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Banks now need a firm sense of their purpose beyond creating shareholder value

Right now it is business-as-not-usual for millions of SMEs due to the Covid-19 crisis. Their survival relies on quick and fair distribution of the emergency funds backed by the British government. That is why banks play an important role as trusted intermediaries. 

In order to protect the British economy from the unfolding economic shock due to the Covid-19 crisis, the government allocated £330 billion of guarantees for businesses faced with immediate cash flow disruptions.

As reported yesterday, many banks are disastrously failing in helping their business customers out. Banks are supposedly offering their standard loan products instead of the interest-free emergency loans, demanding that company directors put their private assets on the line, and offering interest rates of up to 30%. 

The issue is further compounded by the lending rules related to the emergency funds imposed by the government. As reported, only businesses that usually do not qualify for a commercial loan can get access to emergency loans. That is why many banks are forced to apply their usual commercial terms in many instances, resulting in a devastatingly low number of pay outs so far. This is especially disturbing, as according to the BBC News, 800,000 businesses are at risk of going out of business. 

Why banks need to step up now

Many businesses are facing major disruption and have been forced to take dramatic measures to keep their companies alive, from radical cost cutting, to applying to the coronavirus furlough scheme, to quickly finding new ways of generating revenue. Thus, the last a business owner wants now is to be let down by their bank. All the investment that went into brand building and public relations in the past by banks can quickly evaporate when business customers are in survival mode and are not treated fairly. Customers will remember very well who truly supported them when it mattered. 

Banks need to step up, and do whatever it takes to absorb the unfolding economic shock. When everything goes well, it is easy to claim to be customer-centric. Now, banks have the opportunity to prove their claims, and to deeply manifest their brand in customers’ minds. Employees as well as customers are now experiencing the true value of banks, whose real values are being exposed by their actions right now. Public trust towards financial services significantly dropped after the last banking crisis and never came back – according to the Edelman Trust Barometer Global Report, the financial services industry is still the least trusted industry. While the last banking crisis was self-inflicted, this time banks need to manage an exogenous shock. Banks that act swiftly by helping out their customers will generate more goodwill and brand loyalty than in the last ten years combined.

According to the coverage by BBC News, so far it seems that many banks have not understood that operating as usual is not the right call now. Instead, the U.K. fintech community came to help and initiated bottom-up projects within days that aimed at helping small businesses to survive, such as:

Purpose matters most in times of crisis

Banks are essential pillars of money transmission and thus play a unique role the economic and societal system. They receive unique advantages, such as deposit protections and regulations that control supply. Now more than ever, banks are accountable to give back to society by relieving businesses economically and by ensuring an efficient distribution of emergency funds. 

Successful banks have a clear idea about their reason for existence, their fundamental purpose beyond the shareholder value-oriented chase for returns. Customers place great importance towards banks that stay true to their values and their “why”. They expect that banks fully act for the clients’ benefit. Making excuses is no longer an option. It goes without saying that even with suboptimal guidance by the Treasury, there has never been a more important time for banks to lead by example.

How leading banks are taking action 

While this news shines a bad light on some banks, there are also many positive examples from the global financial services community. Apple was early to announce that it would allow  users to skip their March Apple Card payments without charging interest. Leading U.K.-based banks, such as Barclays and HSBC, have offered a three-month payment holiday on mortgages and waived account overdraft fees. Marcus by Goldman Sachs has allowed clients to postpone loan payments for a month. In one of our recent interviews with Finnish OP Financial Group, we learned that the bank is offering a special helpline to clients that now need assistance to go fully digital. 

Late-fee and overdraft-fee waivers, as well as special assistance to clients in need, will hopefully be adopted by more and more banks. While they need to act within their own constraints and risk models, banks now have plenty of opportunities to demonstrate their social mission.

There are many instances proving that banks can fortify their position as trusted entities that not only keep customers’ money safe, but are there for them when they need it most. Denying Covid-19 loans is not the right move when purpose is a mission-critical asset. 


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Adrian Klee

Adrian Klee

Partner, Digital Banking

Ross Republic

Member since

01 Apr 2020



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