Yesterday there was more gloom and doom about banks, as yet more punishments were imposed for wrongdoings in the past. I know from the tone of anti bank contributions here that many of you will be pleased action has been taken, or will be urging more and tougher action.
I want to talk about the future, not the past. I want to ask the question, what type of banking services do we need to fuel a sensible recovery and to meet the needs of individual and company customers over the next decade? Why have so many people fallen out of love with their banks, or moved from indifference to outright hostility?
Most people need a bank account to carry out transactions in our electronic world. If you need to pay the gas bill, receive your wages, or draw out cash you need access to basic banking services. People want it to be secure, swift and cheap. There should be economies of scale. Although many say they do not like or trust banks, in pratice most people most of the time do trust our main banks to keep our money safe, to settle our bills on time by Standing Order or Direct Debit, and to send us accurate records of what we have done.
The criticisms of these central basic services are that they can be too expensive, it can take too long to move money, and sometimes mistakes are made that can be difficult to rectify. There are second order arguments about whether these servcies are best on line, in branches or by phone. Different customers want a differing combination of these methods of servcie delivery. High Street banks need to get better at delivering what people want. More banks and more choice of bank, coupled with better portability of accounts would help a lot.
Many people and companies also need to be able to borrow money. They may need money for the short term, to handle cash flow problems. Individuals may need to borrow until payday, or ahead of a rise or bonus. Companies may need to finance working capital, awaiting payment by customers or movement of stock.
They may need money for longer term investment. Most individals need a mortgage to buy a house. Many companies need money to buy a property or to finance plant and equipment.
Today there remain serious cricisims of the availabilty and price of credit. Mortgages have been in very short supply, and the requirements are now much more stringent than before. There are signs of improvemetn from a low level. Property lending for companies has all but dried up, yet this used to be one of the main forms of long term bank financing for companies. Smaller companies report banks keen to get early repayment of loans, and only willing to lend with large fees and charges added in.
People and companies also may need help with investing savings and surpluses. They have other sources of advice and assistance, as the banks have found it difficult to recruit and retain the more expensive investment personnel needed to assist in most branches.
The banking models of the last decade created mega banks whose main products and services were directed at the larger companies. They hired very expensive people to invent and sell ever more complex products. They did so by persuading Companies treasurers they needed various types of derivative insurance. They then extended these products to back a variety of savings and loans products, and to overlay pensions and other funds. This made big money, and enabled the staff to enjoy huge salaries and bonuses . The branches did not have empowered or expert staff to look after normal customers.
A future bank has to accept that there will not be so much lucrative derivative, future and options business. There will be a stronger demand for more basic loans and savings products where costs are under better control. This means lower overall remuneration for the practitioners, and more service for the smaller and medium sized customer. It will need a different kind of branch banking.