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Must a beautiful bank have a beautiful purpose?

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Tony

TonyTony Allen, Dragon Rouge

Peter Drucker suggested that while profit is a measure of the validity of a business, “it is not the explanation, cause, or rationale of business and business decisions”.

In our book, Business is Beautiful we encountered a challenge; could we justifiably feature a leading bank to support our hypothesis that five ‘human’ hallmarks – integrity, curiosity, craft, elegance and prosperity – characterise all businesses that truly stand apart and succeed for all who encounter them?

Far from this challenge being a short sighted endorsement of bank baiting, it really did seem to us that most banks either present their story, or have it presented for them in ways that increasingly make banks seem unimaginative and undifferentiated, and quite the opposite of what they are actually doing and achieving.

As an example of underplaying a strong hand, we took two statements and asked ourselves which of the two banks that describe themselves here would we rather invest in?

Bank A:
Our company was built with hard work over 200 years. We would like to create a company that all can be proud of, and we are confident that, working together, we will build the best financial services company in the world.

Bank B:
Our banking practices always take a responsible approach to the development of wealth and prosperity. We respect the environment and the differing cultures and customs of the countries we operate in and we understand that maintaining our solvency and liquidity is a prerequisite for continuity.

Bank B is Rabobank, which is regarded as one of the world’s strongest banks and would be our choice and we suspect many others too.

As part of researching cases for Business is Beautiful we were happy to grab an hour’s conversation with Vincent Lokin, Rabobank’s Head of Cooperative and Governance and Bouke de Vries, Head of Financial Sector Research.This excerpt from our conversation about integrity and building around a purpose, reveals how Rabobank’s organising principles explicitly position profit as a means and not an end in itself.

As Vincent Lokin explains it, Rabo’s folksy roots believe a radical and distinctive organization:

“I think it is important to understand our history in order to understand our reason for being. We were not founded by people who had money and wanted to make more money. We were founded by people with limited access to money who decided to organise themselves to achieve more. And the single purpose of this cooperative was to serve its members and its clients. But in order to achieve this you need to generate order to comply with the rules of the larger system. Making money is an important aspect, because in the interests of our clients and of the bank we need stability, continuity and solidity. In order to maintain that we need to make profit. Profit is a means through which to serve our clients. It is not a goal to pursue for its own end, or for our shareholders, which is an important difference compared with listed banks.”

Last year, Rabobank was ranked number 10 in Global Finance’s ranking of the World’s Safest Banks’ and number 26 in The Banker’s list of ‘The Top 1000 World Banks’, so its approach is clearly admired by many.

Debate is a recurring theme in our conversation. According to Bouke de Vries, the main point of the cooperative model is that it is democratic and a key aspect of this is that you are willing to be held accountable –“the executive board has the authority to set the strategy but they have to ask for approval for the strategy from the 138 local member banks. If the local member banks say with good reason that they would like to have the strategy changed, then the strategy will be changed. At the local level, in turn, Rabobank has around 1.9 million members. It is harder to organise debate with millions of members than with 138 member banks, so we’ve developed other instruments to help to do this, like the Advisory Council, where entrepreneurs and citizens have opportunities to engage with the bank.”

Maintaining the integrity of any organising principle is a huge responsibility. Vincent Lokin is clear that Rabobank’s own integrity relies on the extent to which it takes its own values seriously. “I think it is good to revisit our core values, not just to assume they persist because they are perfect. I have always tried to understand them. It can sometimes mean we don’t sell a product. For example, we are in the middle of an interesting discussion about how we can measure the performance of our employees, because the one that sells the most mortgages is not likely to be the person that always works in the best interests of our clients. So how can we resolve supporting our clients’ interests with our commercial requirement to make enough money to keep the system going?

We also discover that Rabobank’s purpose gives it a structural differentiation as it expands. In developing countries for example, as a food and agri bank, Rabobank acts as a catalyst to connect smallholders, entrepreneurs and global food giants in supporting the formation of extended co-operatives.

“We are in a position to make a difference by supporting the global food system and by making it possible that the 9 billion people living on the planet in 2050 can eat” says Vincent Lokin. “A lot of the large parties in food and agriculture are our clients but in order to feed 9 billion people, it will be necessary to introduce more small farmers to the system. The way to do it is to encourage them to work together as a cooperative, to develop them and to connect them to the food system. We think we can teach them to work together. It requires knowledge more than money”.

