Information Gathering

203 See OFT SME banking review, page 71.

28 per cent within 11 to 30 minutes. The visitation figures for SMEs, calculated from data provided by incumbents, were just over 1,000 per month (urban and rural areas are approximately 1,100 and 750

respectively).

7.60 As indicated in the CC SME banking report 'telephone or internet access can be used for transfer of funds and account enquiries, and the postal system is used for deposits or withdrawals by cheque for some business deposit accounts, but branches are still used far more widely for cheque as well as cash transactions, partly due to the extra and sometimes unpredictable delay in using the postal system'.²⁰⁴ The CC indicated that 'liquidity management services generally require access to relationship managers as well as to branches given the importance both to the clearing bank and SMEs of familiarity with the latter's businesses when judging requests for overdraft facilities. To that extent, such services cannot easily be met, if at all, by internet or telephone banking (the penetration of which in any event has to date been limited)'.²⁰⁵

7.61 In the OFT/FPB UK-wide survey, the location of providers' branch was the third most important reason for choosing a particular provider.²⁰⁶ In the OFT/FSB Scottish SME survey, the location of branch was given as less important – it was the sixth most popular reason for choosing any given provider.²⁰⁷

7.62 While it is the case that internet and mobile banking continue to grow strongly (BBA data reports that there were 38 million registered users of

204 See CC SME banking report, page 22.

205 For more on the explanation, CC SME banking report, page 23.

206 Based on 666 responses to Q.6. Though less than 10 per cent of responses for switching provider related to location of provider.

207 Based on 230 responses to Q.2.

internet banking in 2008²⁰⁸), the use of these services remains limited.²⁰⁹ Research by Mintel found that only two per cent of adults had used their mobile phone to conduct a banking transaction and most of these have used it simply to check their account balance.It also indicated that the most popular tasks that people carry out when banking online are checking account balances and statements, rather than taking out new products – of the 4.5 billion online banking transactions in 2008, around 2.5 billion transactions relate to balance queries or information.²¹⁰ In other cases, the internet is used to gather information and compare prices before visiting a branch to make the transaction.

7.63 It has also been suggested to us by respondents to our consultation that consumers may find it more difficult and cumbersome to purchase banking products online compared with in a branch. This is due to money laundering regulations²¹¹ which require potential customers to send copies of identity documents. Often this means that, before a transaction can be confirmed, a potential customer has to send copies of these documents to the provider and wait for them to be processed – something that can happen in a matter of minutes in a branch. This may deter potential customers.

7.64 However, as suggested by other respondents, the role of the branch may be less important for other core and secondary retail banking products such as saving accounts and secured and unsecured loans. For example, as noted in Chapter 3, in the case of mortgages, intermediaries play an important role. For saving and loan products, best buy tables may also

208 Mintel, Current, Packaged and Premium Accounts, Finance Intelligence, June 2010, Page 103.

209 Internet speeds and penetration rates are not uniform across the UK, which may also limit the role of the internet as a distribution channel in some areas.

210 Mintel, Current, Packaged and Premium Accounts, Finance Intelligence, June 2010, page 103.

211 See Chapter 5 for a full discussion of money laundering regulations.

have an impact on the role of branches. They are increasingly providing financial information to consumers and businesses and may reduce dependency on branch staff for advice. As technology improves, it is likely that personal and SME consumers will have even greater ability to manage and conduct their retail banking relationships without having to visit a branch. ²¹²

7.65 On balance, on the basis of the above evidence, personal and SME consumers appear to continue to value highly the ability to visit a local retail banking provider in person, especially in the case of PCAs and BCAs. Despite an increase in the use of alternative distribution channels, our evidence suggests that providers which do not have a branch will face constraints in the number of customers that they will be able to attract. As the PCA market study indicated,²¹³ the internet and telephone currently largely remain complements to branch banking rather than substitutes.

7.66 It should be noted that we have not received any evidence to suggest that acquiring retail space to establish a branch or attracting appropriate staff for branches is a problem.²¹⁴ We have heard that the choice of

212 Given that the variable costs of providing retail banking services online are lower than that of provision through the branch, one might expect incumbent providers to increasingly direct consumers online. For example, in the SME Banking Review, the OFT found that greater use of automated payments technology has encouraged banks to develop new tariffs offering cheaper rates for use of automated payments. Similarly, we have been informed that the introduction of a new generation of ATM machines with automatic deposit and account management facilities will potentially reduce the number of visits to branches, particularly for smaller cash

transactions.

213 A similar conclusion was reached by the Competition Commission report into current accounts in Northern Ireland.

214 The issue of shared banking facilities was also raised as a potential means of encouraging providers to establish a presence in communities in which they would otherwise not establish a branch due to the poor prospect of recovering costs. From the evidence received, this was not a route either existing incumbents or potential entrants expressed interest in as they were

reluctant to share space with rivals and dilute their own customer experience.

location of a new branch is largely dictated by the potential customer base, with highly populated urban areas seen as more attractive than rural areas. The challenge remains attracting sufficient numbers of customers in a given locality to recover costs, not the establishing of a physical branch itself.