That’s the prediction made by the Economist Intelligence Unit (EIU) and banking software company, Temenos. Temenos AG is a company specialising in enterprise software for banks and financial services headquartered in Geneva, Switzerland.
An overwhelming proportion of European banks, surveyed by the EIU and Temenos, say that their bricks and mortar banks will be dead and gone in just three years.
The major banks intend to phase out their physical branches by 2025, a trend that has been boosted by the Covid pandemic which has seen a massive momentum shift towards total online banking – most people with bank accounts these days never need to visit a branch.
New enabling technology
New technology coming along, including the increasing use of artificial intelligence (AI) the new revolutionary distributed ledger blockchain technology, will make online banking easier to use, faster and more secure.
The major banks have discovered through the pandemic that by far the majority of their customers can manage their financial and banking affairs perfectly well without visiting a branch and will never miss them when they are gone.
With just under 5,000 bank branches potentially due to close over the next three years in the UK alone, let alone the rest of Europe, the implication for further disruption on high streets is stark – more vacant properties which were hitherto destination sites.
For the minority of customers still using branches, including the elderly and small businesses, the change is likely to be disruptive, though the banks have plans to ease this pain in the short term with mobile units, Post Office banking and other measures. The move to a cashless society, again accelerated though the pandemic, with a huge boost in card payments, means that the problem for small businesses diminishes by the day.
There are now many European banks with plans to gain more technology expertise by taking over smaller financial technology (fintech) companies and challenger banks. With the future of banking likely to be in the fintech world, competence and security in this space will be essential.
The UK has already lost more than half of its traditional bank branches since the trend first started as far back as 2000, but the banks admit there is still some way to go to overcome barriers such as customer trust of banking Apps, AI and other aspects of their banking products.
However, the banks are confident that this will improve over time as users and the bank regulators become familiar with the systems and processes, which need to be made transparent, safe and secure.
Temenos chief science officer Hani Hagras said:
“As AI becomes mainstream, banks need to establish a set of processes that provide transparency into the logic behind the decisions made by machine learning algorithms.”
Opportunities for investors
As the bank branches close it will drastically altered the makeup of UK high streets. Bank branches have hitherto played an important role in most town and village communities, particularly in the remoter areas where internet banking could not always be widely used. These closures will leave vacant commercial units, often big imposing premises with limited alternative uses on high streets up and down the country.
Not all bank premises are ideally located for retail, office of leisure. Town centre locations have been hit by many more consumers shopping online, forcing retailers to re-structure their operations, and reducing their overhead by looking to reduce the physical size of their commercial outlets.
In many cases bank freeholds are owned by the banks themselves and will be competing in a tenants’ market for replacement tenants. The reality is, many of these empty premises will join others that are already vacant on Britain’s high streets, and some will stay vacant for months if not years.
For other branches, sold off on long leases to private landlords, they will either have had their leases reach their term, in which case private landlord owners will be looking for new tenants, or they will still be paid rent by the bank for a time on their vacant premises.
Some of these branches will be in prime locations, making of them suitable for conversion to alternative uses. Offices, wine bars and restaurants are typical alternative uses for these buildings. They can present some attractive propositions for those with the right expertise to develop and convert.
Often national chains are constantly on the look out for these types of premises in the right locations, for example, Neros, Costa Coffee, Pizza Express, and Wetherspoons, are all businesses known for occupying ex bank premises and they make excellent long term tenants.