At a time when many regard the financial sector with less certainty and admiration than a generation ago, it’s positive to see how Rabobank has used a fundamental mission to guide its strategy.

More broadly however, it seems that the times, the stresses of strategic reporting and the need for frequent image recovery over the past three years may have led many banks to lack of confidence in their founding stories resulting in a neutering of their original purpose.

As our book demonstrates through its case studies, a great deal can be achieved by enacting and frequently revisiting the bigger story that sits in your organisation. This could just help ignite growth at a time when standing apart in the financial crowd has never been more valuable.

Tony Allen is a co-author of Business is Beautiful and works at the design and innovation company Dragon Rouge.

Banking

Three times as many SMEs are satisfied than dissatisfied with COVID-19 support from their bank or building society

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Three times as many SMEs are satisfied than dissatisfied with COVID-19 support from their bank or building society 1
  • More SMEs are satisfied (38%) than dissatisfied (13%) with their COVID-19 banking support
  • Decline in SMEs using personal current accounts for business banking as more seek access to the Government-backed lending scheme
  • Fewer SMEs believe nearby branches are important when choosing a bank or building society
  • 15% of SMEs use mobile or online banking more often than before the COVID-19 pandemic
  • When SMEs do look to switch, low or no charges for business banking remains the most important factor (47%) in selecting a new account

Three times as many SMEs have been satisfied than dissatisfied with the COVID-19 support available from their bank or building society, according to YouGov research commissioned by the Current Account Switch Service.

Overall, four in ten SMEs (38%) were satisfied with the support they received from their business current account provider since the pandemic began. This contrasts with one in ten SMEs (13%) who were dissatisfied.  In general, more than half of SMEs (55%) are satisfied with their current business bank account, compared to 8% who are dissatisfied. However, inertia remains a problem as half of SMEs (50%) said they would not look to switch business accounts even if they were dissatisfied with their current bank or building society.

When SMEs do look to switch, low or no charges for business banking remains the most important factor (47%) in selecting a new account. Advanced digital features (35%), good interest rates (34%), and a personal connection through a relationship manager (33%) also mattered.

The SME banking research was conducted both in February and in September 2020. It also reveals that since the start of the pandemic, the proportion of SMEs using business current accounts has increased from 69% in February to 74% in September as firms are required to have a business account to receive access to the Government-backed lending schemes.

However, one in five SMEs (20%) still use a personal current account for their business banking needs, despite the risk that tax liabilities get confused, and calculations are made incorrectly. These businesses are also missing out on a range of business-only banking benefits such as integrated accounting software or invoicing tools offered by different providers.

In addition, the research shows the importance of branches to SMEs has declined over the seven months. When asked in February, more than a fifth of SMEs (22%) said the availability of nearby bank branches was important when selecting their bank or building society, compared to 17% in September.  However, the Post Office could be fulfilling the role of branches in some areas.

The declining importance of nearby branches was most noticeable in the North East region where 35% of SMEs believed branches were important in February, falling to 18% in September. The importance of nearby branches also varies between industries. One in ten IT companies (11%) said nearby branches were an important factor compared to nearly three in ten (29%) leisure and hospitality businesses.

While branches are less important, digital banking use has increased for some SMEs. Several firms have started to use online banking for the first time as 15% of SMEs say they use mobile or online banking more often than before the social distancing measures were introduced.

Maha El Dimachki, Chief Payments Officer of Pay.UK, owner and operator of the Current Account Switch Service, said: “Across the country, banks and building societies have been working hard in difficult circumstances to meet customer needs. Thanks to that work, small and medium-sized enterprises are more likely to say they are satisfied than dissatisfied with the support they received from their business account provider since the pandemic started. But lockdown has changed small business behaviour dramatically, in a way that points to significant changes to their banking needs both now and in future.

“It’s encouraging to see many small businesses are generally satisfied with their business bank accounts. However, even when businesses are unhappy with their bank, some don’t consider switching as an option, despite the many benefits available. We’ll continue to raise awareness of the benefits of switching among small businesses to help them get the most from their bank account.”

