I chaired a dinner with a large group of senior bankers recently. 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:
- “I’m worried about our business model and whether it’s fit for the future.”
- “My major hot topic right now is the impact of technology on our operations and how we adapt to customer needs.”
- “The biggest issue we face is new competitors and whether they might make us irrelevant by taking over the customer connection.”
- “Our culture is a challenge, as we believe in slow cycle change but new competitors and technology is demanding fast cycle change.”
- “Getting the organisation to agree anything and make a decision is the hardest task.”
You get the idea.
Then, over dinner, we talked more about some of these themes and other issues arose. The impact of regulations; the uncertainty of the eurozone; the fact that there are too many banks and some will disappear; whether foreign banks are still serious about their operations in the country (the dinner was at one of the European mainland states); the fact that the economy was plateauing; and so on and so forth.
These are themes we face often and show the anxiety of facing the future, particularly the future of banking. It’s 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 are 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 dozens of challenger banks: Atom Bank, Starling Bank, Tandem Bank, Secco Bank, Mondo, Aldermore Bank, Shawbrook Bank, Handelsbanken, Triodos Bank, Virgin Money, Metro Bank and more. But do consumers want what they’re offering?
Falling short
According to the latest UK research, fewer customers are switching accounts since regulations were introduced to make it easier. Only 2 million people have switched, even though predictions for this point were for 5 million. Two million is just 2% per annum changing accounts (there are 50 million bank account holders in the UK), so 98% just can’t be bothered.
It’s even tougher to get a corporate to switch accounts, as it’s 10 times more complex than just switching a few direct debits. So we have this dual-stream friction. Bankers are right to worry about competition, start-ups, the impact of technology and regulatory reforms, but these things are a slow burn. They will hit the industry but, unlike with downloading music or booking a holiday, the customer is also slow to change.
Therefore, when I hear about all of these big changes in banking, part of the reason 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 that new brand is ready for the customer to change, if the trusted financial provider 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 to new business models, new start-ups and new competition. Just don’t think you have time to waste. As evidenced by my dinner, most banks don’t.
Chris Skinner is an independent financial commentator and chairman of the London-based Financial Services Club.
