Arguably the song that launched Bob Dylan into the public consciousness was called “For the times they are a-changin” and the lyrics to it are as pertinent now as they were in 1964 when it was written. Whilst the social change that he was referring to is still under way the lyrics are just as relevant to the long overdue changes in banking which are being spearheaded by some of the Fintech companies that I referred to in my last column. Having spent a frustrating morning trying to contact an employee with a brain larger than an amoeba at Lloyds business banking last week my thoughts turned to the role and efficiencies of the challenger banks and the fact that the introduction of new methods of banking are being embraced and welcomed.
In 1964, (I will own up and admit to being 9 years of age in that year) I used to go to the bank on a Saturday morning with my late father. Every week we went to the same branch of Barclays Bank and each time we saw the same cashier, if I think really hard I will remember her name, who I can still picture. They were deferential to each other whilst he conducted his business and there was a kind of churchlike hush to the whole process. In fact oddly I can still remember the smell the branch. The point is that the system worked and there was respect between both parties. A banker was a respectable member of society on par with a Doctor, Accountant or Lawyer. Over the intervening years antipathy towards bankers has grown quickly and being a derivatives broker I saw first-hand that by the late 1980s many banks had simply become addicted to gambling. And as in any Casino the house wins but this time the house not only won but it destroyed not only their reserves but also their reputations. It seems unbelievable now but the banks didn’t know what they were gambling on or how much they were gambling. Ten years ago this month (this week past?) queues began forming around Northern Rock reminiscent of those that my mother had seen in 1929 in Seattle. The problem was not caused by derivatives with Northern Rock but none the less the overriding reason was the stupidity of not understanding the risks that they were running by borrowing short and lending long. An age old recipe for banking disaster.
Ten years after the crash the banks are more cautious than they were and have, of course, overshot in the other direction. Lloyds were forced into a disastrous merger with HBOS and whether this has caused the problems they have with customer service is open to debate but for sure they have problems just the same as all the major banks. The issues are twofold the respect for banking has gone and they are now no better thought of than a real estate agent (apologies to any of those reading) and certainly staffed and run by intellectually challenged individuals operating antiquated legacy systems . Why do I have to spend 30 minutes to speak to someone 300 miles away who doesn’t know me, doesn’t understand my business and doesn’t care? Why when the same person rings back to make some time wasting appointment to speak to me again to review my situation do I have to go through the same barmy identity questions that I had answered 15 minutes previously ? Do they think my mother’s maiden name has changed in that time? All I wanted was to find out how to reset the banking app on my new phone and not raise my blood pressure.
The feelings of disenchantment are widespread within the public and this has encouraged the phenomenon of challenger banks or in plain English new banking kids on the block. In the area where I have some experience , dare I say expertise , Foreign exchange the main banks have given up the pretence of offering anything like a sensible service to individuals or SMEs and by doing so have opened the door to companies such as FairFX , Transferwise and Revolut. It is open to question whether these companies and other payment solution providers are challenger banks per se but what can be said, with a degree of certainty, is that they have stripped out a lucrative niche for themselves from the moribund banking systems by being user friendly, quick, cheap and efficient. Four adjectives that you certainly wouldn’t attach to the mainstream banks.
Other challengers that are after the traditional banking business of deposits and general banking have entered the scene some with funky new ideas such as Metro Bank whilstothers such as Starling are internet based. The internet based “banks “ range from those that hold, or are in the process of obtaining ,full banking licences to those that are cannibalising the existing systems to provide a better service and are aimed at specific parts of society such as the lower paid. By the clever use of an electronic money licence, to create an e-wallet and buying a sort code from a clearing bank they can appear to be a bank – nothing illegal and the deposits are covered by the FCA insurance scheme. These so called bank in a box offerings probably don’t have the legs to last the course but certainly the likes of Metro Bank and some of the digital banks will survive and prosper as the big banks , like a big old steam driven ship are too slow to turn .
Over the next few years we will see which of these challengers will survive and whether they can prosper outside of the UK for as yet there seems to be few new banks emanating from the USA or Europe. Bob Dylan observed “The slow one now, Will later be fast… And the first one now, Will later be last” and when the new banks are looked at these words ring true .Not all will prosper and it is certainly hard to pick those that will. As the banking system creaks in Europe the concept of new banks can surely only be a short time away whilst in America it is possible that the cross state banking laws may have restricted the growth. Whilst London and its businesses, and my column is not immune to this criticism, are often accused of being “London centric“ the growth of new banks and methods of transactions will benefit all levels of society. From Liverpool Street to Leeds, Holborn to Hull the lowering of costs and raising of efficiency will benefit all society whether it’s the lower paid being able to open bank accounts to small businesses getting cost saving benefits and better service these challenger banks are universally a good thing. If the old high street banks don’t adapt they will wither, whether they are too late too remains to be seen but without doubt the times they are a-chngin in Lombard Street and thankfully one is now much more likely to see a baseball hat than the traditional Bowler hat.
Richard Matthews, who began his career in 1973, is a former trader-broker in the London money, futures and foreign exchange markets. Twitter @dickiematthews5
This column is the opinion of the author and does not necessarily reflect the opinion of LiveSquawk.