Technology spells end of branch banking

As more people do online transactions, small towns must adapt to closures. Photo / David Haxton

In just five years, more than 150 branches of New Zealand's major banks have disappeared, and more are earmarked to go the same way.

Westpac has announced that it will cut 19 mainly rural branches by November, leaving it with 170. In 2010, it had more than 200 branches.

At ANZ, the country's largest bank, six branches are under review. It has closed more than 100 duplicate branches since merging the National Bank and ANZ brands under the one name in 2012 - while opening 20 branches in other areas.

As bank closures become a regular feature of the news agenda, along with the resulting dismay and anger in the affected communities, the banks say the changes result from rapid growth in people using online technology to do their banking.

Liz Maguire, head of digital and transformation at the ANZ, says more than 77 per cent of all payment transactions are now done through digital channels. That has grown from 50 per cent just five years ago.

"We are already doing 20 per cent of consumer sales through digital."

Maguire says the purpose of branches has changed. Today, they are mainly about dealing with complicated transactions, teaching people how to do their banking via digital channels and for resolving conflicts.

"If as an individual you want to do something significant, like buying a house for the first time, you come to see a person - it might be in a branch or a mobile mortgage manager or a mortgage broker."

The other two times when people really like to see a person are when they switch banks or want to talk about retirement, she says.

As branches are boarded up, affected communities have raised concerns that older people will struggle with the transition from branches to doing their banking online, while business owners are concerned about how they will deal with cheques and cash.

Maguire says not all older people are afraid to embrace technology - the oldest user of its smartphone banking app is 98.

"A lot of our challenge is how do we make sure we are talking to them about digital channels and showing them what to do."

In the branches it is reviewing, ANZ will have iPads in store to show customers how to use internet banking and will have wi-fi available so staff can teach people how to use the bank's app on their smartphones.

People who don't have a computer or a smartphone will be encouraged to use phone banking.

"We have a lot of people that use phone banking - most elderly people are very comfortable with ATMs," says Maguire.

It's not just the banks that are facing these technology challenges, says Maguire. "I think it is not just a challenge for us, for banks, it's a challenge for society."

John Kensington, head of financial services at KPMG, says for many small towns banks have become the last bastion.

"These towns once had a post office, telegraph office, bank, gas station, fruit shop and butchers - but one by one they are have all closed down."

He says what's left now in many rural towns is just the petrol station offering some food, and an ATM.

"Those traditional places that used to be a place of gathering are disappearing."

But Kensington doesn't believe banks have an obligation to provide a place for people to socialise.

In the future he expects bank branches to resemble more of a kiosk, and points to Air New Zealand's check-in model.

Liz Maguire, head of digital and transformation at ANZ.

"Ten years ago you had to stand in a long line to check in." Now, people do it at a kiosk or on the phone.

However Kensington doesn't foresee a time when branches will cease to exist altogether.

"No, I think we will always have them," he says. "But as more services are transferred to cellphones or computer there will be a gradual reduction."

He predicts bank kiosks will spring up in petrol stations and other places.

Kensington says there is a risk that some people will be left behind by fast-changing technology, but the longer branches remain, the more people will have grown up used to using technology.

He points to his parents, now in their 80s, who already do most of their banking at home.

Massey University's banking expert David Tripe says branches aren't dead yet.

There is a question of whether one of the roles is to provide a social service contact point.

David Tripe, Massey University

"We are transitioning in my view to a point where we will have relatively few bank branches."

While Westpac has 170 branches now, in 20 years time that could be down to just 50 branches, he says.

As well as diminishing in number, the look of bank branches is also changing.

"The ones they are closing are in essence old shops that were designed for processing while the ones that have been done up and made for interactive services - which is the sort of thing bank branches are looking to become in this day and age - will stay."

Tripe says many of us don't see a need to go to the bank branch today, so banks don't need a lot of branches to service customers.

Many of the reasons people are going into branches may not actually be necessary, he argues. And if people are going in for a conversation, is it really up to banks to provide that?

"There is a question of whether one of the roles is to provide a social service contact point."

From a shareholder perspective, that seems hard to justify without some kind of government funding, Tripe says.

Small retailers have been used to having access to bank branches to get rid of cash and get change and there are some issues there, he says.

"But I think you will find they are also getting less cash and some have already found solutions to that problem by banding together with other retailers."

As the big banks leave town, Kiwibank may seem the obvious choice to fill the gaps.

But its chief executive told reporters last month that it would not be racing in to replace Westpac in Ranfurly and Fairlie, where there will be no bank branches once Westpac closes up shop.

Tripe says what that suggests - despite protestations from local people - is that those towns are not great opportunities.

People in other towns such as Carterton have complained that choosing to do banking online is not a great option because their internet connection is poor.

But Tripe says that is not the bank's fault.

"If there is poor quality broadband it's not the bank's responsibility to provide that - it means they should be talking to someone else instead."

The government is in the process of rolling out ultra-fast broadband, but there are still many places throughout the country where reception is poor.

So will there be a time when there are no bank branches?

"I am not going to predict that," says Tripe.

"I think we will have a different configuration. I think they will hang onto the branches that
have been made shopping centre-friendly."

A Westpac spokesperson says branches will continue to have an important role in its distribution channel.

"At its heart, banking is, and will always be about relationships.

"Branches will continue to have an important role in our distribution channel as they evolve from being focused on transactional to advice centres.

"This change is already happening across the world and in New Zealand."

The spokesperson says, like many businesses, customers' rising use of digital technology is creating change.

"At Westpac we are focused on meeting the needs of our customers in the channels of their choice, in a fast and easy way."

Deputy Banking Ombudsman Sarah Parker says so far the office hasn't received any complaints about branch closures but will continue to monitor the situation.

"It's possible we may hear from more people once branches have closed if they find it harder to do their banking.

"We would expect banks to work with affected customers to help them manage their banking requirements once branches have closed."