Despite various efficiency programmes put in place by organisations, no challenger banks’ peer groups have significantly reduced the cost-to-assets ratio.

Costs have remained stubbornly in place, although they may have moved from one area of a bank to another – e.g., lower front-office costs, but increased technology spend.

That said, we expect increased focus in certain areas.

Acceleration of branch closures

We expect further acceleration of branch closures. That started a decade ago as customers migrated to digital, and was accelerated by the COVID-19 pandemic.

The number of branches in the UK has decreased 6% year-on-year since 2015. 

Most of this decline has been driven by large banks. Building societies – typically, with older demographics – have largely kept their branch networks intact. They’ve sought to refresh and update the footprint and format of their branches to better serve customers, communities, and resonate with younger generations.

A drive to front-office automation

We also expect a further drive for front-office automation, with greater automation of end-to-end processing.

Banks will aim to increase operating efficiency (and reduce costs) and offer a more relevant proposition to customer segments that increasingly expect a frictionless digital experience (e.g., end-to-end digital sales journeys).

Cost of compliance leads to middle- and back-office automation

The cost of compliance will drive automation of middle- and back-office functions.

We see this as the next horizon of digitisation for legacy banks as compliance costs grow due to additional anti money laundering regulation and new FCA Consumer Duty requirements.

Further sector consolidation

We’ll see a continuation of sector consolidation to drive cost synergies.