Extremidad superior

However, an expanding market was not sufficient to compensate for the drop in income brought about by the introduction of free banking and competition from other

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banks and financial service providers. Thus, from the late 1970s and 80s onwards, British banks were searching for ways to reduce costs and increase revenue. As a result, British banks increased the number of products they offered in addition to providing banking and transaction services to a larger number of customers. Historically, banks had been offering a small number of services, namely current accounts, cheques, money transfers, business loans and short-term deposits. The banks also offered personal loans, but only significantly so in the 1970s (Howcroft & Lavis, 1986). The removal of barriers separating markets and of general constraints on growth enabled banks to offer a wider range of products and the intensification of competition forced banks to pursue these opportunities. Hence, by the 1980s and 90s banks offered a wide range of mortgage, insurance, pension and investment products. For example, in the 1980s, Barclays offered over 300 centrally designed and branded products (Ackrill & Hannah, 2001).

The expansion of the product range eroded the independence of the branches as they were now more inclined to sell customers their own products, rather than referring them to appropriate services offered by other financial service providers. The fall of barriers previously separating markets put these providers into a situation of competing with each other rather than directing potential customers to each other. Over time, the introduction of new products eroded the importance of the core banking services. Following the introduction of free banking in the 1980s, there was no direct payment for current accounts, which previously had constituted an important part of the income of banks (Lascelles, 2005). Over time, the income generated from interest rates diminished in importance of the total earnings of British banks. Today, non-interest income constitutes more than 60% of earnings of banks in Britain (Davies, Richardson, Katinaite & Manning, 2010).

The intensified domestic competition combined with the loss of income associated with the introduction of free banking and the increased scale of the market led banks to look at was of cutting costs. The recession of the late 1980s, early 90s, put further pressure banks to cut costs. This led to increased scrutiny of the branch networks of the banks. The move from competition based on function to competition based on economics and price meant that there was an increased focus on the financial performance and efficiency of individual branches (Howcroft & Lavis, 1986). There

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was an end of cross-subsidisation of unprofitable branches and it was no longer necessary to attract deposits via branch location, as market penetration was possible through other means (Howcroft & Lavis, 1986).

Up until the wave of consolidations starting in the mid-1800s, banks traditionally had few branches (Collins, 1991). Country banks rarely had branches (Cameron, 1967) and as late as 1850 the average joint-stock bank only had five branches, which rose to 156 in 1913 (Collins, 1991). Banks had few and geographically proximate branches in order to retain central control of activities (Cameron, 1967). However, from the 1820s to the 1920s there was an on-going expansion of the branch network until it stabilised around 10,000, or one branch per 4,000 population in the late 1930s (Collins, 1988). The number of building society branches continued to grow until the 1970s (Collins, 1988). From being an exception rather than the rule, the bank branch came to occupy a central role in banking. Leyshon and Pollard (2000, p. 205) argue that, up until the early 1970s, the branch was the “foundation stone for retail banking” for three reasons. First, it was the medium for gathering information on the market and on the bank’s customers. Second, the branch constituted the gateway to accessing and purchasing products and services. Third, the branches processed and settled the preceding day’s business. The branch network was also “the most efficient and prudent means of accumulating vast deposits” (Moran, 1986, p. 42). According to Howcroft (1993, p. 26):

Branch networks evolved to attract relatively cheap retail deposits through the convenience of branch locations and branch-based payment systems. Traditionally, they provided a highly effective barrier to entry and an equally though increasingly costly, mechanisms for administering, collecting and delivering cash. They also simultaneously provided an extensive range of associated lending and ancillary services.

Under pressure to cut costs, banks made considerable cuts to their branch networks. Between 1983 and 1989 the number of bank branches fell from 36,788 to 34,535 (Howcroft, 1993). Between 1995 and 2003 alone, British banks closed 22% of their branches, while converted building societies and building societies closed 19% and 5% of their branches respectively (Leyshon, 2006). The acceleration of branch closures after 1995 was influenced by the normalisation of remote banking technologies, such as telephone and Internet banking (Leyshon, 2006). The use of

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remote banking technologies, such as internet and phone banking, has increased over the last 20 years or so with the proportion of transactions and applications processed online or over the phone rising considerably (Office of Fair Trading, 2010). The implication of this has been that bank branches have become less important in delivering financial services.

Beyond enabling delivery of financial services outside of branches and thus allowing banks to close branches without losing market access, the advent of remote banking technologies was a signal of a more profound threat to the importance and centrality of the branch network: credit scoring. Credit scoring – “computer-based management tools which rely upon multivariate statistical analysis to predict the credit performance of consumers” (Leyshon & Thrift, 1999, p. 444) – is arguably one of the most defining and profound technological innovations to have been introduced in banking. Credit scoring predicts the probability of an applicant repaying a loan with greater accuracy and at greater speed and capacity (in number of applications it can process and in terms of geographic area).11 In turn, this helps underpin rationalising and cost-cutting, reduces the need for technical capacity at branch level and facilitates central control by enabling national or regional head offices to quickly adjust lending policy.

First used in mail order industry in the 1970s, it was not introduced extensively in retail banking until the 1980s when decision-making in consumer lending was transferred to centralised processing centres (Wainwright, 2009). The diffusion and uptake of credit scoring has been uneven and conditional on product and institution type. The use of credit scoring was not common place among British mortgage lenders until the 1990s and it is still not used by all providers or for all products or markets, such as by small regional building societies or for sub-prime lending (Van Dijk & Garga, 2006 cf. Wainwright, 2009). By 2006, though, it was used by 95% of prime lenders and 62% of sub-prime lenders (Van Dijk & Garga, 2006 cf. Wainwright, 2009).

11 _{The accuracy and reliability of credit scoring technology is not uncontested (see discussion in e.g.} Coats, 1988; Leyshon & Thrift, 1999)

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The background for the introduction of credit scoring into banking was the expanding market served by banks. By the mid-1980s, the costs of broadening and increasing market share were noticeable in the form of increased bad debt and defaults (Leyshon & Thrift, 1999). The use of the face-to-face interview method in underwriting was blamed for these problems (Leyshon & Thrift, 1999). They were seen as costly, time- consuming and inaccurate, and to be obstructing centralised control in ensuring compliance (Leyshon & Thrift, 1999). The introduction of credit scoring had profound effects on banking. It led to a loss of the tacit knowledge about the local market that previously had been embodied in staff (Leyshon & Thrift, 1999). Credit scoring technology also led to a lessening in importance of the branch network as lending could now more easily be done via remote banking technologies.