Once in a lifetime
Written by Scott Thompson
Scott Thompson reports from the British Banker Association's Annual Banking Conference
The future for banks in this country is enormously exciting, but it also throws up many challenges with technology set to play a crucial role. That was a key message to come from the event, which took place in London during October. One of these challenges is customer trust. RBS CEO Ross McEwan called on all banks to "decide today to compete with eachother on proving that we are worthy of the trust of our customers", calling trust in banks a commercial essential, not a nice to have.
"When I took this job over a year ago, one eager staff member suggested a 100 day plan during which all past problems, practices and related fines could be rooted out so that everyone could get on with a focus on better everyday customer service," he said. "Nothing would make me happier and I understand why colleagues feel that way. But the truth is that I need a 500 day plan for that. I can't draw the line until we know the line will hold. We must get through a slate of conduct and litigation issues at RBS, relating to foreign exchange, our 2012 IT problems, US mortgage backed securities, and our treatment of distressed SME customers...We cannot re-write the past as an industry, but we can chart a different future."
That future could be good or bad, though, depending on various factors. “Looking five years ahead to 2019, I am concerned that we are in real danger of sleepwalking into a situation where the financial sector is on the verge of paralysis,” said Bill Michael, EMA head of financial services at KPMG. “If current trends are allowed to continue, my big fear is that lending still won’t be reaching those who need it. Our capital markets could be dysfunctional. Our need for long-term infrastructure will be even more acute. The UK’s long-term savings problem will be worse, not better. And banks will be overrun by even more compliance officers, regulatory gurus, auditors, lawyers, and so called financial crime experts. I fear we could be left with a system that doesn't serve any customer well. We also risk betraying a 400-year history of expanding our knowledge and influence, and generating wealth beyond our borders. Buzzing customer hotlines are certainly a measure of failure, but economic sclerosis and structural unemployment are the worst customer failures of all. Is sleepwalking into this nightmare a real possibility? I fear it is.”
In terms of technology, Michael argued that it represents the greatest transformation in financial services. “Banks spend billions on IT, yet systems are creaking and are not fit for purpose. It’s not sustainable. Like the car sector in the 1970s, when it embraced robotics, banks must face up to a once-in-a-generation infrastructure project. Collaboration may well be required. And a sympathetic regulatory and political ear. If traditional financial institutions are not efficient enough in making financial connections you can bet someone else will be, including shadow banking. Who knows, one day, financial institutions might need less than 10 per cent of their current workforce?”
Banks are safer than they were before the crisis, observed Anthony Browne, chief executive, BBA. They hold three times more capital than they did. They are less highly leveraged and less risky businesses. But the push for greater safety must not undermine the core purpose of banks: to provide the finance businesses need to fuel economic growth. “Yes, too many risks were taken in the past. But we must be more ambitious than just seeking to achieve, in the Chancellor’s words, the stability of the graveyard.”
“A big part of our future agenda is also how we make new technologies work best for customers,” he added, flagging up huge changes in the way we bank now. £1 billion is moved online and through apps every day. The number of downloads of mobile banking apps is doubling every year. Contactless payments are growing exponentially And plastic has overtaken cash as the preferred method of payment for the first time this year. “Fast forward 20 years and it is not hard to imagine customers finding physical cash is almost redundant, a world where payments are made with biometric recognition technology. Paying in money, arranging a loan or making payments abroad will be possible from the palm of your hand. Everyone will have their very own bank branch in their pocket. This means banking will be easier than ever for all of us. But it will also present huge challenges for the banks we work for as big global brands such as Apple, Google and Amazon shake up and disrupt the market in unpredictable but exciting ways," Browne stated.
This isn't a case of technology spelling the end of the branch, however. Nationwide chairman Geoffrey Howe argued that it's actually a great opportunity for the High Street. Anthony Thomson, founder and chairman of Atom Bank, a digital venture due to launch next year and where the aim is to build a bank with none of the baggage of the past, said that there was a seismic shift in 2012 towards digital banking ("all data tells me that self-service is the future.") But even he conceded there is a digital divide in this country. "My mum's very digital savvy. My dad would walk three miles for a few extra bips on his savings," he commented.
And let us not forget that Thomson also co-founded Metro Bank, which places a heavy focus on the branch and good, old fashioned face-to-face customer service (even if he does now believe the business model is outdated). In November, the venture opened its 30th 'store' (this one in Basildon and, like all the others, open seven days a week, 362 days a year, early and late with such facilities as magic money machines and safe deposit boxes) and more will follow this year and next.
So, who has got this one right? The online-only guys or the Metro Banks? And can the banking sector regain customer trust whilst simultaneously grappling with a myriad of other challenges? Truth is, no one really knows at this point. To quote BBA's Browne: "We live in a fast changing world. I have no crystal ball. But I am sure of this. The banking sector we work in now will look very different to the banking sector in which we will work in 20 years' time. We have a lot of work to do to get it where we want it to be. But we have to be ambitious because the prizes and opportunities are great. And I am sure that we are up to the challenge."