Local heroes?

Localheroes?

Real community banking in the UK? Pigs might fly, thought Ron Delnevo, Chair of Cash and Card Consultants. But then he spoke to Matt Grant, CEO, of Your Money Hub, and now his hopes are restored

I gave up years ago urging traditional high street banks to stop closing their bricks and mortar branches, because I realised it was a waste of breath.

The number of UK bank and building society branches peaked at more than 20,000 in the late 1980s. Today, in 2021, there are fewer than 7,000 – and, every month, more are permanently closing. Several thousand communities around the UK that previously enjoyed bank branch services now have none.

The dye is cast as far as the UK’s Big Five banks are concerned. They evidently envisage a purely digital future for themselves and their customers. They are expending huge resources in an effort to turn that vision into a reality, as they seek to fend off competition from a growing number of app-based banks. Starling and Monzo are only the best known of a plethora of new market entrants.

The Big Five are all PLCs, so have a duty to their owners to increase shareholder value. Their focus on a digital future has been a commercial decision that they clearly believe is in the best interests of shareholders. It is difficult to argue they do not have every right to make that decision.

So, having given up on the traditional banks as providers of community banking services, I started to look around for alternatives. In doing so, I quickly decided that a revival of the UK building society movement is a pipedream, so I looked further afield for viable solutions.

It was around five years ago that I realised that Australia had produced a solution that should work in the UK. It came in the shape of the Bendigo Community Bank.

The Bendigo Community Bank model was conceived in the late 1990s, in response to a series of bank branch closures in rural Australia. In a situation very similar to the UK experience, between 1993 and 2000 more than 2,000 bank branches had closed across the country. Businesses in turn abandoned these increasingly economically-challenged communities. Residents in small rural settlements were particularly alarmed by their suddenly unbanked status and the impact on their beleaguered local economies.

Community buy-in to having their own bank is vital to the Bendigo model. In particular, communities are required to put some upfront skin in the game in the form of investment capital to establish a bricks and mortar operation. In the early years, the required investment was around A$300,000; today the local capital commitment is closer to A$700,000. Typically, between 100 and 200 local residents step forward to make the required investment, becoming shareholders in the venture.

Bendigo Community Bank branches operate under what is essentially a franchise model. Revenue is split between the bank and the local community enterprise on a 50/50 basis on basic banking products. For more complex products, Bendigo Bank’s share of revenues is higher. In return, Bendigo Bank is responsible for IT, products, capital, and regulatory and compliance issues for the community bank, and undertakes staff training.

The profits made by the local community enterprises are primarily used to fund local projects that are aimed at making the lives of residents better. On average, around 20 per cent of a community’s share of revenues is allocated for dividends to reward the local shareholders.

The Bendigo model works. There are more than 300 Community Bank branches operating successfully around Australia. At least one of those communities has fewer than 1,000 adult residents. Bendigo is keen to share its learnings, and has visited the UK on several occasions. However, those visits have not proved to be the catalyst for the launch of community banking here.

When UK Finance announced its Community Access To Cash Pilot scheme, funded by a £1million contribution from the LINK ATM Network, I had high hopes that one of the solutions piloted would be community banking. Sure enough, something called a Bank Hub was created in several of the eight pilot towns, including Rochford in Essex.

A website states that Rochford, which has a population of around 20,000 people, has ‘a new bank hub, run by the Post Office and shared by five mainstream banks.’. Inside, there is a counter where cash can be withdrawn and deposited; a free-to-use ATM; a machine where cash can be deposited; and each of the Big Five banks sends in one member of their staff, one day a week, to lend a hand in providing services to locals who pop in. The whole show cost £120,000 to put together.

It is good to see that the Post Office, despite all its well-publicised troubles with IT systems, still has the wherewithal to get involved, but what has been parachuted into Rochford is a long way off the community banking model pioneered by Bendigo Bank in Australia; local shareholders and their investments are nowhere in sight.

To get an insider view of the Rochford pilot and, indeed all things community banking, I caught up with Matt Grant, a young entrepreneur who gained his grounding in banking at RBS/NatWest and Citibank, worked with tech startups in the UK, and is now CEO of Your Money Hub, an organisation intent on bringing genuine community banking to the UK and supporting communities that have been deeply affected by the closure of their bank branches.

It is imperative that we put community banking in place before thousands of UK communities wither and die

Matt Grant, Your Money Hub

Matt and his team were responsible for identifying Rochford as a suitable town for a community bank and, indeed, drafted the bid submitted by the community. So, I was interested to hear what he had to say about the future of community banking in the UK.

Ron Delnevo: Where does your interest in community banking come from?

Matt Grant: I grew up in an archetypal British market town in Hertfordshire. Being the youngest of five boys, there was no excuse for not going out to earn your own crust, so at the age of 16 onwards, and all the way through time at university, I worked for a number of small retailers, restaurants, bars and pubs. I saw first-hand just how important these businesses were to the communities around them and just how challenging it was for the owners to keep them afloat. Local bank branches played a vital role in the support and success of these micro economies

RD: Do you really believe there is still a need for bricks and mortar bank branches?

MG: The current model is not sustainable, not least because the Big Five banks have decided not to support it. But there is, without doubt, a need for community banks. I truly believe that a community without retail, commercial, leisure and banking services is a community halved. It is imperative that we put community banking in place before thousands of UK communities wither and die.

RD: What do you think of what has been produced by the cash pilot project in Rochford?

MG: My team helped identify and support the applications of five of the original 21 applicant communities. Of those five, the community of Rochford in Essex was successful.

I think that it’s a small step in the right direction. It’s great to see it on the front page of the BBC News website, raising awareness of the problems faced by Rochford and so many other similar communities across the UK.

Do I think the Post Office is the right partner in helping shape and build a long-term, sustainable community hub? No, I do not, but I hope we can all learn some valuable lessons from this project. It will be very interesting to see if the main UK banks have any interest in supporting Rochford after the pilot.

MG: What are the future plans for Your Money Hub?

MG: Our team very much believes community banking is viable in many locations in the UK, so long as there is real buy-in – and investment – from a significant number of the local residents and businesses. We are currently working with a number of communities to confirm that those communities are fully committed to this innovation. We are also in discussion with potential financial services backers.

We are confident the Bendigo Community Banking model can work in the UK. A partnership with a single, fully-committed financial services provider is a vital part of the formula for success. Watch out for more information from Your Money Hub this year – and for us opening in your community in 2022!

Listening to Matt Grant, it sounds like my years of waiting for genuine community banking to arrive in the UK could be over. Millions of people, living in thousands of bank-starved communities, will be fervently hoping the same.