The recently announced impending closure of the Shore Street, Bowmore branch of the Bank of Scotland on the Isle of Islay, is the first direct sign the islands of Islay and Jura have seen regarding the encroachment of online banking at the expense of ‘over-the-counter’ services. Many initial moves in this direction saw the high street banks close branches mostly in urban areas, where alternatives were none too distant.
However, it seems the spread continues within significant rural towns, such as Inveraray, now without any access to ‘bricks-and-mortar’ banking.
The banks have argued that these closures are necessary due to a reduction in the number of people using cash (only 14 percent of all payments in the UK in 2022, according to data from UK Finance) and that the majority of their customers prefer to use online banking.
The Bank of Scotland stated that footfall at the Bowmore branch had fallen more than 63 percent between 2018 and 2023. And according to the Office of National Statistics, the number of bank and building society branches in the UK fell by about 34 percent between 2012 and 2021.
Evidence also shows that COVID-19 accelerated the move towards digital payments. In March 2023, contactless payments accounted for 61 percent of all credit card and 75 percent of all debit card transactions.
It’s no secret that banks would prefer us all to manage our accounts online, allowing them to save on printing and postage costs, and less staff to run branches and call centres. But there’s little doubt that online banking has been actively encouraged by all banks, possibly creating the situation for which they’re now happy to blame ‘the customer’.
One correspondent told the Ileach, “It’s incredibly annoying to have to keep saying that while I am aware I can bank online, I just don’t want to.”
Money editor at Which?, Jenny Ross, has said that millions are being left behind by the creep of digital services, a trend not helped by these recent bank closures: “Older people are less likely to use banking apps, and it’s important that consumers who don’t manage their finances on a smartphone are not forgotten.”
The Financial Services and Markets Act 2023 gives the Financial Conduct Authority (FCA) powers to ensure that customers have “reasonable access” to free cash deposit and withdrawal facilities. The UK Treasury seems to think that most people and businesses in urban areas have access to such facilities within one mile, while most people and businesses in rural areas have such access within three miles. It says that the government’s broad aim is to maintain this.
The FCA admits, however, that around 10 percent of the rural population now lives at least ten miles away from their bank’s nearest branch. This creates significant challenges for the disabled and elderly who are less able to move to online banking. The FCA has raised concerns that this may be contributing to these groups’ financial exclusion. This also has an impact on the 20 percent of small businesses with a turnover below £2 million, which use branches as their primary means of banking.
It’s the government’s use of the word ‘most’ that appears significant in such discussions, as a large swathe of Islay and Jura residents were often not within ten miles even before the announced closure.
The Ileach asked Argyll & Bute MSP, Jenni Minto, if the worst should happen and the RBS opted to close the only remaining island bank, is there any government mechanism that would prevent them from doing so, or require mandatory consultation? Or is it simply a matter for the individual banks, based entirely on commercial pressures or concerns?
She replied, “Having raised concerns over the continued pattern of bank branch closures across Argyll & Bute with the Scottish Government, The Cabinet Secretary for Wellbeing Economy, Fair Work and Energy [Neil Gray] wrote to me following the announcement from Lloyds Banking Group of the closures in Bowmore and Tarbert. The Cabinet Secretary explained:
“This announcement is an unfortunate continuation of a trend witnessed across the banking sector to close their in-person services. The Scottish Government absolutely recognises the importance of these services to local communities – particularly for small businesses, vulnerable individuals and digitally excluded consumers – and we share the frustration that will be felt by the impacted communities and their elected representatives.
“Given the trend of branch closures in Scotland in recent years – and that closures, particularly in our rural communities, can often have a wider impact than just on the provision of banking products and services – myself, ministerial colleagues and officials have met with senior representatives from individual organisations in the banking sector in recent months.
“This includes a meeting I had with Lloyds Banking Group on 22 November. In this meeting, I expressed my concerns, and those of fellow MSPs to whom I have spoken, about how branch closures not only impact the most vulnerable consumers but also the dynamics of town centres, particularly when the last bank in town closes its doors. I reminded Lloyds Banking Group that bank branches are often an anchor to the life of a small town high street and reminded them of the social responsibility they have to the communities they are choosing to leave.
“(However) the regulation of financial services is ultimately a reserved matter for the UK Government and therefore the Scottish Government has no remit to intervene in the commercial decisions banks take regarding their branch network.”
The Ileach pointed out that concerns had also been raised about the impact branch closures had on the long-term viability of cash. The Cabinet Secretary continued:
“The UK Government has recently legislated in this space, through the Financial Services and Markets Act, to give the FCA greater powers to protect access to cash in the UK. My officials are working to set up a meeting with the FCA’s Chief Executive, Nikhil Rathi, and I look forward to discussing the FCA’s increased regulatory remit with him and exploring what more can be done to ensure the unique cash and banking requirements of Scotland are being addressed.
“The Scottish Government is committed to working constructively with banks to not only ensure that individuals and businesses continue to have access to the services they require but also to urge them to actively engage with the communities they serve and understand the very real concerns of the people who live there. I have asked my officials to explore what more we can do collectively, as representatives of these communities, to generate constructive and ongoing dialogue with the sector on this topic.”
So, while the Scottish Government is being proactive on the matter, ultimately it is indeed a matter for the individual banking companies and the UK Government.
In 2020, the FCA published guidance setting out expectations for banking providers that intend closing or reducing branches, services or free ATMs. It expects the provider to analyse the effect, communicate with customers, and support them to find alternative provisions.
There have been calls, however, for Westminster to consider legislation requiring the provision of a physical banking services network. The Treasury Select Committee reported in May 2019 that face-to-face banking is “still a vital component of the financial services sector and must be preserved.”
It said that if ‘…the financial services market is unwilling to halt the closure of bank branches, market intervention by government or the FCA may be necessary to force banks to provide a physical network for consumers”.
One of the ways in which physical banking might continue is via the Post Offices, a situation that Islay Development Initiative’s Ina Glover stated, could ‘future proof’ Bowmore Post Office. However, she also noted, “…I do have concerns regarding the space available and accessibility of the current Post Office location in Bowmore. This will be an issue going forward; one we will attempt to resolve.
As one door closes, it seems another one opens.