TWENTY-FIVE years ago, the small regional Victorian Bendigo Bank found a clever way of becoming a much bigger bank. It started up what it called community banking.
What is community banking?
Community banking is where the local community funds the cost of establishing a bank branch and pays the staff, while the bank operates its systems in these branches. Revenue from the branch is split between the bank and the branch shareholders, community members.
It worked for Bendigo Bank, which now operates a total of 430 branches in the whole of Australia: 300 of these are community banking branches. Two-hundred or so branches are located regionally.
Community banking has been a cheap way for Bendigo Bank to grow and get access to billions in low-cost deposits, something a small bank normally can’t achieve.
Senate bank branch inquiry
As reported in CPSA News, the Senate’s Rural and Regional Affairs and Transport References Committee is inquiring into regional bank branch closures. The Inquiry has received 439 submissions, which is a lot, and which shows how passionate people are about their bank branches.
According to The Australian newspaper, during hearings and in submissions so far, no one has been able to come up with better solutions than what is already in place, namely, Australia Post being paid by the major banks (except ANZ) and regional banks to offer basic banking services.
An alternative suggested is what’s called a universal guarantee, which is an expensive, tax-payer funded way of getting a commercial business to provide services which are not commercially viable.
CPSA in its submission has pointed to a New Zealand program where banks pool resources and jointly operate a branch.
All the major banks are closing branches, either brutally or with some finesse. Westpac, for example, is in the process of combining one hundred of its St George and Bank of Melbourne branches with Westpac branches. The objective is to save money, but at least it leaves one branch in any given area where previously two operated.
And what about Bendigo Bank, which became a mid-size bank thanks to community bank branches?
In the last financial year, Bendigo closed nineteen branches, and the majority of these were community banking branches.
What’s Bendigo Bank doing?
The Australian reports that at a Senate Committee hearing, Bendigo’s consumer banking boss Richard Fennell said that banking was changing. Some branches, he said, were seldom used.
“[Bendigo Bank’s] distribution strategy remains commercially driven by our customers’ needs and preferences. When these change, so must our approach to delivering our banking services”, said Mr Fennell.
“Whether we like it or not, the clear and growing preference of the vast majority of our customers is to transact online. And we must be able to respond to those needs with competitive digital offerings”.
After four years of operations, Bendigo’s main digital offering, its online-only bank Up, has 600,000 customers. Bendigo’s 25-year-old Community Bank network has 900,000.
It is clear that bank branches are increasingly becoming unviable commercially. But at the same time, banks aren’t mourning the demise of their branches. Mortgage brokers have taken over the face-to-face mortgage operations on behalf of banks.
The danger is that government policy makers see the push for the retention of bank branches as driven by older people and count on time and attrition to solve the issue. The thing is that it’s a problem that’s not going to go away. Small businesses operating with cash and a myriad other people besides older people depend on cash, which will be around for much longer yet.