A focus on cost reduction and revenue growth

A focus on cost reduction and revenue growth
Expectations of 20% RoE, which became normalised in banking before the crisis (Caruana 2012),
increased the pressure on management to reduce the cost base. Selling products via bank branches
in the UK typically accounts for 75% of total retail distribution costs (Bradey 2013;Quarry et al. 2012),
estimated at around £800,000 per branch per year (Deloitte 2007). Retail banks have responded in
two ways: closure of (often unprofitable rural) bank branches and the maximisation of revenue per
Justifying branch closure has been relatively easy for the retail banks, at least for the first movers
when customers could still use automatic teller machines (ATMs) at rivals’ branches. Branch closures
have been presented as the response to changing distribution channels (i.e. customer preferences)
and not primarily as a cost saving or profit maximising exercise. There is clear evidence that direct
channels – via telephone, online and increasingly using mobile internet – are used more, that fewer
customers visit bank branches and that those who do visit, do so less frequently (Deloitte 2007).
However, overall evidence that branch networks are becoming obsolete is weak. Although sales
arranged in branches have declined overall from 94% in 2000 to 67% in 2010 (Capgemini 2012), the
share of products sold in branches can vary significantly, depending on the type of product: for
example, 75% of current accounts and 40% of personal loans are still arranged in branch (Quarry et
al. 2012).