Banks Have One Ace up Their Sleeve: Fintechs
We all love to bash the banks…
It’s something of a national pastime.
And yet, for a long time, the big banks could wear this act of catharsis with a ‘who cares’ shrug.
They knew that despite our cantankerous statements, we’d plod back to them the next day when we needed a loan, credit card or some holiday money.
But bank bashing from an industry insider is less normal. And a more worrying sign for the Big Four that perhaps our days of apathy are coming to an end.
Introducing Rob Ferguson…
He’s a man who’s sat on bank boards and been part of the corporate establishment for many decades.
Now retired, he’s now free to speak his mind. A role he seems to be relishing in.
And in an interview yesterday with The Age, he unloaded on the banks with both barrels…
The Big Four take a knuckle sandwich
Consider these well aimed blows:
‘As Ferguson sees it the royal commission crescendo was something the banks definitely deserved. They had it coming.
‘Yeah, absolutely they deserved to have it. I think the banks were arrogant, were out of touch, and all of that’s sort of been revealed by the process we’ve been through. So, I think it’s a fantastic process of calling them to task.’
‘There’s a fundamental problem with banking in Australia, it’s so oligopolistic that the ability to earn super profits is like a sugar hit for the ego of the people that are running those organisations. They feel that they’re cleverer than they actually are.’
‘That hubris shows up in lots of different things. It shows up in those organisations really not managing themselves properly.’
I don’t know about you, but I kind of like this Ferguson fella…
But like I said at the start, he’s not telling you anything you don’t already know.
What happens next then?
The devil’s advocate
I’ve talked a lot recently about the change coming to banking.
And in turn how the Big Four are under attack.
But I’d be foolish to think that they’ll be killed off easily.
I don’t think we’ll see the end of the Big Four any time soon. They’re still very much in the game.
But — and this is the key point — they’ll only survive by retreating to their core strengths.
The thing is these core strengths are not what the banks used to think they were.
In the past they relied on the vast branch banking network and their expensive legacy infrastructure to work as barriers to competition. As well as the political omerta they enjoyed for years too.
But these former strengths are now weaknesses…
Smartphones have destroyed the value of branch banking which is now a high cost noose around the banks’ neck.
They can’t get rid of it quick though, as they still have many older customers that still rely on it.
As well as tens of thousands of staff that can’t be fired en masse in the current political climate, lest the banks face a full scale social revolt.
The old technology infrastructure has gone from a strength to a weakness. Put simply, they didn’t see the need to upgrade here. And now they’ve been blindsided.
From the 11FS blog:
‘But historically it has been the absolute no-go conversation for banks. If you suggested that your new finance management solution, or asset portfolio carbon footprint calculator, or new risk engine needs to be digital ‘all the way down’ your idea wouldn’t make it past the moment you uttered that sentence.’
New digital-only approaches are reinventing the tech stack behind banking.
It’s a reason tech companies like Apple, Facebook, Google and Alibaba are moving into banking. To them it’s a core competency.
For the banks it’s not…
But I think the banks do have one ace up their sleeve.
It might not save them, but it could help them adapt to a new reality…
Fight or flight?
Rather than trying to become fintechs, some banks around the world are realising its better just to back the right fintechs.
From Alex Graham, CFA:
‘A contrarian response to fintech, but one that is worth consideration, is that banks acknowledge the inevitability of the unbundling of financial services and retreat back to their roots—using their infrastructure to be “enablers” of financial services, such as custodians for deposits, and also applying their scale to revert to the form of human interaction which is being shunned by fintech.’
Whatever happens, there’s no question this is a huge story playing out right now.
Editor, Money Morning
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