Bank branches may only have a place on the High Street for the next five to ten years – as Digital could lead to their demise….
A joint MCA Year of Digital and Grant Thornton debate on Monday (5th October) concluded that traditional banks have to go much further faster to rise to the Digital challenge. They need to be much more responsive to the variety and evolving character of their customers’ needs if both their Digital and traditional banking plans are to succeed.
A mixed audience of consultants and senior banking professionals debated the topic with a panel of experts: Eric Leenders, Executive Director, Retail and Private Banking, British Banking Association (BBA); Chris Brindley, Managing Director, Regional Banking, Metro Bank; Ewen Fleming, Partner & Practice Leader, Financial Services Group, Grant Thornton; Darrell King, Associate Partner, CSC; and Paul Connolly, Director of the MCA (Management Consultancies Association) Think Tank, who chaired the debate.
Clicks and bricks…
The panel and audience were divided on the future of the high street bank. The consultants on the panel, financial services and Digital experts, argued that high street and branches have a place for the next five to ten years, and will adapt and evolve. However, a changing customer base demanding different digital interactions and services could ultimately lead to the end of banking as a bricks and mortar business.
Eric Leenders expected significantly deeper digitisation, but expected a ‘horses for courses’ approach in which some customers would continue to need face-to-face services via branches in the foreseeable future. Chris Brindley cited Metro Bank’s customer engagement initiatives and argued forcefully that customers would continue to demand this and that banks would continue to have a place on the high street provided they reinvented themselves as community banks. When polled, 80% of the audience agreed that high street banks had a future.
Eric Leenders said in response to whether he thought the banks are rising to the Digital challenge, that they have no choice. He said: “If we consider the Digital agenda in its widest sense – this is the way we will increasingly live our lives – frankly it must happen.”
Darrell King, Associate Partner at CSC added: “There are two indicators of change that we have seen. First, the appointment of dedicated professionals in infrastructure, so you will now get a Chief Digital Officer. Secondly, in the last 18-24 months, firms have been more holistic in their approach to tackling digitisation and interpreting what this means for them – whereas we previously found much more isolated capabilities.”
However, Chris Brindley highlighted a lack of understanding of the customer needs was highlighted as inhibiting banks’ in their pursuit of Digital. “I think that there is some real ignorance in traditional banks. Historically they have not really understood the customer needs. I think banks need to spend a lot more money in a lot more different places to bring their standards up to what the customer demands.”
Audience members agreed that customer service assumptions of the Digital Age did not yet mix well with the culture of banking. Agile approaches, the fail-fast, learn-fast ethos, and the use of open data to empower customers to self serve are novel and challenging approach to risk for banks, especially as they have to demonstrate, more than ever before, that they are safe as houses. Polling revealed that two thirds of audience members thought their bank needed to do more to rise to the Digital challenge.
Dealing with the past…
Legacy systems have hamstrung many of the large banks’ Digital innovations. But can the banks go further faster with these legacy systems, or do they need to rip them out to make any progress at all?
Ewen Fleming said: “The challenge is that it is really difficult to rip out everything you’ve got and still continue service. It’s like decorating and rewiring your house and still being in it. That’s going to be hard but there is no doubt that the way they have approached this has not been right.
Banks are in different places, but we are at a new dawn when they’re realising it can’t be tactical, they need to start thinking about it differently, and think about how the consumer sees its.”
The banking crisis has taken its toll…
Panellists agreed that since the financial crisis of 2008 banks had focused on rebuilding their capital base and making sure that they’re Basel compliant. This energy, attention and investment has meant that as the economy returns to health, banks are behind other sectors such as retail in the extent of their Digital reinvention. Indeed, Eric Leenders noted that larger banks still have ongoing legacy liabilities. “They are still paying out £300-350 million per month on PPI. These are non-trivial sums that need to be considered – along with mandatory change – around the board table before a [digital] strategy can start to come through to full effect. And it’s only now that we are starting to see that.”
But banks do have an advantage…
Against the possible threats of Google and the other Digital giants, banks do have a strong card to play: the data they possess. This data is valuable to them and also provides the basis for value-creating partnerships with Digital innovators. Ewen Fleming added: “This is something that I would start with, and I know that many are starting to look into that, although this is a scary subject in terms of how you sift through that data and take the learnings and insights.
“Another aspect of this is that you don’t have to do it all yourself – there are actually alliances and partnerships with people that are more expert at doing this. Think quickly, test something, learn quickly and bring something to market. Santander has already started to do these alliances with the likes of Monitise, Funding Circle and Uber.”
The panellists and audience concluded that banks are evolving rather than undertaking a real revolution in Digital and in what it means to be a bank in the modern age. A more thoroughgoing reinvention, be that in their Digital culture or in their community identity, is needed.
