Tag: new finance


Time for New Finance

Originally published in The Huffington Post, 05 July 2012.

No more excuses; this is a broken record. Credit crisis, moral hazard, payment protection insurance, taxpayer bailouts, mis-selling, bumper bonuses, rogue trading, “Muppets”, collusion, lending…..the scandals hitting the banking industry roll on and on. The time is now to shift the balance of power away from the banks, to make them sit up and listen. It is time for customers to take control and vote with their feet for better and cheaper services and for transparency and fairness.

Fixing LIBOR and EURIBOR. Mis-selling interest rate products to SMEs. “You have been a naughty boys,”say the FSA, a slap on the wrist for Bob Diamond and some fines. We, consumers and SMEs, will ultimately bear the cost for the penalties handed down, not the bank’s big business or institutional customers. We let the banks get away with it. We continue to fill their coffers.

We can’t rely on policy makers or regulators to improve the banking industry. They are applying sticky tape to the gaping fractures that have been exposed and I guarantee the tape will eventually be stretched and ripped apart exposing again the hazard beneath.

If we were to design the financial services industry today, anew, what would it look like? An industry based on the world today, on a fresh understanding of incentives and needs, on technology and new business models, is what I see as the true solution to the crumbling system that surrounds us. A solution that we, as consumers of financial services, are capable of making a reality through our actions and choices.

The banks see us as the least price sensitive segment – we are their goldmine. The big 4 banks in the UK control 85% of SME banking services and about the same percentage of consumer financial services. This oligopoly has hardly been dented since 2007, even though the number of viable alternatives has risen sharply. Entrepreneurs have been drawn to solve the obvious issues and to deliver better services. The next generation of firms are spawning, focusing on specific niches within the chain of financial services.

We are unfairly taxed by the banks for our loyalty. The price discrimination applied to small business and individual customers is staggering and totally unjustified in an age of digital processing. We need the banks to hold and look after our money but we shouldn’t then be handing them disproportionate levels of our hard earned income for a range of bolt-on financial services, especially given the inferior quality of the service we receive.

It is unquestionably cheaper to access the services we need through independent next generation providers. It will get even easier too, as “New Finance” firms come together to form complementary ecosystems that deliver services through a single customer interface. These firms look to analogous financial technology businesses to supply the building blocks for their solutions. New Finance firms recognise, as we all should, that the real competencies of banks are in deposit management, back-office operations and capital markets liquidity – the rest is better done elsewhere.

Firms such as Funding Circle, the peer to business lender, Money Dashboard, Zopa, Tradeshift and Fidor Bank are working hard to be excellent at fulfilling customer needs, delivering business model innovation to lower cost with high quality technology based services that provide a more fulfilling customer experience, all wrapped in the required layers of security.

It is too late and too expensive for banks to bridge the massive gap between customer needs and the services they deliver. When the banks should have been taking risks with their adoption and use of technology, they took risks with our money instead. It is time we punished them for being below par; we wouldn’t use a cowboy builder twice, so why do we stick to our cowboy banks? We must help the next generation of financial services firms succeed. The power is in our hands; we must embrace New Finance for our own benefit. Shrug off the apathy – take action.

Sympathy for bankers

The tipping point has been reached – banker bashing has gone too far. The hysteria and portrayal of the “despicable” individuals that work in financial services is yet another story that the media has spun beyond the realms of reality and reason.

Sure, there are unscrupulous and venal individuals in the industry, but no more than in any other. Labeling all bankers as evil incarnate, motivated by greed, is ridiculous. The “99%” are ordinary hard working people that live down your street, that take days off to attend their kid’s sports day, that would rather be at home with their family then jumping on a private jet for a hedonistic all-nighter in Monte Carlo.

I have never met anyone in the industry like those that have been described in the press of late. The attacks on the culture and, more worryingly, individuals and groups, is creating a sideshow that is stealing the focus away from the real issue – how to change financial services for the benefit of the customer and the UK economy.

It is not the fault of individuals that financial services is failing. The industry is not structured in a way that suits today’s business and consumer needs. We should not be focused on demonising people who are typically as honest as the rest of us. We should instead be looking at the wholesale change to banking structure, and business models therein, that is needed to improve customer service, transparency, trust and to lower costs.

A movement is already under way. We are living in an age where change in the management and delivery of financial services is occurring at lightening speed. However, it is not the legacy banks that are at the forefront of this evolution, nor the policy makers and regulators that are simply applying cheap sticky tape to gaping fractures. It is “New Finance” that is gaining momentum; entrepreneurs and small businesses that are leveraging technology to address the fallacies of the system and to improve the industry for you, I and our businesses.

Perhaps the current hysteria will finally be the catalyst to encourage customers to vote with their feet, as that is ultimately what is needed to make change happen. It is astounding that 85% of business banking and a similar proportion of consumer/retail banking is still conducted with the 4 major UK banks.  In a recent survey conducted by the Payments Council, 2 out of 3 people in the UK said they were still loyal to their bank despite the brand and trust destruction the industry has suffered over the past few years. Over the five years to 2010, 80,000 customers switched their banking provider – that’s less than 1/8th of a percent of the 64 million+ accounts held in the UK.

Competition, innovation and a re-focus on the customer is the key to improving the practices in financial services and to deliver better services, fairer services, for consumers of financial products. Rather than holding all bankers to account, lets drop the hype and focus on the real and practical change that can cement an era of New Finance. The power is in the hands of the customer – you must embrace the new, alternative, cheaper, more transparent providers of financial services and thus feed the seeds of a better system.