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The biggest barrier is our legacy mentality

On regular occasions I talk about disruptive models of banking and payments, such as complementary currencies, the new European Exchanges, Paypal, Zopa and SmartyPig.

The aim is to illustrate that there is the potential to do banking without banks.

This is not to say that I believe people want to do banking in a different way or even to do banking without banks.  It's just to say that it is possible.

This is a theme explored by Banking as a Service and many of the other presentations, discussions and dialogues you will read on this blog.

Much of the dialogue is there to create a discussion, no more and no less.  It is not to promote or demonstrate it has to be this way, just that it could be.

And each time I have such a discussion, the same questions are nearly always raised:

"Ah, but no-one trusts those new forms of finance which is why they stay with us."

So what does this mean: trust?

Does anyone trust the bank these days? 

After the collapse of so many institutions, can banks really claim any trust at all?

Not necessarily.

The banks admit that trust is no longer guaranteed, and so we then move onto the next barrier to disruption:

"These new forms of finance do not work because they are not regulated."

Sure, and the banks were regulated with light touch, principles-based, self-regulation and look what that did for us.

Does regulation work in banking?

Not necessarily. 

That's why the G20 and all the supervisory bodies are scrambling around to find a new way to regulate the system.

A Global Deal.

But if banks aren't trusted and regulation hasn't worked, are there really any barriers to new entrants in banking?

"Yes", say the bankers.  "To be a bank you have to be licenced by the Central Bank, and many of these new players do not have that guarantee."

"And what does that mean?" I ask.

"It means that if we fail, the government guarantee the return of our customer's money."

Mmmm … if that's the only reason customers stay, it's not a great case for keeping the business models of the past is it?

The banks of tomorrow are arising already. 

They are nothing like the banks of the past and they may not have the licence, trust or regulatory endorsements that the old banking system had … but do they need it?

I wonder.

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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  • Tim Collins

    For the bankers in the room, myself included, it doesn’t have to be a choice between the banks or these new disruptive models. Banks could adopt these techniques, and a few are starting to. As with many successful start-ups, they could also cash-out by selling themselves to banks. The unknown is the regulatory environment. Will banks be allowed to innovate (or buy innovation), or will that be considered too risky?

  • Chris Skinner

    Good point Tim
    And I should state that there are a few banks out there that are embracing innovation and these new business models.
    The core for many banks however, as you illustrate, is the struggle between regulatory constraints and breaking the mould.
    The trouble is that many banks use the regulatory constraints as an excuse for not breaking the mould, which seriously irritates me as is probably obvious!
    Chris

  • Chris Skinner

    Good point Tim
    And I should state that there are a few banks out there that are embracing innovation and these new business models.
    The core for many banks however, as you illustrate, is the struggle between regulatory constraints and breaking the mould.
    The trouble is that many banks use the regulatory constraints as an excuse for not breaking the mould, which seriously irritates me as is probably obvious!
    Chris

  • Chris Skinner

    Good point Tim
    And I should state that there are a few banks out there that are embracing innovation and these new business models.
    The core for many banks however, as you illustrate, is the struggle between regulatory constraints and breaking the mould.
    The trouble is that many banks use the regulatory constraints as an excuse for not breaking the mould, which seriously irritates me as is probably obvious!
    Chris

  • Chris Barry

    Can you say Tesco | Walmart? I believe that what Chris is describing converts to brand loyalty. Consumers will probably think about banking with a brand that they trust for other non-financial services as long as they are satisfied and served well by the brand. Large corporations are already building the foundation for disruption, and have the ability to purchase a regulated bank for their brand.

  • Chris Barry

    Can you say Tesco | Walmart? I believe that what Chris is describing converts to brand loyalty. Consumers will probably think about banking with a brand that they trust for other non-financial services as long as they are satisfied and served well by the brand. Large corporations are already building the foundation for disruption, and have the ability to purchase a regulated bank for their brand.

  • Chris Barry

    Can you say Tesco | Walmart? I believe that what Chris is describing converts to brand loyalty. Consumers will probably think about banking with a brand that they trust for other non-financial services as long as they are satisfied and served well by the brand. Large corporations are already building the foundation for disruption, and have the ability to purchase a regulated bank for their brand.

  • Culturally, banks are not geared to view and develop financial services from the customers’ standpoint. Regulation has built up accordingly, with consumer protection bolted-on as an after thought, creating the sort of mindless complexity you see in the Consumer Credit Act and regulations.
    Successful new entrants start by looking at what financial services customers need or want and develop them to fit with customers’ actual or preferred behaviour.
    Helpfully, the FSA has a remit to encourage innovation and competition (unlike the SEC in the US).
    Best
    SDJ