Paul Connolly, Director of the MCA Think Tank, and chair said: “In some ways it is surprising that banks have been slow to rise to the Digital opportunity. After all, their investment and transaction networks have been hi-tech since before the Big Bang in the 1980s. But this seems to have led to an accretion of legacy systems, often leading to single customers having multiple identities in one institution. Coupled with a conservative culture, this seems to have put many behind the curve in terms of Digital and other reinventions.
“But there’s great potential. MCA member firms report that after the trials of the financial crisis and its aftermath, banks are starting to give serious thought to strategic challenges. Digital and the related theme of the high-street presence are at the heart of these challenges.
“Having started behind the curve, the trick will be to get ahead of it. The future of banking won’t be decided by anyone in our panel and audience. It will be decided by seven, eight and nine-year-olds: expert iPadjockies, who learn using interactive games, whose pocket money is paid virtually. Ten years from now they will want to manage their pay or student loans. Wise banks will try to anticipate what sort of service experience they will expect.”
Sunak to give UK Infrastructure Bank £12 billion of capital in budget
LONDON (Reuters) – British finance minister Rishi Sunak is expected to announce an initial 12 billion pounds of capital and 10 billion pounds of guarantees for the new UK Infrastructure Bank in his budget statement next week, the government said on Saturday.
It said this will help the bank, which will launch in the spring and operate UK-wide, unlock billions in private finance to support 40 billion pounds of infrastructure investment.
The bank will offer a range of products, including equity, loans and guarantees, which can be tailored to support the needs of private sector infrastructure projects, in sectors such as renewable energy, carbon capture and storage and transportation, the government said.
It will also offer infrastructure loans to mayors and local authorities at low rates to help fund projects.
“We are backing this bank with the finance it needs to deliver modern infrastructure fit for the 21st century and create jobs,” said Sunak.
The government said he is also expected to commit a further 375 million pounds to co-invest alongside the private sector in high-growth, innovative UK firms.
While Sunak’s March 3 budget will include a new round of spending to prop up the economy during what he hopes will be the last phase of lockdown, he will also probably signal tax rises ahead to plug the huge hole in the public finances.
In an interview with the Financial Times, Sunak said he would use the budget to level with the public over the “enormous strains” in the country’s finances, warning that a bill will have to be paid after further coronavirus support.
($1 = 0.7178 pounds)
(Reporting by James Davey; Editing by Toby Chopra)
SoftBank reaches settlement with former WeWork CEO Neumann
(Reuters) – SoftBank Group Corp said on Friday it has reached a settlement with WeWork’s special committee and the company’s co-founder and former chief executive, Adam Neumann, putting to rest a legal battle dating back to 2019.
SoftBank, the new owner of the office-sharing firm, did not disclose terms of the settlement. Media reports earlier this week indicated the deal includes a nearly $500 million cut in Neumann’s payout from SoftBank.
The legal tussle between SoftBank and Neumann started in 2019, when SoftBank agreed to buy around $3 billion in WeWork stock belonging to Neumann as well as current and former WeWork employees. SoftBank later contested its obligation to purchase the shares.
Under the new settlement, SoftBank will purchase around half the shares it had originally agreed to buy, a source familiar with the talks had told Reuters on Monday.
The settlement is also expected to clear the decks for WeWork as it reportedly pursues a public listing by merging with a special purpose acquisition company (SPAC).
“This agreement is the result of all parties coming to the table for the sake of doing what is best for the future of WeWork,” said Marcelo Claure, executive chairman of WeWork and CEO of SoftBank Group International.
SoftBank, which poured more than $13.5 billion into WeWork, was pulled into the legal dispute with directors at WeWork after backing out of the $3 billion tender offer agreed when it bailed out the office-sharing firm following a flopped IPO attempt.
(Reporting by Shariq Khan in Bengaluru; Editing by Richard Pullin)
Banks weigh up home working – the new normal or an aberration?
By Lawrence White, Iain Withers and Muvija M
LONDON (Reuters) – As the finance industry prepares for life post-pandemic, commercial banks are moving quickly to harness working from home to cut costs, while investment banks are keen to get traders and advisers back to the office.
HSBC and Lloyds are getting rid of as much as 40% of their office space as an easy way to make savings when bank profits have been crunched by the pandemic.
But there are concerns that remote working does not benefit everyone. Junior staff miss out on socialising and learning opportunities and there are also risks home working can entrench gender inequality.
At investment banks, where long hours in the office were the norm pre-pandemic, bosses say they want most people back where they can see them.
HSBC plans to almost halve office space globally, as it aims to squeeze more use out of the remaining space and increase the number of staff per desk from just over one to closer to two.
