One of the comments that floated on the network in the last week was: banks can ignore digital.
That made me sit up and take notice and so I asked the person, a banker, what they meant. Their explanation was interesting and went something like this:
Banks do not need to change and adapt and, for all of this talk about competitive issues and challenges with technology, it is not important. We could quite happily sit here for a year and do nothing, and our balance sheet and results would look the same or maybe even better.
Think about it.
First, we don’t make our money from retail consumers but from corporate and investment banking. That drives our balance sheet and shareholder returns far more than retail bank profits.
Second, we could do nothing on the consumer side and we wouldn’t lose many customers. Most banks are operating at the same level as we are. They move slowly and aren’t innovating greatly, so we’re all about the same. If we did nothing for a year, I cannot imagine many of them reinventing themselves and stealing our customers rapidly. Even if their offer was fairly compelling, most consumers wouldn’t switch anyway.
Third, a lot of our reporting of revenues and profits is based upon ifs and buts. We make a lot of guesses and suppositions in our results based upon future contracts and returns, along with risk analytics that can change year on year. As a result, we can create accounts that look far more attractive year on year, by using these different factors to improve or decrease the attractiveness of our returns.
Fourth, we are driven by cost-income ratio and shareholder return. Therefore, investing in retail bank infrastructure to improve customer service doesn’t cut the dice. In fact, most of this would be overhead investment rather than balance sheet improvement. It would increase cost, not necessarily improve income and decrease shareholder return. As a result, we change only if we have to.
Fifth, we are protected by our licence. I liken it to an army camp. You have free movement of people outside the Ministry of Defence camp but, inside, it’s a lockdown situation. That’s pretty much like money and banking. Outside the industry your can have free movement, so people can create pretty apps around money. But the money movement itself is ring-fenced by regulation to be secure, resilient and reliable. It’s a financial encampment that has to be police forced. As a result, we can just sit in that camp for a year and not move, and nothing is lost.
I could add many more factors related to speed of change and ROI, but the force for change in my institution is not there.
How depressing I thought … is he right?