So what would kill a bank?

Stumbling over an interesting article about bank consolidation in Europe, reminded me of Francisco Gonzalez’s (former Chair of BBVA) prediction that there’s only enough room for a maximum of fifty banks globally.

I don’t believe either.

As written about yesterday, banks don’t disappear. They don’t die. For over a quarter of a century, there's been predictions of mass consolidation of European banks. It hasn’t happened. When Banco Sabadell took over TSB everyone said: “no one expects the Spanish acquisition”!

Banks in Europe are still domestic. They speak different languages. There is no pan-European bank. German banks in Poland aren’t trusted; French banks in England aren’t trusted; Swedish banks in Denmark aren’t trusted; and so on and so forth. There are domestic and national agendas at stake here that keeps most banks local, which is why there are over 5,000 banks in Europe, almost 5,000 in America and more than 30,000 around the world.

Banks don’t disappear. They just get acquired.

For example, if you rolled back twenty years, there were almost 10,000 banks in Europe and 8,000 in America and 50,000 worldwide.

What happens is banks consolidate, acquire and change.

In fact, reading this Financial Times report the other day about challenger banks – the virus has crushed the challenger bank dream – Jemima Kelly makes a few key points:

While it might be very trendy to say that you hate the traditional banks, not many of us pay our wages into even the most established of their challenger rivals. The problem, as we see it, is that anything they [challenger banks] can do, the big banks can do better. The big banks are too big to fail, and that’s why customers know that they will probably be safe if they bank with them, especially in the bad time.

I agree to an extent.

But it also reminds me of a comment made when PSD2 appeared. PSD2 or, if you prefer, the Second Payment Services Directive, forces banks to share data with Trusted Third Party providers (TTPs) through Open APIs. Great! And someone said to me that most TTPs would be other banks.

Other banks.

Banks compete with each other, follow each other, copy each other, focus upon being bigger than each other. They don’t need to worry about FinTech or Big Tech. They just focus upon beating each other …

… which might actually be their biggest strength and weakness. By focusing on the other banks for acquisitive growth, banks recognise their role as custodians of trust; however, by focusing upon other banks, they miss new opportunities to innovate. They don’t necessarily need to innovate, but it means they miss major market movements and changes.

Two examples.

I asked M-Pesa in Kenya how banks compete with them. They said: “they copy what we do, but we focus upon the customer”. Ouch!

And Jack Ma: “if the banks won’t change, we will change the banks”. Yep, there it is.

Bottom-line: banks don't die, but you can kill a bank by acquiring it and squeezing every drop of blood out of it until it is fully absorbed into its new parent organisation.

In 2040, do you think most of today's big banks will still be around?

— Chris Skinner (@Chris_Skinner) November 8, 2020