This blog from our CEO was originally published on The Huffington Post
When was the last time you met your bank manager? When was the last time you walked into a bank branch and interacted with anything other than a machine? My guess is that many people will struggle to remember.
Last week Tesco made a bet that we don’t care about bank branches any more when it launched its own current account product. I can’t speak for you, but I wouldn’t miss high street bank branches if they disappeared tomorrow.
The financial crisis and endless ensuing scandals have seen the UK’s biggest banks witness a historical nadir in their reputation amongst the general public. As a result many people have spoken wistfully about a past age where you knew your bank manager and they knew you. Applying for a loan was not a process driven by computers, data and algorithms, but by honest conversation, handshakes and eye-contact. Plenty within and without the corridors of Westminster have called heartily for measures that would encourage a large-scale return to this kind of banking. As far back as 2009 Lib Dem MP John Thurso (then on the Treasury Select Committee) called for a return to “Captain Mainwaring running a bank we could trust.”
This is a bad idea.
The old-school approach can work; the relative success of institutions like Handelsbanken proves that a localised, personal approach to banking can be effective. Making lending decisions using a combination of data and subjective judgement can help keep defaults low without unnecessarily halting the flow of money to customers. The problem with trying to broaden this approach and upscale it is that the costs become unmanageable and a large amount of cherry-picking is required on the bank’s part leaving many people vulnerable to financial exclusion.
To improve banking in the UK we need to look forwards rather than back. New and innovative forms of funding for small businesses – like MarketInvoice – have dramatically altered the business finance market in a positive way. Businesses have benefited significantly from cheaper, quicker and more flexible credit lines.
Much of this revolution in small business finance has been cheered on by the Government. So why, when it comes to personal banking, are so many people so keen for us all to return to the 1970s and head off to meet our bank manager?
The desire to look back and reminisce about the good old days rather than look forward to new innovations and better products perhaps reflects simple politicking – older people are more likely to vote, and so it’s more important to appeal to traditional sensibilities.
The reality is that better products and better service can only be delivered through new innovations. Using technology to deliver more efficient ways of saving, borrowing and managing money can change the way we think about our finances and provide significant societal benefits. Just don’t expect to see this innovation from a big bank. Instead it will be new entrants to the market that generate real developments – companies like Zopa, cutting out the middle man in personal borrowing and improving the rates for everyone. More innovations like this will drive us into a new era of financial management we can all benefit from.
The days of visiting your bank manager are over, we won’t miss them.