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Banking

The Next Evolution in Banking

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The Next Evolution in Banking 2

By Young Pham, Chief Strategy Officer at CI&T

Everything we know about banking is about to change. A new industry around the sharing of financial data is primed to give birth to a host of new consumer services, all thanks to Application Programming Interface (API) technology. Already known for being the safest place for money, there are opportunities for banks to expand that relationship to other aspects of the customer relationship. Banks will no longer simply be just a place to deposit and withdraw your cash, but a one-stop-shop for a range of data-sensitive services.

The passing of GDPR and the Payment Services Directive (PSD2) were the first steps in this process of banks modernising how they handled their customer data. However, incumbent institutions have so far not engaged enthusiastically. Rather, it was only after growing pressure from fintech challengers and government regulation that they were forced to open up and share their data. This should not be treated as a regulatory challenge, but rather a way to grasp the unique opportunities that banks have to reposition themselves as the most trusted resource for their customers.

Expanding offerings

It is hard to overestimate the breadth of possibilities arising from open banking, should banks choose to take advantage of this evolution. While the public rarely holds bankers in high regard, it still puts a high level of trust in banking institutions. People are more willing to hand over their sensitive data than they would be to almost any other private entity. Furthermore, banks have a unique perspective into their customers’ behaviours, needs and desires. Spending habits, income streams and risk appetites are just a few examples of the data that no other institution can tap in to.

There is certainly appetite to expand offerings. In our recent study of business banking customers, over 68% of respondents indicated that they were open to their financial institution providing digital non-banking services.  This includes services such as tax support, managing payroll, or invoicing to help them with their day-to-day businesses.

More banks should consider how open banking can maximise their digital capabilities and create a greater range of services for customers to enjoy. Such offerings could be tailored according to each bank and their particular customer audience. For instance, banks could offer everyday services for most users, such as insurance for individuals or business management tools for business accounts. Alternatively, banks could offer more exclusive and specialised services for high net worth individuals to meet their specific needs, such as art appraisal and investment management.

The idea that a firm can expand its offering into new verticals is hardly new. Many of the world’s largest tech companies, such as Apple and Amazon, already offer diverse products including hardware, software, entertainment and cloud services. They are able to do this thanks to the vast quantities of data they have gathered, which provide invaluable insights into consumer behaviour and demand. Banks are in prime position to follow the example of these top tier tech companies thanks to their monopoly on key financial data.

Disruptors vs incumbents

The business model described above is already being adopted by numerous challenger banks. These firms have led the innovative charge thus far, thanks largely to their agility afforded by their smaller size. Indeed, some fintech banks already provide a range of non-banking services to their customers. Revolut, for instance, offers users several types of travel insurance as well as access to airport lounges as part of its premium service for a monthly subscription.

These offerings are not a sign that the challenger banks are about to topple the large incumbents. Rather, these disruptors have always flagged the gaps in the market that larger institutions have been too slow to fill. It is now up to the established banks to learn from their example.

While challenger banks may have a first-mover advantage for these services, the incumbents have two key advantages: capital and credibility. Firstly, the top banks have enough cash to fund this overhaul of their business models. While the challengers have been able to afford to do so in recent years, they lack the reserves to tide them over during economic downturns such as the current pandemic.

Secondly, even though challenger banks are perceived as more convenient and are less vilified than traditional banks, the public still trusts the latter. Many of these large banks can point to their extended histories and long-term investment success – accolades young challengers simply cannot match. In short, people don’t have to like their bank to trust them with their cash and their data. These two advantages strongly suggest that large banks are better positioned to take advantage of the open banking business model in the long term, despite being slower to adopt and adapt.

What’s next?

All this opportunity is within reach. We already have the technical capabilities for data sharing, and the regulatory framework is not insurmountable. Rather, the key for this evolution of the sector lies in banks’ appetite for risk and willingness to reinvent their business model.

Banks need to take a leap of faith and leave behind the business paradigm to which they’ve become accustomed. They should embrace transparency, run towards regulation and take advantage of opportunities to invest in these areas or collaborate with outside technology firms. Only then will banks be able to make the most of their data assets, creating value for the customer and further strengthening the relationship.

