Takeovers and technology are killing off the old-fashioned bank. And it's the high street that will pay the price
Banking is already dead! The current upheaval in the financial services industry is as significant as the industrial revolution of the 19th century. Banks that we are all familiar with will not exist in 10, maybe even five years' time."

This may seem an apocalyptic prediction but the author of it should know. Rather than being a doom-mongering campaigner for consumers or banking staff, he is Tim Sweeney, the voice of the banking industry itself. Mr Sweeney, director general of the British Bankers' Association, has the near-impossible task of trying to persuade the public and politicians that closing bank branches is inevitable, and essential to the future development of financial services in the ruthlessly competitive global market place.

In the past 10 years, 130,000 jobs have disappeared, and hundreds of thousands of customers have lost the benefit of a local bank branch. Inevitable it may be, but the public and the bank employees don't approve. As they are with schools and hospitals, people are sentimentally - and often for practical reasons - attached to their local banks. They like a nearby branch, particularly if they are infirm, don't have a car, or are elderly. They want the golden age of banking, when a manager akin to Dad's Army's Captain Mainwaring knew his customers by name and discussed their accounts over a glass of sherry. As Mervyn Kohler of Help the Aged puts it: "The bank is the community lifeblood of the high street. The disappearance of banking services will often lead to the disappearance of other local businesses, reducing the range of shops and services to the local community."

The controversy over the decline of the bank and the threat of more closures blew up again last week when the Royal Bank of Scotland (RBS) ann- ounced an "unsolicited" (not hostile, they insist) offer to shareholders to take over (merge with, they say) NatWest Bank.

Such mergers and acquisitions of financial institutions have always led to "rationalisation" and closures, to cut duplication. This happened when Lloyds took over TSB, and as a delayed reaction to much earlier mergers when Barclays took over Martins, and National Provincial merged with the District and Westminster to become National Westminster Bank. Takeovers have helped the banks become immensely profitable. The big four - Barclays, Lloyds TSB, NatWest and HSBC (formerly Midland) - are expected to make record profits this year of pounds 22bn.

The news of the RBS's bid for NatWest sparked fears in many communities, especially those with just one branch remaining, that any takeover would lead to more closures and the end of an over-the-counter service. The RBS stressed it had no plans to close NatWest branches. But they don't need to. NatWest has already announced it will close 200 branches to make itself more cost-efficient in response to an earlier hostile take-over bid by the Bank of Scotland in October, which NatWest is still fighting off.

Sensitive to public opposition to closures and the shift from traditional to more automated, impersonal, high-tech "virtual" banking, a spokeswoman for the RBS said: "We are trying to increase opportunities for people to have access to their bank accounts and financial services, so we have added on internet banking, tele-banking and supermarket banking. We are not moving away from personal banking or branches. People still have a choice."

This may be true of the RBS but the move is undeniable elsewhere, as Mr Sweeney of the British Bankers' Association confirmed in a candid speech at the London School of Economics, when he claimed that people do not always patronise the smaller branches they profess to like.

"Branches will continue to close, as they must if we are to recognise that many customers do not use or need them. Of course, we recognise that some customers value face-to-face contact, much as they prefer to have their corner shop and the church unlocked through the week. However, banks cannot buck larger social trends and at the same time remain competitive."

There is no question that technology-based banking is the future. Ten million people are expected to use telephone banking within a year, and the number of customers using internet banking is predicted to rise to 2.5 million by 2001. The use of the supermarket facility of cash-back, including a smart card known as an electronic purse which holds cash rather like a phone card, is also reducing people's need for personal banking.

Increasing competition be- tween, and merger of, banks (including the converted building societies) will lead to yet more branches disappearing. Consumer groups predict there will be another 4,000 branch closures in the next five years, on top of the 4,000 already, leaving 1,600 communities without a bank since the early 1990s.

The Campaign for Community Banking Services was formed to fight further closures. Derek French, its director, explains that small shops are badly hit when branches close: "They report loss in turnover of 15 to 25 per cent when the last local bank closes, as their regular customers change their shopping habits along with their banking needs in favour of the big town or supermarket."

Among the customers most affected by the closure of local branches are the 10.6 million pensioners, the majority of whom want to be able to go into their bank and conduct their business face-to-face.

Mr Kohler said: "Telephone banking costs money. Think of the times when you wait in a queue just to ask your balance. Older pensioners tend to be poorer than younger pensioners and a majority live on their state retirement pension. This group of people doesn't have the money to spend on phone bills, nor are they likely to have access to a computer."

But there are signs that people are willing to accept a more anonymous way of doing business with their bank. They use cash machines for obtaining money, a record of their balance, ordering statements or a cheque book. Telephone call centres are also used to answer customers' queries, but they are condemned as sweat shops by the banking and financial services union (UNIFI). The result: even more reasons for getting rid of the local branches.

Mr Sweeney is unrepentant, boasting that the industry serves 94 per cent of the population through 100 million accounts and 30 billion transactions a year. "It is a handicap to modern banking that it has become bundled with cultural myths about a golden age associated with warm beer, cream teas and village cricket," he said.

"The truth is very different. In the 1950s only a small proportion of the population had bank accounts or access to banks. The majority were solidly middle class. Captain Mainwaring did not offer accounts to the socially or financially deprived, and he saw no one before 10 o'clock, after three o'clock or at lunchtime.

"In casting off the half-glasses and frock coat of the popular image, banking has progressed to a level of customer service and commercial risk- taking at which Captain Mainwaring would stand aghast."