If you walk a mile in the northern French town of Saint-Lô you could pass a branch from every single bank in the country — BNP Paribas, Société Générale, Crédit du Nord, Crédit Agricole, Crédit Lyonnais, CIC, Banque Populaire et Caisse d’Epargne, La Banque Postale.
The town in Normandy boasts one of the densest branch networks in France. It is home to 55 bank branches and local savings house branches, according to French statistical agency Insee. This is the equivalent of 28.8 per 10,000 people — vastly ahead of the 1.14 per 10,000 in the UK just across the English channel.
“I had no idea there were so many,” said Annie Larose, a 58-year-old woman who works next door to her Crédit Agricole branch and helps run her family farm. “I only go about five times a year, maybe 10, but I absolutely want my branch to stay open. It’s important.”
Despite closing close to 2,500 branches over the past decade, France overtook Spain last year as the major European market with the highest number of branches per capita, according to new analysis by consultant McKinsey for the Financial Times.
But as the coronavirus pandemic transforms customer habits and piles further pressure on the beleaguered European banking sector, even the most stubborn holdouts are facing pressure to change.
“The relationship between customers and banks is changing, becoming more digital. Clearly we need to adjust the physical distribution network,” said Jose Garcia Cantera, chief financial officer of Santander, the eurozone’s largest retail bank.
“Will there be a role for branches in the future? Yes, but they are not going to be transactional like they were in the past . . . people now can do all the transactions they want from home.”
Santander said on Friday it plans to close almost a third of its 3,100 branches in Spain and cut 4,000 jobs, as the coronavirus crisis accelerates the bank’s shift online.
It followed Sweden’s Handelsbanken — one of the leading advocates in Europe for maintaining bank branches — which in September announced plans to halve its domestic network. The largest banks in each of Germany and Spain have already unveiled fresh cuts since the arrival of the pandemic, and HSBC — the UK’s largest lender by assets — intends to make “substantial” additional reductions to its network next year, according to one person involved in planning.
France is also tentatively moving in the same direction. SocGen, which has closed 390 of the 2,186 branches it had at the end of 2015, will later this month outline a merger with one of its subsidiary bank networks, Credit du Nord, which could involve more branch closures.
Executives in France face some unique local challenges, including a domestic market that is dominated by typically unlisted and well-capitalised mutual groups, giving them less incentive to cut costs.
A strong union movement which resists job losses, alongside state-backed banking offers such as La Banque Postale, and a large number of older customers who have resisted going online, has also prevented more rapid change.
“You’ve got this big generation problem” in France, Spain and Italy, said Ronit Ghose, an analyst at Citi. “Your most profitable clients are mid-50s to mid-70s in retail. I mean, you can’t run so far ahead of your client base.”
However, widespread lockdowns to halt the march of the coronavirus pandemic forced even the most reluctant customers to adopt digital banking.
Speaking before the pandemic, the chief financial officer of one major retail bank complained that “we might get 16 visits per customer per month to the app, but lots of it adds no value”. Customers embraced apps for transferring money or keeping track of spending but were still uncomfortable making major financial decisions remotely.
By the third quarter of 2020, in contrast, 80 per cent of Santander UK’s sales were completed digitally. NatWest went from doing 100 video banking calls a week in January to 9,000 per week in September.
“When we did customer insight work three years ago and said how many of you are excited about , it wasn’t that high,” said McKinsey senior partner Zubin Taraporevala. “Now everybody is doing this all day long. Grandma is doing it! That’s a game-changer for mortgages, for small business loans, even for advisory conversations for investments.”
The pandemic has also exacerbated the pressure to cut costs. While the amount of money banks are setting aside for bad loans dropped in the third quarter, a prolonged period of record-low interest rates continues to squeeze retail lenders’ profit margins.
“The economics of retaining a very large branch network in areas without high footfall are hugely challenging, so I’d be very surprised if we don’t see more cuts,” said a senior executive at one lender which is currently closing branches.
The difficult outlook has also renewed focus on bank mergers, where the chance to shut duplicate branches is a key attraction. CaixaBank and Bankia, which recently struck a €17bn deal to create Spain’s largest domestic bank, could close as many as 1,800 by 2023, according to Mediobanca. The deal has put pressure on local rivals like Sabadell to consider their own potential combinations, which would lead to further cuts.
“The big question is ‘can you make money with zero or negative rates?” Citi’s Mr Ghose said. “The answer [in some countries] is always ‘no we can’t’, but then look at Sweden, Denmark and Finland — they have the same interest rates or lower, and their banks make money, because they have much leaner cost structures.”
Even the biggest proponents of cost-cutting don’t expect branch networks to disappear entirely. An October report by Forrester, a technology-focused research firm, predicted “regret will kick in later” for any established lenders that close their entire network.
“Customers don’t need to go just to do a transaction, but they still want to go for value-added services, particularly SMEs and big corporates,” said Santander’s Mr Cantera.
While residents in Saint-Lô balk at the prospect of losing even a single branch, recent experience across the English Channel provides a preview of the future facing more small towns as banks concentrate their efforts on city centres.
Wentworth and Dearne, a group of former mining communities in South Yorkshire, last year became the first parliamentary constituency in the UK without a single bank branch.
Its 100,000 residents still have a choice of branches in nearby Doncaster, Barnsley and Rotherham — but public transport links are poor, and the local MP fears for the knock-on impact on other local businesses.
“Many towns and villages like Wath [the largest town in the constituency] feel betrayed by the big banks,” said John Healey, the Labour MP.
“The coronavirus crisis could be an opportunity for banks to support our struggling high streets and regain people’s trust. I hope they take it, but it would mean a huge shift from my experience.”
Additional reporting by Stephen Morris in London and Daniel Dombey in Madrid