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Banking

Banks talk a good game, but are bankrupt when it comes to change and innovation

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Banks talk a good game, but are bankrupt when it comes to change and innovation 3

By Erich Gerber, SVP EMEA & APJ, TIBCO Software

You hear all the time about the incredible pace of change in technology and the way that it affects business, but sometimes we kid ourselves about the real speed of that change and the depth of its effects. Retail banking is a perfect example to illustrate the yawning chasm between the illusion and the less attractive reality. In this article, I want to provide a critique of the banking sector and its failure to change fundamentally and to modernise.

Banking is an old sector: the Banca Monte dei Paschi di Siena has its roots in the 15th century and the oldest UK banks go back to the 17th century. We often talk about legacy holding companies back, restricting their speed of operations and hampering their ability to adapt. Well, established banks have legacy in spades.

They also have cultural challenges. The old saying has it that something is “safe as the Bank of England” and that is a standard for security. But today we need banks to be more dynamic and represent something more than being a deposit box for our wealth. Consumers are accustomed to the superb customer experiences in entertainment (Spotify), devices (Apple), retail (Amazon), travel (Uber) and much else. Surveys show that they want their banks to be responsive, easy to use and available across multiple channels. They’d like banks to be secure but also to be advisors, enable flexible movement of assets between accounts, provide useful data analytics, be cloud- and mobile-friendly and offer deals that are specifically targeted at their interests.

S-l-o-w progress

At their core, banks now must become digital enterprises but, frankly, it has been slow going. As Deloitte observed: “While many banks are experimenting with digital, most have yet to make consistent, sustained and bold moves toward thorough, technology-enabled transformation.”

Erich Gerber

Erich Gerber

We all know that retail banking has changed significantly: you can see that in the proliferation of apps and the fact that, in pre-pandemic times, the morning and evening commute are peak times for transactions as people arrange their finances while sitting in trains, buses and subways. Banking has become a virtual, often mobile business, thanks to new tech-literate consumers pushing banks in that direction. But my fear is that the banks aren’t moving even nearly fast enough and that’s bad for us as consumers and bad for the banks themselves.

Banks are under pressure to change because challengers don’t have the legacy constraints of incumbents and because PSD2 and open banking regulations are having the intended effect of promoting banking as a service, delivering transparency and greater competition.

Attend any business technology conference and banks will talk about their digital transformations and customer experience breakthroughs, but it’s my contention that a lot of this work is more window-dressing than platform building. Or, to put it another way, banks are injecting Botox, rather than undergoing the open-heart surgery that they really need. It’s a case of ‘look: fluffy kittens and shiny baubles’ in the form of apps and websites, but the underlying platforms remain old and creaking and that means that the banking incumbents are hampered.

To be fair, I have lots of sympathy here. They simply can’t move as fast as the challenger banks that have had the luxury of starting their infrastructure from scratch and sooner or later that will come back and bite them. Look, for example, at cloud platforms where only 10 or 20 percent of infrastructure has been migrated despite promises of cloud-first strategies and the banking data centres where monolithic on-prem hardware still reigns.

You feel that slowness of action in your interactions with banks that communicate only via issued statements, letters notifying you of changes to Ts and Cs, and threats when you go into the red. Inertia is nothing new in banking either: we like to think that technology change happens in the blink of an eye but in banking contactless NFC took the best part of 20 years to go mainstream.

This is the dirty secret of banks. They see the need to change but remain shackled. Why are the banks so slow? Historically, because it was hard for competitors to gain banking licences and the capital to really challenge so there was no catalyst or mandate for change. Also, because change is tough and fear of downtime or a security compromise to critical systems is very real. More recently, because internal wars in organisations set roundheads against cavaliers, the risk-averse against the bold, resulting in impasse and frustration.

I said change is tough and that’s why banks need to power through on the basis of Winston Churchill’s wisdom that ‘if you’re going through hell, keep going.” How? By a combination of maniacal focus on expunging legacy systems, placing maximum emphasis on superb customer interaction experiences and digitally enabling anything that moves.

Right now, the banks are surviving, not thriving; they’re rabbits blinking into the headlights of approaching traffic, frozen in the moment. But they need to disrupt themselves before others do it to them: change is painful but not as painful as the alternative. They have to do much more or they will see a decline in their fortunes due to their bankrupt capacity for innovation and their inflexible infrastructures.

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