Consumer financial technology
The combination of information technology, mobile and internet banking has transformed the British high street as we know it. Bank branches nationwide fell from 20,500 to 8,800 between 1988 and 2012, so there’s a real possibility that there could be no physical bank branches left in the UK by 2040 at all.
Digital banks (those operating without a branch network) can operate with lower overhead costs. Hot on the heels of success stories such as First Direct, we have seen several new entrants in the UK of late, from the mobile-only Starling Bank to Monzo and Revolut, who both began life as credit cards offering zero fees on transactions abroad before venturing into bank accounts. London-based Revolut became one of the latest start-up ‘unicorns’ in 2018, with a valuation of US$1.7bn, and expanded into the premium banking market with the launch of its Revolut Metal offering a year ago.
Millennials, who remember banks’ involvement in the 2008 financial crisis, are leading the trend towards ethical consumption. As alternative forms of banking, from peer-to-peer lending to the increasingly prevalent credit unions, become commonplace, incumbents will have to move quickly if they want to safeguard their customer base from these nimble entities.
The high street has already felt the impact of digital banking, as evidenced by the bricks and mortar stalwarts who have closed their branches and invested more heavily in their online offerings. We are, however, yet to see the repercussions of other fintech game changers, such as blockchain technology. Blockchain is a mathematical structure that stores transaction data in a way that cannot be altered or fabricated, hence its potential application in finance. Blockchain could challenge incumbent banks’ business models even further, and the development of cryptocurrencies (blockchain-based digital currencies with no centralised control) could revolutionise the way we pay for goods and services in the future.
With or without alternative currencies, it is increasingly likely that ours will become a cashless society in the future – and pioneers such as iZettle and Stripe have made card payments cheaper and easier for retailers to accommodate. The use of cash in transactions made in the UK fell from 61% to 34% between 2007 and 2017, and cash could comprise just 16% of all payments by 2027 and be rendered residual or non-existent by 2040 if this trend continues (Figure 1). Sweden has paved the way for cashless payments – retail transactions there dropped from around 40% to 15% between 2010 and 2018. While there are some concerns that this could alienate those consumers without digital payment options, one of the largest banks in Sweden, SEB, only handles cash at seven of its 118 branches and offers learning support for customers who currently don’t yet use cards.
Figure 1: Cash use as a proportion of transactions in the UK
Source: UK Finance
It is highly likely that contactless payments will be the norm across all modes of transport, restaurants and cafés by 2040, and we could even see buskers and charity workers accepting donations using QR codes. The transaction limit on cards is likely to increase from the current £30 threshold - and could well be eliminated altogether, as with Apple Pay (any caps are imposed by the retailers themselves). Children’s pocket money is also likely to have gone digital.
Financial services is a powerful example of how technology can affect the future of our high streets, which we explore in more detail elsewhere. As we see more bank branch closures, we can expect a fresh wave of disruption, with units potentially reclaimed for other uses, including shops and cafés increasing the vibrancy of the high street.
Technology has other upsides for different types of real estate: online or telephone banking will create additional demand for data centres and call centres. And as one real estate use becomes obsolete, another usually takes its place – though not necessarily in the same part of the city.