What Bank Customers Want And Why They Don't Get It

There's a lot of talk about 'restoring responsibility to banking', and 'returning banking to its sober Quaker roots', 'removing the casino culture', 'getting banks lending again' and so on.

But all these soundbites are focused on the activity of banking.

Nobody, except banks, engages in "banking". We may use a bank's service, but only in the context of a much wider activity, such as buying a house or a birthday present on the way to a party, or getting clothing made in China to sell over here. "Banking" is only what banks think customers are doing, because banks only view the world through the lens of their own products and not customers' activities. Which is why bank products are inherently designed to make money for banks and not to benefit customers (and why they fiddled 'Liebor').

All bank customers want is what the customers of any supplier wants - solutions to their own day-to-day problems rather than those of the supplier.

But if you believe banks are capable of aligning with their customers' activities any time soon - you're flogging a dead horse.

Back in 2009 and again in 2010, there was a lot of discussion about whether the role of social media would ever play a role in consumer finance. Typically, the banks claimed that using Twitter to communicate with customers was a publicity stunt - making the almighty assumption that Twitter is somehow divisible from the vast entanglement of services that make up the social media. They said online peer-to-peer finance platforms wouldn't scale. In 2011 that sort of discussion wasn't repeated. Why? Because even banks realised it was rubbish - just as it proved to be in the markets for retail services, music, entertainment, travel, politics, newspapers, television and so on, where online 'facilitators' have hacked great chunks out of the market shares of once dominant, sleepy, 'traditional' institutions that were not aligned with their customers' day-to-day activities.

But the banks have not been 'Googled'... yet. 

Why not? Comparisons between the rise of facilitators in other retail markets are not apt because there was no regulatory regime that protected high street stores from online competition. There were no tax incentives to persuade consumers it's safer to buy their music on CDs rather than download it. No compensation scheme for advertisers who don't get the return they want on their advertising spend in the newspaper or on TV, leaving online advertisers to fend for themselves. No taxpayer guarantee that allows high street electronics retailers to spend whatever it takes to maintain market share against online marketplaces.

Banks, on the other hand, rejoice in all that protection against innovation and competition.

In these circumstances, it is unrealistic to assume that new business models will thrive without some alteration to the regulatory framework.

Fortunately, change seems to be on its way.

Ignore LIEBOR Tricks And Cheap Politics

Ignore confidence tricks.

As the LIEBOR scandal claims a few scalps, let's not be distracted. As Bobby "Dazzler" Diamond himself has said, the time for remorse is over, and similar characters will no doubt take their place. 

Let's not be distracted by faux outrage from the House of Commons, which has been so meek in its challenge to the banks' self-serving culture that it suddenly chose to deplore last Thursday. After all, allegations of LIEBOR fixing go back many years and all the major UK political parties have declined to regulate it ever since. As the passage of the Financial Services Bill has demonstrated, the Commons will need to be dragged kicking and screaming to pass anything approaching adequate financial regulation.

And let's not be distracted by the crocodile tears and the speculative law suits from major corporations who claim to have unwittingly based their financial transactions on LIEBOR without understanding that it was open to manipulation. They're big enough to look after themselves - and usually do. Remember that they've failed to act on excessive equity underwriting fees charged by investment banks because they can always pass these fees on to retail investors and consumers, and the Office of Fair Trading seemed to have no problem with this. 

So while we should enjoy the revelations of age old scandals, the ritual sacrifice of Chairmen and Chief Executives and the occasional corporate bloodbath, let's not be distracted by them. Because they are not the driver of appropriate reform in a society that regards the accumulation of wealth of such high importance.

Let's focus instead on continuing to reward facilitators - those organisations that exist to solve their customers' problems, rather than to solve their own problems at their customers' expense. It is this trend in our day-to-day behaviour, more than any other, that will reform our society - and maybe even the behaviour of bank executives.

Image from Sulekha.

Fixed Interest

Well surprise, surprise. Even when setting the interest rate benchmarks that underpin global trade and finance, UK banks acted out of naked self-interest. The emails confirm a culture that was already evident from so many other fines dished out in the past few years, as the FSA has hastily sought to redeem itself and the Treasury for allowing the culture to develop in the first place. A culture where it's routine to forget the compliance department, forget the customer, forget the taxpayer, just solve the bank's problems at everyone else's expense. 

The interest rate swaps scandal is yet another 'new' case in point.

This is why any number of bank bailouts will ultimately fail. The banking model is not built to solve customers' problems. Banks are not facilitators.