Britain’s biggest domestic lender Lloyds plans to shrink its office space by a fifth within three years. Standard Chartered will cut a third of its space within four years, while Metro Bank said it would cut some 40% and make more use of branches.
“We’ve had a period where flexible working has been tested in full, with about three quarters of people not based in offices as we used to call them, and the business has performed remarkably well,” Andy Halford, Standard Chartered CFO, said.
But major investment banks take a different view, with Goldman Sachs Chief Executive David Solomon pouring cold water on the potential of remote working.
“It’s not a new normal. It’s an aberration that we’re going to correct as soon as possible,” he told a Credit Suisse conference on Wednesday.
Barclays CEO Jes Staley, who last year said he thought the days of 7,000 employees trudging into its Canary Wharf headquarters were numbered, is also unwilling to commit for now to large office closures.
The Barclays boss has said the bank had “no plan” to make a major real estate move as Britain’s prolonged third lockdown had shown the strains of working from home.
Nick Fahy, CEO of online lender Cynergy Bank, said working over screens often could not compete. “You might have a disagreement on this, that or the other but actually over the coffee machine or over a glass of wine or a bit of lunch, issues can be resolved.”
Some banks have acted quickly because they are used to flexing workforces in line with economic cycles, particularly in investment banks, Oliver Wyman principal Jessica Marlborough said.
But some are waiting on analysis of staff productivity changes before making final decisions, while others were mindful junior staff may still prefer going into offices, she said.
Banks are also concerned women may lose out from the shift to remote working.
“We thought the pandemic would be a big leveller for women. But actually what we’re starting to see is it’s extremely challenging to get women to move jobs in a pandemic,” Marlborough said.
“Banks were making progress in hiring a more balanced workforce in terms of gender and other metrics, but they’re actually struggling now (as banks are finding) they (women) are less likely to seek out a new job.”
Union leaders said part of the reason was that some women are juggling more childcare responsibilities during the pandemic.
Dominic Hook, national officer for UK union Unite, said banks must ensure working from home is voluntary, use of surveillance tools is limited, and employers respect staff hours so work does not spill into evenings and weekends.
“Our concern is that it won’t actually be a choice and that banks will pressure staff to work from home,” Hook said.
There are also concerns hybrid working will favour employees who visit the office more regularly, as they can spend more time in person with colleagues and managers, said Richard Benson, managing director at Accenture Interactive.
The staff most likely to go back to the office are traders, bank executives said, while back-office functions such as finance, risk management and IT will spend more time working remotely.
In Germany, Deutsche Bank said it had been challenging to adapt home office spaces for traders and expected many will want to return, but not all.
“We will pay more attention to the personal circumstances at home. Dealers also have children or parents in need of care. We have become more sensitive,” said Kristian Snellman, Deutsche Bank’s head of investment banking transformation for Germany and EMEA.
The trend to shed offices predated the pandemic as many banks made cuts after the 2007-09 financial crisis. Some have already made moves as a result of the pandemic, such as NatWest, which shut its tech hub in north London last summer.
Retained offices are being remodelled, with desks removed to make way for collaboration and break space such as coffee areas, gardens and libraries, property consultancy Arcadis said.
“It’s not just about adding a ping pong table and table football and hoping it will work, it’s about making sure people get downtime,” said Sarah-Jane Osborne, head of workscape at Arcadis.
David Duffy, CEO of Virgin Money, said the bank is among those planning to strip out office cubicles.
“The world of large-scale populations returning to a tall skyscraper building to come in and do their e-mail in the office doesn’t make any sense,” he said.
(Reporting By Lawrence White and Iain Withers in London and Muvija M in Bengaluru, Additional reporting by Patricia Uhlig in Frankfurt. Editing by Rachel Armstrong and Jane Merriman)
Sunak to give UK Infrastructure Bank £12 billion of capital in budget
LONDON (Reuters) – British finance minister Rishi Sunak is expected to announce an initial 12 billion pounds of capital and...
Robinhood plans confidential IPO filing as soon as March – Bloomberg News
(Reuters) – Online brokerage Robinhood, at the centre of this year’s retail trading frenzy, is planning to file confidentially for...
Wall Street Week Ahead: Investors weigh new stock leadership as broader market wobbles
By Lewis Krauskopf NEW YORK (Reuters) – A shakeup in stocks accelerated by the past week’s surge in Treasury yields...
SoftBank reaches settlement with former WeWork CEO Neumann
(Reuters) – SoftBank Group Corp said on Friday it has reached a settlement with WeWork’s special committee and the company’s...
Sunak warns of bill to be paid to tackle Britain’s ‘exposed’ finances – FT
(Reuters) – British finance minister Rishi Sunak will use the budget next week to level with the public over the...