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Monday, 15 November, 1999, 18:52 GMT
Why banks love online customers
More people are using their pc to manage their money

Banking giants Northern Rock and Barclays have both announced job cuts and branch closures, as internet banking continues to spread.

Barclays is closing about 200 branches, while Northern Rock is to axe 29.

The advantages to customers of managing your finances online are clear - an end to inconvenient trips to the high street, no more standing in queues and banking available 24 hours a day at the click of a mouse.

But what do the banks gain from switching to providing internet facilities? Is the change only, as they say, about meeting customer demand or is there more to it?

Queueing to get a statement could be a thing of the past
First Direct introduced the UK to telephone banking 10 years ago, sparking a revolution which is expected to see one-third of the population do some banking over the phone this year.

As the hi-tech banking revolution has grown, most banks have joined the rush to offer online services.

Other internet services include the Co-operative Bank's Smile and the Prudential's Egg. Citibank, Lloyds TSB and the Royal Bank of Scotland also have internet sites.

A survey by management consultants Datamonitor shows 8% of the population using the net to manage and monitor their finances.

A major incentive for bank chiefs - and possibly their biggest influence - is the huge saving to be made.

Each internet transaction is estimated to cost just 10% of a branch-based transaction, as overheads from providing and maintaining staff and buildings are slashed.

Savings mount up

In recent years, the restructuring of the banking sector - moving towards postal, telephone and online banking - is estimated to have cost up to 200,000 jobs.

More than 3,600 bank branches have been lost since 1990, and another 3,000 are expected to shut in the next five years.

The savings are beginning to mount up.

American giant Citibank was one of the first
Back in May, Barclays reckoned the loss of 6,000 jobs - blamed on new banking methods - would result in cost reductions of 200m a year.

Some analysts have estimated the latest cuts at Barclays will bring extra savings of more than 20m a year.

Unions say the trend is driven only by cost-cutting and not by a wish to satisfy customer demand.

Dai Davies of banking union Unifi said: "The banks say all this is being driven by customer need, but this trend towards centralised processing is just having an impact on jobs, not necessarily on customer services."

The British Bankers' Association says its members are simply offering customers another option.

Spokesman Brian Capon said: "Banks want to use modern technology and it appeals to customers to use it. People who can't get to branches in normal opening hours, for example, and want to plan their finances can do so from the comfort of home.

"It is a relatively inexpensive way of providing a service but branch closures and job cuts can't be directly attributed to internet banking."

Online banking 'elitist'

But consumer groups have issued warnings that branch closures will leave many rural populations without access to a bank and that online banking could leave the less well-off unable to use their accounts.

The Prudential's Egg is one of the most popular online accounts
Banking consultant Dr Catherine Smith told the BBC's Panorama programme last month: "The banks will become more and more choosy about these unprofitable customers. Some banks are going to take the harsh view and somebody who thinks that they are perfectly comfortable with the bank's service that they are actually getting may find, totally out of the blue, that they are not the profile that their particular bank wants."

And since the start of television banking trials, one chief executive has admitted that customers could pay different rates for different banking media.

Bill Dalton of the HSBC told the programme: "Clearly as we move forward we will be looking at differential pricing, depending on the different channels that our customers use."

Banks deny putting profits before customers.

John Varley, chief executive of Barclays' retail services, told the BBC in September that the bank took its responsibility to the community very seriously.

He said: "The dominant medium of banking in the UK is branch banking, and we are investing heavily in our branch network at the moment.

"That will remain an important feature of business for Barclays."

Mr Capon of the bankers' association said: "A lot of people assume a bank is the first business to close in an area. It's not - it's usually last."

He said people choosing to go online may be a factor in branch closures but many working people prefer the convenience of banking from home.

"But it's not a cheap option - internet banking still requires staff and needs to be maintained."

He said that for a new bank, having lower overheads could mean higher interest rates.

The banking world seems to be coming to terms with that old show business adage: you can't please all the people all the time.

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See also:
15 Nov 99 |  The Company File
Northern Rock regroups
14 Nov 99 |  The Company File
Barclays closes branches
28 Sep 99 |  The Company File
Banks take a bashing
06 Sep 99 |  Your Money
Bank closures cause concern
25 Aug 99 |  The Company File
Net bank offers cheapest mortgage

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