We need to develop new models to take over as the banking model declines further. Otherwise we'll have no efficient means of moving money from those who have it to people and businesses who need it.

But let's not just blame the banks. Where is the Treasury in all this? Why was Barclays the first to be outed over the latest saga and not RBS, which is 82% state-owned? Was Lloyds involved? The Treasury seems rather passive and unable to appreciate the calamitous state of the financial system or - ironically - how to 'fix' it. It was also revealed in the Times this morning that the Treasury Minister, Mark Hoban, has previously resisted calls to regulate the London Interbank Offered Rate (Libor) - or Liebor, as it should be known - that is at the heart of the latest scandal. Coincidentally, he has also resisted calls to introduce proportionate regulation to encourage the growth of alternative financial models.

Fortunately, the House of Lords is taking a different view. It seems Parliament is going to have to be a lot more vigilant over our financial affairs in future.

"Show Me The Money!"

This week's 'technical issues' experienced by RBS/NatWest have been quite revealing. While the financial crisis has shown people how banks can suddenly fail to have enough money to pay depositors, this week has demonstrated how a bank could fail even when it's solvent. 

Solvency concerns are what led the UK government to own 85% of RBS in the first place. But systems failures add a more insidious dimension, especially in relation to high volumes of transactions. Securities trading system issues have tended to get most of the press in recent times - like the 2010 'flash crash', the cause of which is still worryingly uncertain. And we have seen poor record-keeping cause 'fraudclosure' problems in the US, when banks couldn't prove they had the right to force the sale of homes when borrowers defaulted on the underlying mortgages. RBS has also been among the banks fined for gaps in compliance processes. But the technical issues this week strike at the very heart of retail banking.  

Contrary to popular terminology, your bank does not hold 'your money'. The bank takes the money that is paid into your account and treats that money as its own. Your current account or business banking account is just a record of what you paid to the bank, what you asked the bank to pay out to whom, and the remaining figure - the 'balance' - which is the amount of money the bank owes you. The bank can pay that debt to you from whatever source it chooses to offer you (e.g. cash in an ATM or by transfer to others). In other words, at its heart retail 'banking' is really an accounting service, with payment services bolted on. And that accounting service - like, say, an email account - is really only useful if it is kept up to date - so you can see how much money has been paid in/out or is owed to you at any time.

But each bank's accounts don't exist in a vacuum. The entries in your account need to tally with the account records of other banks' customers you deal with, so all the individual debtors and creditors in the network know where they stand at the same time.

This makes RBS/NatWest's failure to process certain payments data last Tuesday and Wednesday nights completely unforgivable. It seems to have led to payments received not being recorded, and later payments not going out due to an apparent lack of funds. They say they "want to reassure customers that no one will be left permanently out of pocket as a result of this." But this misses the point of a bank account, both for its customers and the customers at other banks they deal with, and so on throughout the entire retail banking system.

Personally, I switched from NatWest years ago, when they wanted to charge me £12 for my current account. But perhaps RBS/NatWest call centres are receiving calls from others that go something like this:

On The Futility Of Cookie Consents

It's a month or so since the Cookie Law took effect and already it's an exercise in futility. I haven't clicked on a single cookie consent, yet I know my browser and hard drive are lousy with the things - both the helpful kind that improve my experience of using the web site I'm visiting, and the small proportion that feed information about me to third party advertisers.

There are two reasons for not clicking on cookie consents. 

Firstly, I don't reserve a single minute in my day for reading cookie consents. Life is short. Every second spent not reading cookie consents is a priceless investment in something potentially productive. Sleeping is a better use of time. Not reading cookie consents is in the same category as never watching American celebrity murder trials, or Big Brother or X Factor. Or... well, you get the picture. Reading cookie consents is a true waste of time.

Secondly, the Cookie Law is a one-size-fits-all requirement for user consent before setting all types of cookie - both those that will help you retweet this post and immediately return to read more, as well as those that will lead someone to conclude you have a passion biscuit recipes after you've read this post. I have no problem at all with the first kind, and it seems overkill to ask me to opt-in or out to them being set. I can clear them if I want to. And making me click "I accept" for all types of cookies doesn't even scratch the surface of the very specific, difficult challenges posed by the second kind of cookie: how and why the data about my movements is going to be shared with advertisers, and ensuring it is in fact used appropriately. Those challenges need the pragmatic, holistic attention of a WEF 'tiger team', not the overly zealous intervention of Eurocrats using data protection law as a means of delivering the single market fantasy.

Image from Jefferson Park.