The Current Account: The Latest Headlines From Across The Banking Sector - March

Welcome to the new and improved ‘Banking Headlines’ – The Current Account! We hope you enjoy our latest round-up of the top news from the industry in March.

Headlines from the banking sector this month

Following the profitable year-end reports, a number of banks are now looking to the year ahead to deliver on their strategy. This month we focus on an area that has been prevalent in the headlines for several years now – branch closures. And as the cost of living continues to hit, we look at the impact of the central bank’s interest rate hike.

Phasing out the Bank Branch

• A survey this month indicated that a number of European banks believe physical branches could be phased out by 2025
• Banks are benefiting from the shift in demand to digital, with fast processing and AI enabling improved customer experience at a much lower cost
• In the UK, both HSBC and LBG announced further branch closures in March, adding to the almost half of  total UK branches already closed since 2015
• HSBC have followed the closures announcement by branching out into the metaverse to engage with customers in new ways
• Firms should show some caution when transitioning to innovative ways to improve CX so as to ensure they continue to deliver a service to suit all customers, as Santander found out when forcing customers to use mobile phones

PEN Point Of View:

The pandemic accelerated the adoption of digital and enabled organisations to focus on digital experience, so it makes sense to shift away from bricks and mortar. However, the move to digital doesn’t mean organisations can drop all human interactions for alternatives such as AI, particularly in the more complex products or stages in the customer lifecycle. In order to transition to digital successfully, organisations need to continue to provide a service appropriate to the characteristics of the customers. This is especially relevant in the need to support vulnerable customers.

Interest Rates raised for the third successive meeting

• March saw the Bank of England hike its interest rate by 0.25 percentage points to 0.75% in an effort to tackle rising inflation, taking it to pre-pandemic levels
• Banks rushed to pass on higher mortgage costs to customers, by increasing the rates on tracker and standard variable rate mortgages, moments after the Bank of England announcement. Santander and Lloyds were first to react, but others such as Barclays and Yorkshire Building Society quickly followed suit
• It is expected that these increases will impact 26% of homeowners in Britain who are on either a standard variable rate or a tracker deal product
• Savers often benefit from interest rate increases, as we typically see an increase to interest on savings too, but Banks have warned customers not to expect any sort of significant change to the savings following the interest rate increase
• However, this could be an opportune time for savings providers to attract new customers, as we’ve seen with Chase's digital bank - digital savings account
• The Bank of England has warned inflation may reach 8% and possibly higher in Q2 2022, a clear sign that the cost-of-living is increasing, so don’t expect this to be the last interest rate hike

PEN Point Of View:

Inflation on this scale, means thousands will struggle to regulate their finances, resulting in the need for careful budgeting but many will fall into problem debt. The rise in the base rate is an essential consideration for all mortgage customers on their lender’s tracker or standard variable rate products. We predict we’ll see a lot of movement in in the mortgage market, with customers moving to find cheaper rates, with a large percentage moving to fixed rate products to give some security when other costs are continuing to increase. First time buyers will be hit the hardest and taking the first step onto the property ladder could become much more difficult. 

And in case you missed it…

• The government’s stake in NatWest dropped below 50% following the sale of £1.2bn shares
• HSBC has been challenged by investors to scale up its climate commitments, targeting emissions associated with loans in particular
• We’ll have to wait a few more years for Britcoin to be rolled out, with a Bank of England senior manager suggesting it will be the second half of the decade at the earliest

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