High Street Banks and Banking Hubs

Baroness Tyler of Enfield Excerpts

Thursday 25th January 2024 Lords Chamber

Asked by

[Baroness Tyler of Enfield]

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.

[The Deputy Speaker (Baroness Fookes) (Con)]

My Lords, I remind the House that we are very tight on time and it behoves all noble Lords to speak within the amount allowed.

[Baroness Tyler of Enfield (LD)]

My Lords, I declare an interest as a member of the Financial Inclusion Commission and president of the Money Advice Trust. I am grateful to the Library for its excellent briefing and to the many external organisations that have provided me with briefings. I have been struck by the strength of feeling expressed.

It is indisputable that the whole banking landscape has changed beyond recognition in the past five years. The rapid transition to digital banking and a broadly cashless way of life suit a lot of people. I do a lot, but by no means all, of my personal banking online but often need to speak to someone on more complex matters, which is getting increasingly difficult. The blunt truth is that an increasing number of people and communities are being left behind by the digital revolution and their basic banking needs are barely being met. In my view, the banking transformation has happened without proper engagement with its customer base, certainly without the consent of many vulnerable groups and communities. It has simply been done to them and they feel powerless. Between 5 million and 8 million people are estimated still to rely on cash and many on low incomes use it to budget. They often rely on face-to-face contact to manage their basic banking services. These people are likely to be digitally excluded and financially vulnerable.

The UK has lost over half of its branch network—more than 5,800 branches—since 2015. According to Which?, 30 parliamentary constituencies now have no permanent bank branches and a further 49 are down to their last branch. It has been estimated that banks are saving up to £2.5 billion annually so this new banking model suits them very well. Some 645 branches closed last year, with Barclays leading the pack with 180. Some 200 closures are already scheduled for this year. The trend is towards remaining branches being increasingly concentrated in bigger city centres, leaving large swathes of the country as banking deserts. I note with interest that Nationwide is currently the provider with the most branches remaining open across the country and has pledged not to leave any town or city in which it is based until at least 2026.

Research evidence shows that the groups most badly affected are people with disabilities, older people and people living in rural areas. Last June, a Which? survey found that over half of disabled bank customers say that bank branch closures have had a negative impact on their ability to access vital banking services. On older people, over a quarter of over-65s predominantly bank face to face in a branch or another physical location, such as a post office. Only 14% of the 85-plus group bank online, with 58% relying on face-to-face banking. According to Age UK polling, the main reasons for older people feeling uncomfortable with online banking are fear of fraud, a lack of trust in online banking services and a lack of IT skills. Further, people living in rural communities where digital infrastructure can be poor often have to travel miles to reach their nearest alternative source of cash and are also among the most reliant on bank branches and cash access services.

It is not just individuals who are affected. Small businesses have raised concerns that branch closures have reduced productivity, due to time spent away from their businesses while having to travel further to access banking services, and reduced their ability to manage cash flows. The NCVO says that local branch closures continue to have a negative impact on charities and voluntary groups. Many charities and community groups cannot access counter services to pay in cash—including charities that operate a trading arm that accepts cash, for example a café. A 40-mile round trip to do something like adding a signatory to an account is now not uncommon.

There is a clear degree of overlap between digital and financial exclusion. The House of Lords Financial Exclusion Select Committee found that 1.7 million households have no mobile or broadband internet at home; up to 1 million people have cut back or cancelled internet packages in the past year as the cost of living challenges bite; and around 2.4 million people are unable to complete a single basic task to get online, such as opening an internet browser.

Having made the case for why action is needed, I now turn to what needs to be done. I emphasise that this is not just about free access to cash, vital as that clearly is and where we have already seen welcome action from government. Some people want and need face-to-face banking without having to make a long journey. It may be to do with probate; powers of attorney; support with fraudulent activity; larger payments and transfers; or help with mortgages and loans.

As I have said before in this Chamber, I am a real fan of shared banking hubs—they are usually operated in partnership with the Post Office—which offer customers easy access to cash, deposit facilities and payment of utility bills, as well as face-to-face banking for customers of all major high street banks on more complicated matters. They are an innovative and cost-effective solution. Where they exist, research by Age Concern finds that they are proving popular with local communities, but the roll-out of shared banking hubs has been far too slow. Banking hub services have now opened in 31 communities and Cash Access UK expects to open at least a further 70 hubs this year. However, this leaves a gaping hole compared with the huge number of branches closing.

Last year, the Financial Services and Markets Act gave the FCA broad powers on how banks set up shared services to support access to cash, putting LINK’s work as a co-ordinating body on a statutory footing for access to cash. The allied Treasury policy statement was couched almost entirely in terms of access to cash and deposits but had little to say about protecting in-person banking services. Thus, basic banking is currently provided in hubs on a voluntary basis and the regulator lacks teeth in this area.

In my view, the Act was a missed opportunity. It could have put access to physical banking services for those who need them on a statutory basis and provided a real impetus to speed up the roll-out of banking hubs, including support for digital inclusion. Banking hubs could have an important role to play in delivering a national programme of digital inclusion training to equip people of all ages with digital financial skills.

The FCA is currently consulting on how it will regulate to protect access to cash, which makes this debate very timely. However, in its consultation, the FCA makes it very clear that its new responsibilities extend only to access to cash and not to bank branch closures, face-to-face banking services or digital inclusion.

Given the unacceptable gap between the closure of the last branch in town and the opening of the banking hub, my main contention today is that the last branch in town should not be permitted to close until a local banking hub is open and an appropriate number of cash access points are operational. February marks the third anniversary of the regulator consulting on the

“fair treatment of vulnerable customers”,

which provides an opportunity to review it, based on the lived experience of consumers who have lost their local branches since 2021. It is surely within the powers of government and the FCA, working with UK Finance, to get the players around the table without delay and agree a commitment that, where the case for a banking hub has been made and recommended, the last branch in town will not close until the hub is open. In my view, that is entirely consistent with the FCA’s requirement to treat customers fairly and to provide them with the support they need under the consumer duty.

What is the Government’s role? To date, the Government have said that it is not their place to get involved in commercial decisions. This misses the point that access to banking is an essential service, without which it is impossible to get by. Although banks are clearly commercial entities, they also have a social purpose and a universal service obligation. We need to put rocket boosters under the rollout of shared banking hubs, so I call on the Government to set clear expectations for the banking industry to deliver a minimum number of shared banking hubs within a set timeframe. Different figures have been mooted: some people are talking about the low hundreds, while LINK has suggested that 1,000 hubs could be in place by 2028—that sounds more like a truly national network.

I end with some questions for the Minister. What steps are the Government taking to make sure that face-to-face banking services are protected for those who need them? What are the Government doing to accelerate the rollout of banking hubs, and will they set a target for the number of shared banking hubs within a set timetable to speed this up? Are the Government confident that the FCA has the powers and resources it needs to support the rollout of banking hubs across the country?

How do the Government propose to ensure that banking hubs are providing the face-to-face services that customers and communities need? Allied to that, what work have the Government done, or planned to do, to define what a banking hub is and to specify the services one must provide to qualify as a hub? What plans do the Government have to ensure that banking hubs play a role in supporting the transition to a more digital economy? Finally, will the Minister agree to meet with me to discuss these matters?