Banks’ branches/IT problems, and bank regulation vs. freedom

Barclays this week unsurprisingly announced the closure of a quarter of its 1600 branches. A ‘person familiar with the plans of Barclays’ said:

This is a fundamental 100-year transformation of the banking industry, that’s what I think we are seeing.

He/she is right. Though this has been obvious to banking innovators for a while already. SNL expands on that here and mentions high cost/income in retail banking. An analyst:

No bank in Europe can avoid the online banking issue. It is the future of the bank business.

As I have already said, it questions the plans of some of British politicians to cap the market share of large banks. How could their plan work when banks are already slashing branches by the thousands and when new and growing banks are increasingly established online or within other types of stores (see Tesco Bank, which has no actual branch but ‘in-store branches’ within its Tesco supermarkets). Politicians are able to foresee trends and innovation you said? How can one trust people who can only offer yesterday’s solutions to tomorrow’s problems? Same question about general banking regulation…

Anyway, banks also have some serious work to do. Many of them have antiquated IT systems, which makes us think that a transition to an IT-heavy (or perhaps IT-only…) banking business model won’t be smooth… UK banks have experienced a number of IT problems over the past few months (payment systems down mainly) as a result of their underinvestment in basic IT and the accumulation of various systems on top of one another following acquisitions, without never having really tried to integrate them all.

I personally check my accounts a lot more often now that I have access to smartphone apps, and I am certainly not the only one to do so. With the growth of mobile and contactless payments and the reduction in the number of hard cash transactions, the pressure on banks’ IT systems will become enormous. Increased mobile transaction volumes will also impact mobile telecom networks, though they often more rapidly update their systems than banks. What’s going to be interesting is that banks will increasingly rely on the infrastructure of private mobile and internet telcos. This emergent symbiosis may well accelerate the development of mobile networks, in terms of speed, security and coverage.

And banks better be in a hurry. As they now have payment systems competitors such as Paypal or Bitcoin, which ironically would also benefit from the same technological developments. Telcos could potentially also enter the payment space, as Kenya’s Safaricom did with M-Pesa.

Unrelated, a good piece by Sean Ryan on SNL (gated link) called “Bank regulation versus Americans’ freedom”, and reminiscent of one of my previous posts. This is Sean:

The power to regulate banks is impeding the ability of law-abiding citizens to exercise their rights. Washington is full of people with very strong ideas about how the rest of us should live, and I fear that increasingly intrusive bank regulation has given them an opening to do something about it.

[…]

Given the rapid proliferation of nominally legal activities being exiled from the economic mainstream by bank regulators, it seems only a modest exaggeration, and less modest by the week, to suggest that we are incubating a fourth branch of government. And this one isn’t so hamstrung by those pesky checks and balances.

I couldn’t have said it better myself.