The pace of bank branch closings will accelerate across Europe, my strategy advisor. The pandemic year made this clear. Neobanks would also have to change.
AAccording to a study by the management consultancy PwC Strategy &, after the corona pandemic, employees and customers of European banks will experience a previously unseen wave of branch closings. By 2023, the private banks could close up to 40 percent of their branches, predict the financial experts. That is an enormous acceleration in the rate of dismantling from 4 percent in the years 2016 to 2019 over 5 percent in 2019 to 2020 to around 12 percent now.
The average profit per customer fell by 8 percent to 193 euros in 2020, and for a quarter of the retail banks examined by as much as 40 percent compared to the previous year. Sales have also decreased by 4 percent. However, that is actually less than expected.
The situation is by no means the same everywhere, but the German banking sector in particular is doing pretty badly: In Switzerland, a customer made an average profit of 444 euros, in Austria slightly above average 208 euros, in Germany, however, a below average 172 euros.
German banks behind
Study author Andreas Pratz and his colleagues examined around 50 private customer banks and banking groups from 15 countries with a total of 690 million customers as well as estimated private customer deposits and loan volumes of 18 trillion euros.
The causes are therefore the lower number of international transactions and credit card payments as well as less demand for consumer credit. In contrast, costs fell by an average of 2 percent, while deposits grew by 9 percent. However, the pandemic also made itself felt: the provisions for loans, including government support, rose by 110 percent at the 25 largest European banks. Many European financial institutions suffered from falling sales even before the pandemic. Only around a quarter of the banks were able to increase their sales.
The cost-cutting programs have not yet had any significant positive effects either. On the contrary, the cost / income ratio has risen for three quarters of the banks examined because income has fallen more than costs. Institutes in Germany, Austria, Belgium, France and Italy in particular had to struggle with a high cost / income ratio last year. The cost structure of German banks has remained “largely unchanged”.
According to the management consultants, the falling margins are increasing the cost pressure considerably. Many major banks from Deutsche Bank to the French Societé Generale have already announced extensive job cuts. The number of bank branches in Europe could therefore decrease from just under 60,000 to just 36,000 by 2023.
According to the study, the traditional business model, according to which the banks wait for customers in their branches, will be reversed in the future: “Instead of luring as many customers as possible into the branches through the best locations, customer contacts will be won through targeted online marketing in the future”, said study author Pratz according to the announcement. The lockdowns had shown that the banks’ operating models could be implemented with significantly reduced physical sales channels.
In the struggle for market share, the business models of branch and direct banks are becoming increasingly similar. Traditional banks should embed their branches as a central point of contact in a digitized sales model in order not to be left behind from the competition between direct and neo-banks. These, on the other hand, would have to further expand their range of profitable and individualized services instead of just relying on unlimited customer growth.