The pain and the gain of Barclays deal

When it comes to banking, cost savings tend to be the benchmark by which all else is measured. So competitive is the industry that unless banks slash expenditure, close branches and offer interest rates that are just good enough to attract customers without harming their profits, they won't survive. A slicker outfit will come along and take them over, just as Royal Bank of Scotland did with NatWest.

When it comes to banking, cost savings tend to be the benchmark by which all else is measured. So competitive is the industry that unless banks slash expenditure, close branches and offer interest rates that are just good enough to attract customers without harming their profits, they won't survive. A slicker outfit will come along and take them over, just as Royal Bank of Scotland did with NatWest.

In this environment, the news that Woolwich is to be sold to Barclays for £5.3bn, as long as the former building society's shareholders agree to it, is inevitable. It makes perfect sense from a business perspective, even though the share price of both banks has suffered this week.

In the longer term, Barclays, which is weak when it comes to mortgages, will benefit from Woolwich's name and customer base, along with its more competitive loans. Barclays will also be able to take advantage of Woolwich's Open Plan, a pretty aggressive scheme in the flexible mortgage market which has been well received by customers.

Not everyone is likely to be rejoicing, however, as cost-cutting has an inevitable downside to it. In this case it is the branch closures: Woolwich customers stand to lose 100 branches. Most of these will go in the South-east where the greatest overlap with Barclays branches occurs.

Barclays, which has never shown a fondness for keeping bank branches open, will answer its critics by arguing that an increasing number of us are banking by telephone and the internet anyway, making the expensive branch network largely redundant. While this is true to a certain extent, some people will always prefer to do their banking in a branch. And there are some products which are just too complicated to sort out yourself online or with someone in a call centre over the telephone.

Mortgages, for example, are complicated. Getting them right is crucial, considering that a mortgage is likely to be the most expensive financial product we buy during our lifetimes. I realised this earlier this week as I have a Woolwich mortgage and needed to get some advice about it. As it was a relatively straightforward query, I called the helpline as I thought it would be the quickest and simplest way of getting an answer.

Unfortunately all the mortgage advisers were busy and after speaking to three people - none of whom could help me - I was told someone would call me back to answer my query. That was Wednesday; on Friday, at the time of writing this column, I was still waiting. I would put money on the fact that I will be no nearer to getting an answer by the time you read this.

This is the kind of treatment you would never get in a face-to-face interview as it is far harder for someone to be evasive if they are sitting there in front of you. You can't be passed around by a series of anonymous voices, only to discover that the person who supposedly knows the answer and was meant to be calling you back to tell you what it is, "forgot" to do so.

The Barclays-Woolwich tie-up is likely to spark another wave of mergers in the banking sector, with former building societies, such as Alliance & Leicester, looking most vulnerable to a take-over by one of the bigger banks. And when that happens, Woolwich customers won't be the only ones struggling to find a local branch.

* m.bien@independent.co.uk