Safe at the bank? Don't count on it

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PAY DISPUTES in the 1990s are seldom about pay alone: that simply provides the bone to fight over. More often, they are battles over the future of an industry. We saw that last year with the signalmen's strike, as Railtrack and the RMT sought to get the upper hand over a privatised railway. Now we are seeing it with the unfamiliar sight of banking staff picketing their branches.

Ostensibly, the unions' grievance with Barclays Bank, which flared up last week into the first national strike by the latter's staff, is about money. At a time when the bank has announced profits of nearly pounds 2bn, the unions are rejecting an offer of a below-inflation increase in basic pay, buttressed by performance-related bonuses and profit-sharing. In reality, the dispute is a tussle over the future of banking.

The bell is tolling for the bank teller. New technology and fierce competition are subjecting what was once one of the most secure occupations to wrenching change. In the 1980s, employment in banking burgeoned. In the 1990s, a jobs shakeout is transforming the sector.

Figures released last week by the British Bankers' Association showed the extent of the demanning that has already occurred. Employment at Barclays grew by over a quarter in the 10 years to 1988, when it hit a peak of 87,000. Since then, all those job gains have been lost, most of them in the last three years. (Lloyds, too, has cut a quarter of its jobs in the past five years.) Barclays claims the position has now stabilised for the time being. But City analysts such as Richard Coleman of Smith New Court believe the number of traditional, full-time jobs in banking could halve in the next 10 years.

The familiar image of banking with a branch and manager in every high street is changing irrevocably. Once, the clearing banks' comprehensive branch network was a pillar of strength. Built up over a century of mergers and amalgamations, it gave them an iron grip over domestic depositors and borrowers. No need for signs to warn off trespassers: there was no way a new entrant could move in on the impregnable territory of the Big Four - unless the intruder wanted to be mown down in flames.

This captive deposit base - on which banks naturally offered no interest - provided the small fortunes in profits that they went on to squander in disastrous foreign forays. Midland, once the biggest bank in Britain, discovered America - and how much money you could lose there - and lost its independence.

But a source of strength can become a source of weakness. The branch network was fine as long as it worked to maintain the cosy cartel of the Big Four. But if that cartel could be broken, then the sheer cost of employing armies of staff in bricks and mortar all over the country could become prohibitive.

For a good 10 years, banks have been worrying about this prospect as financial deregulation progressively broke their grip on the market. First they ceased to make money from loans to big companies. Large firms found they were able to get better terms by borrowing directly from investors in the City. There was no longer any need for the middleman.

Then banks found that they were facing growing competition for deposits from building societies, forcing them to pay interest on domestic deposits. That left them with their one remaining captive market: the solvent small business, which they have milked mercilessly, forcing up charges on virtually every transaction.

Small wonder rationalisation is the key theme in domestic banking nowadays. New technology is being used to cut a swathe through what was once a labour- intensive industry.

It isn't just the routine of back-office drudgery that is under ruthless attack. The shake-out is advancing up the ranks. Martin Taylor, Barclays' chief executive, has stated his belief that automated credit rating is more effective than the judgement of bank staff - and certainly cheaper. Old-style bank managers: who needs them? They are certainly not to be found at most branches of Barclays nowadays. As well as closing down a fifth of all its branches in the past five years, the bank has regrouped the remaining ones into clusters that, in effect, turn most of its outlets into satellites.

Up to now, the impact of new technology has largely been in-house, as banks rationalise their operations through the automation of processing and the spread of holes in the wall. But now technological change is providing an opportunity for new entrants to move into the market. The challenge has came from an unexpectedly familiar quarter: the telephone.

Midland's tribulations before it was taken over by Hongkong and Shanghai Banking Corporation meant that it was more willing than most banks to try out new ideas. Most bit the dust. One didn't. First Direct showed that telephone banking worked. From a standing start in October 1989, it now has half a million customers and 2,000 employees.

Of course it is not just the telephone that has made this new service such a success. It would not work without the sophistication and power of modern information technology. Clever software and the elephantine memory of the latest computers allow individual customer records to be summoned instantly to the screen and for security to be maintained without the manual controls of the bank branch.

Telephone banking - like telephone-sold insurance - is more than just a convergence of two technologies, information technology and the telephone. It turns economic geography upside down. Once, banks had to locate where their customers were. Now they can set up shop wherever they can operate most cheaply. First Direct is based in Leeds, but most of its customers are drawn from the Home Counties.

An expensive retail service can be transformed into a cheap industrial operation. Telephone-based financial services operate from what are, in effect, office factories. Substantial savings are possible by operating from out-of-town locations rather than expensive prime sites in the high street. When you employ thousands of workers at one site, you can work them in shifts.

That adds up to a better service - enabling customers to bank when they want to, not when branch employees want to. No waiting around for an appointment with a remote, god-like bank manager.

If the battle for the future of banking could be confined to banks - and even building societies - the prospects for bank staff might be less threatening. But standing in the wings are the direct sellers who have taken the insurance market by storm.

Last year, Direct Line - already the biggest motor insurer - started to offer direct mortgage lending. The investment house Merrill Lynch estimates that direct lenders have cost levels that may be only half those of traditional lenders - including building societies.

These low cost levels, it says, "can only be got by moving away from branches".

If direct sellers can move in on mortgage products, then the rationalisation that has already caused so much pain may be as nothing compared with what is to come.

For some time, banks have drawn comfort from the notion that high value- added services require face-to-face contact. If they are shown to be wrong, then we may be in for Beeching-style cuts in the branch networks.

More and more in today's competitive conditions, there is nowhere to hide. Job insecurity was once something that happened to people in industry. Now you can no longer bank on a job in banking.