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I chaired a dinner with a large group of senior bankers this week. As a dinner, the group was too big for me to manage a normal facilitated discussion, so we just did a round robin and each person gave a comment about their biggest concern right now. As we moved around the table, the topic had a common thread:
You get the idea.
These are themes we face often and show the anxiety of facing the future, particularly facing the future in banking. Banking is a tough market, but not a shallow one. It’s a deep market and capital does not move easily.
This is a key point. Capital does not move easily.
Take consumers and retail banking. There’s lots of drums banging about new banks, neo-banks and Fintech start-ups that will eat the banker’s lunch and change the system. In the UK, I can now count a dozen new bank start-ups: Atom Bank, Starling Bank, Tandem Bank, Secco Bank, Mondo, Aldermore Bank, Shawbrook Bank, Handelsbanken, Triodos Bank, Virgin Money, Metro Bank and more; but will consumers want their offer?
According to the latest news on account switching, I’m not sure:
Two million bank customers have used the seven-day switching service to jump from on bank to a rival in the first two years of the service. The system was designed to make it easier to move bank, enhancing competition and giving unhappy customers a way to try out an alternative service. However, the 2m number falls well short of the 5m per year that some in the industry expected when the system was launched in 2013. With almost 50m current accounts open in the UK, the 2m figure indicates that just 2pc of customers are using the seven-day system each year. Even before the scheme was announced, some years saw more than 1m people move bank, indicating the system has only had modest success in encouraging mobility in the market.
It’s even tougher to get a corporate to switch accounts, as the complexity is ten times more onerous than the simplistic switch of a few consumer direct debits. So we have this dual stream friction. Bankers are right to worry about competition, new start-ups, the impact of technology and regulatory reforms, but these things are a slow burn. They will hit the industry but, unlike downloading music or booking a holiday, the customer is also slow to change.
Therefore, when I hear about all of these big impact changes in banking, part of the reason why I’m not as sabre-rattling as other commentators is that I just cannot see hundreds of thousands of customers and corporates moving their accounts from their trusted financial provider today to a new brand tomorrow. Equally, by the time the new brand of tomorrow is ready for the customer to change, if the trusted financial provider of today has not responded to that threat then it is their fault.
Capital does not move easily and banks have therefore the luxury of (some) time to adapt and change to new business models, new start-ups and new competition. Just don’t think you have that much time and, as evidenced by my dinner, most banks don’t.