The RSA, otherwise known as the Action and Research centre, has always been guided by the firm belief, that creativity can emerge from anywhere and is not reserved only for those in authority. The RSA partnered with the Fairbanking Foundation and the Barrow Cadbury Trust to produce a report which demonstrates how deeply troubled the financial services sector is and how it could be transformed by learning from commercial insurgents banging on the gates of the banking fortress. The report makes the point that banking has a once in a lifetime opportunity to change for the better. By learning from the newest players and by allowing them to grow, that change can be built around an inspiring vision of the future with the customers’ interests at its heart.
At the latest Finnovate event held this year, many players from the banking sector, that I would consider to be part of the old guard have indeed been turning up to the events and paying close attention. Maybe they are slowly learning. With the banking industry is still in turmoil, those with leadership responsibilities need to closely examine the flawed business model they employed, together with questionable culture and values. This model is based on free banking, in other words if you keep your account in good order, you are not charged for the privilege of having a current account. This model opens the door for mis-selling and hidden charges. And then there is the culture of pursuing profits at the expense of customers.
At the height of the 2008 financial banking crisis I will never forget a banker in a BBC interview, defending his right to turn a profit while simultaneously abandoning support for the business sector. The RSA is making the point that there are alternatives where banks can still learn excellent rates of return with very different approaches while putting the customer first.
“Some of these alternative models have emerged from smaller players with only a few hundred thousand customers between them. It should be no surprise that radical innovations develop in niche markets. Innovation that changes an industry rarely starts in the mainstream. Executives in large, powerful companies tend to be rationally short-sighted, focusing on the markets and products they already know rather than the ones they do not”.
The report examined four small banking innovators whose business models could reshape the larger mainstream industry, if the other major players take note. They include Thinkmoney, Secure trust bank, Saffron building society and Capital one. One potential stumbling block with these innovators is the necessary infrastructure to scale up operations, the report suggests building their room but acknowledges that this is risky, instead it recommends
“Make aspects of this infrastructure such as the shared payments systems available to smaller,innovative players, much as in other utility industries”.
One thing that struck me about the report is the fact that banks still need to be pressured in order to change. The RSA suggests more competition switching an account portability for customer accounts, we’ve already seen this happening within the last two months. It also suggests that the U.K. regulator, the FCA, should push banks towards more open, transparent and less exploitative relationships with their customers. It has volunteered the services of the Fairbanking Foundation, which can play a role as a standard-setting body, using its research to encourage the banks to adopt proven innovations. I can see it is not going to be an easy road when it comes to banking reformation, instinct tells me that if banks after the previous crises, still need to be forced into taking positive action with regard to the interest of customers who are ultimately responsible for funding them, then I think we need to be wary of their true motivation to change.
I think it is a true measure of progress when the reformation, is self generated and emerges from the bankers themselves, and I am not talking short spurts here and they are all geared towards developing a balanced and responsible way of working with customers.
Image credit by Svilen Milev
Hayden Richards is Contributor of IntelligentHQ. He specialises in finance, trading, investment, and technology, with expertise in both buy-side, sell-side. Contributing and advising various global corporations, Hayden is a thought leader, researching on global regulatory subjects, digital, social media strategies and new trends for Businesses, Capital Markets and Financial Services.
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