also taken action to minimise the impact of bank closures. This includes publishing guidance for banks intending on closing or reducing their branches or services and running a consultation on a new regulatory regime to require banks and building societies to fill gaps in cash access provision.

4.1 Financial Conduct Authority guidance for banks intending on closing or reducing their branches or services

The FCA is responsible for regulating the banking sector and ensuring fair treatment of customers.

In 2020, the FCA published initial guidance outlining its expectations for banks who intended to close or reduce either its branches or the number of free-to-use automated teller machines (ATMs).^[22] The aim of the guidance was to ensure that the implementation of such decisions resulted in fair outcomes for consumers, particularly those who relied on accessing cash.

The FCA revised its guidance in 2022, stating that some banking companies had “fallen short of expectations” outlined in the original guidance.^[23] It highlighted that in some cases, banks had opted to remove services, such as counter services from its branches without putting alternate provision in place. Therefore, the FCA emphasised that banks would need to consider the FCA’s guidance when planning full branch closures or proposing reductions to opening times or services that would have a “significant impact on customers”.

The revised guidance outlined several expected actions for banks considering the closure or reduction of their services.^[24] These actions included:

• Notifying the FCA of its intentions “in good time” before deciding whether to change its services and continuing communication throughout the process. Therefore, allowing the FCA to monitor whether banks were treating customers fairly, in line with the FCA’s consumer duty.
• Analysing the needs of current site users, including the needs of customers in vulnerable circumstances, and considering alternatives to meet those needs.
• Providing the FCA with a clear summary of results of the analysis, encompassing customer needs and usage, expected impacts, potential alternatives and plans for stakeholder engagement. The guidance notes that the FCA may request further analysis if it is not satisfied.
• Clearly communicating with customers and other relevant stakeholders at least 12 weeks before implementing a proposed closure or conversion.
• Publishing a “high level summary” of analyses on customer needs, which should be “easy for customers to find and accessible”. Additionally, banks should publish a list of stakeholders, beside customers, that it has contacted about the plans.

4.2 Consultation on a new regulatory regime to fill gaps in cash access provision

In line with the government’s policy statement on access to cash in August 2023 (discussed in section 3.2 of this briefing), the FCA stated that it would develop new rules to ensure that as cash access services evolve, they “continue to be provided on a reasonable basis”.^[25] It also noted that whilst its new powers would focus on access to cash services, rather than wider banking services, bank branches were “relevant” because of the cash access they provided.

In December 2023, the FCA launched its consultation.^[26] Under the proposals, banking companies (as designated by HM Treasury) would be required to:

• undertake cash access assessments when changes are made to cash access services to identify whether additional services are required to meet local gaps
• respond to requests from local residents, community organisations and representatives, to consider, assess and plug gaps in accessing cash
• deliver reasonable additional cash services when assessments have identified such gaps in provision
• ensure cash facilities, including bank branches, are not closed until additional services are made available

The FCA noted that its new powers would not prevent bank branches from closing. However, it argued that its rules would “have an impact where branches are a key local source of cash”. The consultation is open until 8 February 2024. The FCA has stated that it expects to finalise its rules by the third quarter of 2024.

5. Banking hubs

With the closure of bank branches in the UK, so-called ‘banking hubs’ have emerged as a potential source of essential banking services to communities.

5.1 What are banking hubs?

Banking hubs are shared facilities, owned by Cash Access UK, a not-for-profit company owned and funded by nine high street banks, which provide banking services to their customers.^[27] These hubs are typically operated by the Post Office in partnership with major high street banks, which provide the following banking services, dependent on the bank that a customer uses:

• personal banking: paying in cheques, withdrawing cash and checking balances
• business banking: paying in cash and cheques, withdrawing cash and accessing change-giving services
• bill payments: paying utility bills and topping up gas and electricity^[28]

In addition to these services, banking hubs have a ‘community banker’ service, whereby customers can discuss with their bank more complex banking issues, such as receiving debt advice, on the day that their bank operates in the hub. Community bankers are usually provided by the banks with the most customers in that particular local area.

Prior to the closure of any essential banking service, such as a bank branch or ATM, Link, the organisation which oversees the UK’s ATM network, conducts a comprehensive review.^[29] The review evaluates the community’s cash requirements, considering accessibility and the demographics and vulnerability of local residents.

As of January 2024, there are 31 banking hubs in operation across the UK:

• 21 in England
• 7 in Scotland
• 2 in Wales
• 1 in Northern Ireland

On 12 January 2024, Link recommended that 101 new banking hubs be established in the UK. This followed assessments carried out by Link when the last bank branch in an area closed and requests from communities.^[30]

Banking hubs are staffed by a different bank each weekday. Therefore, different banks can share the expenses of running the hub with other banks and can reduce staffing costs.^[31]

5.2 Reaction to banking hubs

The rollout of banking hubs across the UK has been welcomed by several organisations, although concerns have been raised regarding the time taken for hubs to be established.

In November 2022, the chief executive of the FCA, Nikhil Rathi, stated that it had welcomed the “innovative ways” that some banks had “worked to tackle access to cash difficulties”, including through banking hubs.^[32] He further stated that he wanted to see banking hubs and other alternate forms of provisions “accelerated”. Similarly, in May 2023, Age UK stated that although banking hubs were a “relatively new solution” to bank branches closing, the hubs had “worked extremely well” and were “proving popular with the local communities in which they are based”. However, concerns were also raised that there could be long delays between a bank branch closing and a banking hub opening in an area.^[33]

Both the government and opposition have also expressed their support for banking hubs and called for the rollout of hubs to be accelerated. In response to an oral question in the House of Commons on the pace and scale of the roll-out of banking hubs in December 2023, the economic secretary to the Treasury, Bim Afolami, stated that the government believed that “we should increase the pace at which they are rolled out” and that he was “talking with industry about it”.^[34] Additionally, the Labour Party has pledged to open 350 banking hubs if elected.^[35]

6. Read more

6.1 House of Commons Library publications

• House of Commons Library, ‘The future of local banking services and access to cash’, 26 September 2023
• House of Commons Library, ‘Statistics on access to cash, bank branches and ATMs’, 1 September 2023
• House of Commons Library, ‘Bank branches: Why are they closing and what is the impact?’, 2 January 2020

6.2 Parliamentary questions

• House of Commons, ‘Written question: Banking hubs—Northern Ireland (8345)’, 11 January 2024
• Oral question on ‘NatWest: Account terminations and branch closures’, HL Hansard, 10 January 2024, cols 9–12
• Oral question on ‘Banking hubs’, HL Hansard, 11 December 2023, cols 1715–17
• House of Commons, ‘Written question: Banks—Closures (4520)’, 6 December 2023

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Cover image by Nick Pampoukidis on Unsplash