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Acute Shortage of Safe Deposit Boxes on the High Street

3 September 2021

The departure of HSBC and Barclays, together with a rapidly shrinking service from NatWest and Lloyds, leaves individuals and families with very few safe storage options for their high-value items. Christopher Barrow of Metropolitan Safe Deposits reveals the continuing strong demand for safety deposit boxes against the unfortunate backdrop of diminishing supply.

The History of the Safe Deposit Box editorial of March 2016 explored the 150-year-old life of the safe deposit box from its US birthplace in 1865 to the present day. The early 20th century saw US and European banks install millions of “bank boxes” in their branch vaults. The rest of the world followed. It was not long before private businesses started to build safe deposit vaults, though the independent sector was always dwarfed by the banks.

However, since the 1980s, the banks in the UK (and elsewhere) have been increasingly exiting safe custody. The cost of providing the service, the advent of internet banking and self-service facilities, and the tougher regulatory environment surrounding the provision of safe deposit services (since the Money Laundering Regulations 2007) have been factors behind the banks’ withdrawal. Not only is safe custody a non-core activity, but banks risk significant adverse publicity when customer items go missing. Why have items sometimes gone missing?

The clue is in the fact that few banks have provided any significant safe deposit box service. Instead, most branches offered customers a locked box (or bank box) that was placed in an open vault. Occasionally, the bank box (or sometimes simply a cardboard box tied up with string) would be accidentally misplaced (perhaps moved to another branch or handed over to the wrong customer). The reputational damage has inevitably been disproportionate to the value of the service being provided. Misplacing such items should not be possible with a safe deposit box that can only (legitimately) be accessed by the customer.

HSBC and Barclays now have no customers with safe deposit boxes in their UK branches. The process of withdrawal started in earnest ten years ago when the two banks ceased to offer the service to new customers. In parallel, local branches all over the country either closed or gradually phased out the service to existing customers. The other major UK banks have substantially reduced the scale of their safe deposit services. NatWest and Lloyds withdrew from offering safe custody to new customers 9-10 years ago. For existing customers, NatWest provides a service at a small number of flagship branches and Lloyds now has just two storage facilities (in London and Manchester).

Few of the other UK retail banks provide any meaningful safe custody service. Halifax (owned by Lloyds) offers safe deposit boxes only at its New Oxford Street branch. Santander has limited availability at some branches. Bank of Scotland (owned by Lloyds), Co-operative, Nationwide, Virgin Money, TSB Bank and Tesco Bank do not offer the service. A handful of small banks offers a limited safe deposit box service. These include the Strand branch of Coutts, State Bank of India (in Leicester and Birmingham), Bank of East Asia (in Manchester) and Metro Bank (mainly in London and South-East England). Metro Bank has focused on building safe deposit boxes in its branches, though there are doubts as to whether this loss-making bank and its branch-centric business model will survive.

Outside of the banking sector, there is a small but growing group of independent safe deposit box providers. The UK independent sector can be broken down into three different sub-sectors or owner types, namely department stores, specialist dealers and stand-alone businesses. The first category (department stores) comprises the London-based Harrods and Selfridges, which have vaults in Knightsbridge and Oxford Street, respectively. These are both relatively small and normally full. The second category of specialist dealers includes silver dealers (notably Chancery Lane Safe Deposit, which is part of the London Silver Vaults), jewellery shops & diamond dealers (e.g. in Hatton Garden) and bullion dealers (such as Sharps Pixley).

The third category is the vault that is independent of any other business. These stand-alone operators are small in number, but growing. The oldest independent firms in the UK are Metropolitan Safe Deposits (Knightsbridge, St John’s Wood and Chiswick), Balthorne Safe Deposit Centres (Hampstead, Edgware and Hatton Garden), Bank House Lockers (Wembley), Birmingham Safety Deposit (Edgbaston) and St James’s Safe Deposit (Manchester and Leeds). Since Metropolitan acquired London Safe Deposit (Regent Street) in 2012, the number of established independent players has consolidated to just five businesses in four UK cities.

In response to the continuing withdrawal of UK banks, there has been an explosion of interest in opening up new vaults all over the country. They have started springing up in areas of concentrated Asian communities, such as Hounslow and Southall (in London), Birmingham, Leicester, Liverpool, Manchester and Glasgow. Many of these vaults have been established by current or former jewellers, diamond traders and bullion dealers. It is too early to tell how many of these new entrants will build sustainable businesses. A new safe deposit vault will, almost inevitably, take a number of years to reach profitability, especially if the owner is new to the business.

Generally speaking, it is very difficult for small vaults to be commercially viable. Scale is important since revenues are required to cover the high fixed overheads that a professionally-run vault demands. In order to cover those overheads, a large vault needs to secure a few thousand customers before it is able to break even. That will require several years of working capital, on top of the substantial amounts of capital needed to build or convert a professional vault.

There is, of course, one other option for exiting bank customers and that is to keep their valuables at home. For most families, the undeniable fact is that there will be no independent vaults near them. Installing a high-quality home safe and a sophisticated alarm system is a sensible precaution against the average, opportunistic burglar. However, it may not protect families from the more sophisticated burglar. One suggestion that does make sense is to store everyday items at home and to keep the more valuable possessions (heirlooms, gold bars, coins, important documents etc) in a secure vault.

With the financial world some way off recovering from the global pandemic, it is highly likely that banks will continue to cut back on their safe custody services. The closure of thousands of high street branches in recent years will not be reversed given the relentless move towards digital banking and a cashless society. The fact that the FCA is exploring new rules to block such further closures is indicative of the problems facing the industry.

The corollary of a shrinking number of bank vaults is an expanding independent safe deposit box sector. That process will continue, but it will be very slow in view of the high levels of funding required and the sheer scale of bank vaults that have been closed. This severe national supply shortage will continue to face the large number of bank customers who have nowhere to go with their valuables except their home safes.

There are arguments that, as personal banking goes digital, market demand for safe deposit boxes from the younger generation will diminish. To date, there has been no evidence of reduced demand. To the contrary, demand remains very strong with families of all ages seeking safe places to store their valuables. Indeed, since the first national lockdown in March 2020, demand has reached new heights.