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Australian banks risk alienating regional communities amid branch network cuts

Australia's four largest banks have accelerated branch closures as more customers choose digital channels, but such closures risk alienating rural communities that rely on physical branches.

The big four banks — Commonwealth Bank of Australia, ANZ Group Holdings Ltd., Westpac Banking Corp. and National Australia Bank Ltd. — closed 375 branches in 2023, up 56% from 239 in 2022 and 337 in 2021. The four banks have closed 1,446 branches since 2018, according to data compiled by S&P Global Market Intelligence.

Westpac had the highest number of branch closures in 2023, at 167. Commonwealth Bank closed 73 branches, while ANZ closed 72. NAB shuttered the lowest number of branches in 2023, at 63.

The lenders defended the branch closures as a response to a changing customer base that relies more on digital services than physical banking. But an ongoing public hearing into the branch closures revealed that some areas are suffering as communities are left without any close-by branches. The inquiry is due to continue until May 16.

"While the move to digital channels can lead to cost savings and potentially higher profitability for banks, it has raised several concerns regarding its impact on customer satisfaction and trust," My Nguyen, senior lecturer in finance and program manager at the School of Economics, Finance and Marketing at RMIT University, told Market Intelligence in an email.

"This is particularly pronounced in regional areas where residents often depend on face-to-face banking services. The closure of branches in these communities can be perceived as a reduction in service quality and accessibility, potentially tarnishing the banks' reputation among the regional populace," Nguyen said.

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Digital focus

"As time goes on, it becomes unsustainable to invest substantial resources keeping expensive services that fewer and fewer customers use," Commonwealth Bank CEO Matt Comyn said in his Sept 20, 2023, remarks before a Senate inquiry into the regional branch closures.

Australia's biggest lender by assets spends A$1 billion each year on its branch network, but many of its customers transact through its CommBank app. Customers transact more than A$18 billion through its online app, an increase of 64% in just two years, Comyn said.

A report from the Australian Banking Association in June 2023 revealed that Australians have moved to digital banking, with 98.9% of interactions taking place online. The value of mobile wallet transactions surged to A$93 billion in 2022 from just A$746 million in 2018.

Customer trust

Branch closures further disadvantage remote First Nation communities, according to a report by RMIT University and Swinburne University of Technology researchers. The report, submitted to the Senate inquiry Feb. 1, found that remote First Nations communities still rely on face-to-face interactions with their banks. Project lead Professor Julian Thomas said in-person interactions were still important for complex banking tasks and tackling elder abuse.

A submission by Toni Hambilton, information technology coordinator at Junee Shire Council in New South Wales, said branch closures "seriously hurts" regional communities as customers in these areas have to travel long distances to access their banks, incurring extra expenses.

"It is also clear that vulnerable people and populations within our communities struggle to use online banking services as their preference so branch closures will add to the struggles facing vulnerable members of our community," Hambilton told the inquiry.

Scam risk

Regional branch closures also run the risk of increased financial scams targeting older Australians, Nguyen said. Statistics from the federal government's ScamWatch reveal that Australians over 65 are disproportionately affected by scams, leading both in the amount lost and the number of reports, while the Australian Competition and Consumer Commission found that older Australians are often the victims of telephone scams.

"As branches close and these customers are forced to shift to digital banking, they face barriers such as concerns about cybersecurity and the constant changes to software, websites and devices," Nguyen said.

ANZ CEO Shayne Elliott said in his statement to the Senate that most older people are adopting digital banking. "Almost half a million ANZ customers over 65 years of age are already digitally active," Elliott said, even as he acknowledged that branches continue to be important.

Shrinking branches

Branch closures are likely to continue in 2024. Bank of Western Australia Ltd., a unit of Commonwealth Bank, said earlier in March it will close 45 branches by October as it transitions to a digital bank. It will close its branch network in Western Australia, with 15 regional Bankwest locations to be converted to Commonwealth Bank branches by the end of 2024.

The Finance Sector Union, which represents a diverse group of finance, superannuation and insurance professionals, launched a petition seeking action from the financial services minister to address the closure of bank branches. FSU National President Wendy Streets said in a March 18 statement that Financial Services Minister Stephen Jones should declare "banking an essential service, instigate an industry code and compel banks to provide a genuine rationale for closing branches."

Regulators could come out with a prohibition against branch closures. "It would need Parliament I think to enact something in the legislation. They certainly can prevent closures," Andy Schmulow, associate professor of law at the University of Wollongong, told Market Intelligence.

Another possible solution is a hybrid approach that combines digital services with fewer physical branches that offer specialized services, RMIT's Nguyen said. This approach could help banks' maintain their presence in regional communities while adapting to the digital preferences of the larger customer base.