Forget cashless and branchless, it’ll never happen

There are regular discussions at the Financial Services Club, conferences and meetings about the cashless, branchless future. Visa and MasterCard are huge advocates of a war on cash, as are mobile wallet providers. The Bank 2.0 crowd talks lots about a branchless world of banking and how branches are all irrelevant to future bank operations. Let’s be clear, it will not happen.

There is no such thing as a branchless world, and a cashless future will not happen in my lifetime, as much as I would love to see it. Don’t get me wrong, I’m a huge advocate of getting rid of bricks, mortar and paper, but the reason it will never happen is that these forms of commerce and finance are important. Branches are required for advice, sales and service but, more importantly, trust.

Bank branch spike

Regardless of how irrelevant branches may be in terms of distribution, any bank that wants to get new account openings has to have a branch. That is why US bank branch numbers are going up, and have consistently risen for the past two decades. It is why ING Direct opened ING branches in the US.  Admittedly, they are called ING Cafés, but they are still branches.

The UK is an even more extreme example as the government actively encourages new competition, and the new competition is opening or buying branches, such as:

• Santander purchasing Abbey, Bradford & Bingley and Alliance & Leicester’s branches to become one of the UK's largest branch-based bank networks behind Lloyds and Royal Bank of Scotland (NatWest);
• Virgin purchasing Northern Rock’s branches to get some form of physical footprint in the UK;
• The Co-operative Bank is buying the 632 branches Lloyds has been forced to sell due to the European Commission’s verdict on UK bank competition after the Halifax Bank of Scotland merger; and
• Metro Bank is opening its 10th UK branch in High Wycombe, with a plan to achieve 24 open branches by the end of this year, and then organically grow to more than 200 branches by the end of the decade.

Some people argue that branches are irrelevant but, if they were, why are all of these new and expanding banks opening or acquiring branches? Because they create trust and because it is regularly shown that anyone, including and especially young folks, want a branch locally if they open an account.

Even HSBC’s branchless bank, First Direct, has the backing of HSBC and its ATM network to rely upon if needed; as does Cahoot! (Santander) and Smile (Co-operative), our internet-only banks. Branches are a core part of community and relating to people with a human touch. This is why branches will always exist.

Holding cash

We talk about a branchless future, but we should be talking about a less-branched future. The same goes for cash. We will never be cashless, but will just hold less of it. This has been shown in many economies, specifically in Iceland and Sweden. They get to a certain level of cashlessness and then the cashless process ends.

This is because there is no substitute for cash today: cash is anonymous, and immediately recognising a value exchange it fuels the shadow economy and is totally trusted. No other form of currency exchange has the same capabilities. Not yet anyway.

A branchless, cashless future is a dream and will not be reality for years to come. So I’d rather talk about a less-branched, less-cash future, and see what that means.

How far can we push a less branch, less cash world? What is the minimum number of branches to be effective (in the UK, they say about 250)? What is the minimum level of cash that can be in play to run an economy effectively (in Sweden they say about 3.5% of the value of gross domestic product, which would equate to about one-fifth of the volume of transactions)?

Can we push this any further? If so, by when and how? It is something that will be debated for years to come, I’m sure.