Banks go pick 'n' mix

Franchised 'free houses' could replace high-street branches

LLOYDS BANK'S black horse, Barclays' eagle and NatWest's broken triangle could all be hanging outside the same buildings on Britain's high streets within a decade, according to industry observers.

A system of "free houses" - patterned on pubs that can sell beer from any brewer - will replace the existing tied distribution network, predicts Steve Webb, divisional director of banking at Hoskyns, the UK arm of Cap Gemini Sogeti, Europe's largest computer services group.

If he is right, it would be the most sweeping change in the retail end of the business since the advent of hole-in-the-wall cash machines in the 1970s. Hoskyns is already developing computer software to enable clearing banks, pension funds and specialist mortgage lenders to work closely in the same premises.

Pressures on banks to reduce costs have already led to branch closures. "The additional investment required for new distribution channels (such as interactive cable television) will make the cost of maintaining branch networks unbearable," said Mr Webb.

"The only economic way for financial institutions to meet the demand on the high street will be by sharing branch facilities. In the next 10 years, we will see the emergence of 'free house' branches, most likely in prime retail locations alongside the major high-street stores."

Customers would get basic services, such as cheque cashing, from a shared counter. But if they wanted to buy more complex financial products, such as a mortgage, annuity or insurance, they would be offered a choice of suppliers, each with a representative on hand to guide them through the small print.

The first steps are already under way as institutions test-market their products through retail outlets owned by third parties, such as the movement of post office counters into independent shops and NatWest's pilot project with Thomas Cook to sell each other's products.

"They will be one-stop financial service centres in which a variety of institutions set out their stalls, just as competing fashion companies take franchises side-by-side in department stores," said Mr Webb. The institutions might try to insist on exclusive agreements at first, but faced with the marketing power of a Marks and Spencer or Sainsbury, they would have little choice but to compete head-to-head with rivals across the aisle.

While the institutions would save money on overheads, customers would save on time spent trudging from branch to branch shopping around for the product that suits them best.

Mr Webb has even more radical views on the future of financial institutions. Once they have become used to working together in shared branches, the banks, pension funds and insurers, as well as the companies owning the free houses, could find themselves forming "virtual corporations", he said.

These would be like joint ventures between several partners, but they would be controlled by a board made up of representatives from each linked by computers and telecommunications. A big advantage such a grouping would have would be the ability to share information about customers.

"Once the different partners involved have become comfortable with each other, the primary partner, for example, could appoint the chief executive, the computer services partner could appoint the information technology director, the distribution partner could appoint the marketing director and the high-street franchiser could appoint the brand operations director," said Mr Webb.