20 July 2018
Anne Leslie-Bini

Banking on better days

Anne Leslie-Bini - BearingPoint

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Disruption in Retail Banking

Growth in internet and mobile technologies has transformed many industries and economies. The market forces and competitive landscape has completely changed in many sectors. iTunes has fundamentally changed music industry, Amazon has driven most big brick and mortar book sellers out of business, Expedia is one of the worlds' biggest travel company….. the list goes on. Internet and mobile technologies are big disrupters for most industries. What started (and tapered a bit!) with the dot com boom of 2000 has become a lethal threat to most business models today. Powered by mass adoption in mobiles phones, proliferation of smart phones and cheaper band-width, internet and mobile technology have changed many industries. The banking industry in has been dominated by a handful of big global or regional banks for 100s of years. While the credit crisis has shaken this industry, the core market forces for the industry have not changed. Will Innovation in Internet and Mobile technologies disrupt retail banking? Will there be 5 new names in global top 10 retail banks in 2020?

Betting on 'banking with backbone'

20 December 2017  |  10756 views  |  1

In a recent blog post, I floated the idea that it might be time to renew the ‘purpose’ of banking by incentivizing ethical behavior, and I asked whether challenger banks – such as Monzo, Metro, Tandem, Revolut, N26 et al. - are actually up to the challenge of rehabilitating the core of the banking industry, which has managed to entirely bankrupt itself of its own currency: trust.

From the 2008 financial crisis to the LIBOR scandal to the Wells Fargo debacle to the latest Barclays episode… well, need I go on? You get the point.

Trust is, unsurprisingly, a bust.

Customers, understandably, have had enough of bad bank behavior. And, AND … enough of reprehensibly bad customer experience.

At least, that is the conviction of neo-bank Aspiration and it looks like they’re not alone. A who’s who of celebrities, investors and celebrity investors joined forces to put their money where their mouth is and invest to the tune of $47 million – the largest Series B funding in FinTech investment history for an online banking company in the U.S. - in an effort to challenge the traditional banking industry.

The core product for Aspiration is its Summit personal banking account: a checking account with a difference, Summit lets its banking customers track their sustainability score by monitoring where they spend money and checking it against a sustainability monitoring and scoring system that Aspiration created (the scoring mechanism tracks companies’ corporate social responsibility on several different metrics).

Now, think back to January 2017 and contrast the pro-environment stance of Aspiration with the public pillorying of HSBC following the massive outcry from Greenpeace about the funding by HSBC of the destruction of vast amounts of Indonesian tropical rain-forest at the hands of the giants of the palm oil industry. Europe’s largest bank had no choice but to acknowledge the legitimacy of the scathing reprimand it received in the court of public opinion.

HSBC correctly appreciated the jeopardy of throwing caution to the wind and ignoring consumer sentiment.The result was a tightening of HSBC’s standards on lending to the palm oil industry and the cutting of ties with companies linked to the destruction of rain-forests in key production areas.

See, since the inception of the ‘Move Your Money’ movement in the aftermath of the global financial crisis, ordinary people – the ones who have lost faith in previously trusted institutions to always do the right thing – have been wondering what personal actions they could take to limit the power of the big banks, creating a more equitable financial system and putting a dent in the Too-Big-To-Fail edifice?

Consumers are ‘voting with their money’ now more than ever, which means that they are increasingly choosing companies who share their values. What may have been a weak signal of marginal impact at the fringes is now an forceful societal trend, identified by Forrester analyst, Henry Peyret, as the Values-Based Consumer. It is a movement of such significance that any business serious about survival ignores it at its peril; and banks are no exception.

Consumers are increasingly aware of the interdependence of the real economy, social cohesion and our natural ecosystem, and this is something that forward-thinking ‘Values-Based Bankers’ are tapping into in the creation of their business models. Aspiration is striving to be the world’s leader in bringing this spirit of investing with a conscience to the banking industry.

But they’re not alone.

Dutch eco-bank Triodos is actively encouraging the disgruntled customers of mainstream banking to move their money so that Triodos can use the mass of these deposits to support organizations who have a positive social, cultural and environmental impact. By being completely transparent about who they lend to, Triodos customers can choose for themselves if the organizations their bank finances align with their values.

A growing body of consumers are intimating, through their voices, their choices and their actions, that they want banking to be a transparently productive system that reinforces societal well-being and inclusive prosperity. (They also want a customer experience worthy of the name, but I’ll address that in a separate post). In response, viable alternatives to the traditional banking system are emerging, driven by people who hold the conviction that only by changing finance can they hope to be able to finance change.

For example, the Global Alliance for Banking on Values (GABV), founded in 2009, is a network of banking leaders from banks, banking cooperatives, credit unions, micro-finance institutions and community development banks from many parts of the world committed to advancing positive change in the banking sector. Their collective goal is to change the banking system so that it is more transparent, supports economic, social and environmental sustainability, and is composed of a diverse range of banking institutions serving the real economy.

Recent research backs up their assertion that their values-based model of strong capital positions and lending to the real economy delivers better financial returns when compared with the largest banks in the world, providing a viable and needed alternative while adding strength to a diverse financial ecosystem.

In this festive season of abundant consumption, let us ponder the thought that spending on Christmas shopping this year is going to be the most ethical on record, according to the 2017 Ethical Consumer Markets Report released this week. Ethical purchasing in the UK is now worth a record £81 billion. However, ethical banking however is still lagging behind other ethical sectors, despite the fact that money has a huge role to play in addressing pressing environmental and social issues.

Over-financialization of the economy hurts us all, but money can still be a powerful force for good. This Christmas, between the turkey, the mince-pies and the mistletoe, let’s toast the transformative power of banking-based-on-values and the positive influence of consumers who believe in better.

a member-uploaded image TagsRetail bankingStart ups

Comments: (1)

Dharmesh Mistry
Dharmesh Mistry - Temenos - Reading 22 December, 2017, 07:28

Nice post. There is also Community Bank in UK.

Digital affords a cost base that can create sustainable and differentiated community banks by targeting what I call the "mass niche" .

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job title Associate Director
location Paris
member since 2014
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Well known on social media in regards to topics such as RegTech, Fintech, Blockchain and Diversity, Anne is an accomplished conference speaker and a regular contributor to publications on the future o...

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