Scotland needs public good banking to save branches

Yet another round of bank branch closures is coming to Scotland. Bank of Scotland has announced it is to close another 13 branches next year. Inevitably, four of those are in the Highlands.

There is no longer an assumption for many people that branch banking is going to be available. Some of that is because new technologies (from the credit card through the cash machine and on to phone apps) have enabled people to do a lot of their banking without going into a branch. This is a good thing.

But as with so much which is automated, what is fast and efficient if everything is normal becomes all but impossible when there are problems. If you are doing routine banking on a phone app, it will be smooth and seamless. But if it isn't, if you have a non-standard problem, there is very little chance you'll have it solved by an AI chatbot.

There are lots of baking services which aren't available online (for example, anything involving foreign currencies). There are others which simply can't be managed online (shops depositing change from tills). And there is a key factor which will never successfully be delivered online – relationships.

A relationship with a bank branch is probably not essential for most domestic banking now but it is important for some customers (particularly older people) that they feel they can get help and support quickly if they need it. A relationship with a branch is not superfluous.

Small business banking is different. It continues to offer support and guidance services for small local businesses that goes beyond simple bank functions. For local small businesses, bank branches should be supportive partners.

Common Weal has developed a model for how to retain public good banking with a direct local presence in Scotland. For a host of reasons (not least stability in the event of another financial crisis), we support a National Mutual Bank or a series of Regional Mutuals. This remains the cornerstone of a lot of banking in many countries.

These are simple savings and loans banks that are owned and governed by their customers, provide a full range of banking services for households, community organisations and small businesses but do not engage in the riskier financial speculative. There is an off-the-shelf financial model for how to establish these banks and it requires only minimal start-up funding if a customer base can be developed quickly.

Maintaining branches would be a core part of the remit of the bank. In fact extending branch provision would be part of the goal. There are lots of options for maintaining banking. One of the reasons many branches were expensive to run is that they are housed in large, expensive historic buildings. Any shop vacancy is a prospective bank branch and there are plenty of those.

There are also lots of co-location options. For example, before the Scottish Government abandoned the pursuit of a National Care service, Common Weal had proposed that wherever there was a GP practice there should also be a care hub to provide care services in parallel. We would have included citizen advice services in that hub.

It therefore made sense that banking services could have been integrated as well. But even that might not have been sufficient for smaller communities. Here we proposed that bank pods should be introduced. These are prefabricated buildings about the size of a shipping container which can be located in smaller communities.

You would access these with your bank card or app and they would have an extended range of automated banking services, including for example the ability for small businesses to cash up coins or video conferencing for supported calls with banking staff to discuss loans or mortgages. These are inexpensive and bridge the gap between no banking facilities at all (or just a cash machine) and a full branch. (Here is an example in rural South Africa - where the weather is better…)

There are lots and lots of ways a mutual bank could be configured, but having a core banking system based on safe, mutual banking has another important market effect; it gives people a public good choice. It bids the market up on what supportive banking should be.

And it has an additional benefit for the public purse; in the event of another speculatively-driven financial crisis, a continuity and stable banking option remains in place. There is no need to bail out risk-taking banks. They can be allowed to fail or restructure because stable, core banking facilities for households and business is available. It is for consumers to choose if they want to accept increased risk.

To read more about Common Weal's proposals for a public-good banking network, see our report Better Banking.