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The death of Business Banking? Truth, threat, opportunity?

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74% of business owners believe their Bank doesn’t understand their business or even care about them. We wanted to find out if this is even remotely true, what entrepreneurs really want from their Bank and what the most innovative Banks in the market are doing about it.

So we brought together senior bankers from traditional and challenger banks with entrepreneurs, academics, journalists and experts for an honest and sometimes fiery debate.

What was said surprised us all. And turned our assumptions about the future of commercial banking on its head. If you are a banker or a business owner this is for you.

Published in: Economy & Finance
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The death of Business Banking? Truth, threat, opportunity?

  1. 1. The death of UK business banking? “Entrepreneurs don’t trust their bank” Truth? Threat? Opportunity? The Debate
  2. 2. © Contexis 2017 Contexis House of St Barnabas Debates are a unique forum for Leaders of global corporates, financial institutions and international consultancy and advisory firms to meet with charity heads and inspiring entrepreneurs to discuss, under a strict Chatham House rule, the critical business issues of the day; to exchange knowledge, expertise and ideas from widely differing perspectives. None of this would be possible without the contribution of a wide range of exceptional organisations and we are grateful for their time, candour and insight. A small number of Contributors were represented in the debate whose output you are about to read. Nothing that follows is attributable to any one organisation. If you would like to join a Debate we are always open to interesting and challenging new Contributors. I’d welcome an email or tweet. JOHN ROSLING jrosling@contexis.com @jrosling
  3. 3. © Contexis 2017 It is said that 74% of business owners believe their Bank doesn’t understand their business - or even care about them
  4. 4. © Contexis 2017 We wanted to find out if this is even remotely true.. what entrepreneurs really want from their Bank.. and what the most innovative Banks in the market are doing about it.
  5. 5. © Contexis 2017 So we brought together senior bankers from traditional and challenger banks with entrepreneurs, academics, journalists and experts .. ..for an honest and sometimes fiery debate. This is what was said..
  6. 6. © Contexis 2017 The entrepreneur’s perspective I know my bank doesn’t care a jot for me I have three problems with my bank: they are incredibly slow my relationship manager can’t make any decisions and there is no balance in the risk - I am taking all the risk in this relationship
  7. 7. © Contexis 2017 The entrepreneur’s perspective Most peoples views of their Bank is “meh” - expectations are so low “meh” is a dangerous place to be. I look at my Business Bank compared to my Monzo interface and I wonder why I need anything the Business Bank offers. Monzo has made me really think
  8. 8. © Contexis 2017 The challenger’s perspective The failing of the UK banking industry is the source of our success The Big Banks are shooting themselves in the foot. If you are continually telling the customer they can’t borrow, they find money elsewhere
  9. 9. © Contexis 2017 The challenger’s perspective I can’t tell you how many customers I’ve heard with complaints about the Big Banks, normally about time and lending decisions We were founded by entrepreneurs not by bankers. We are extremely speed conscious - we don’t take 20 weeks to say no! We invite all of our clients to sit in the credit committee meeting
  10. 10. © Contexis 2017 The researcher’s perspective We have recently done a large piece of research and the findings were; • Banks know us but sure as hell don’t understand us • Banks tell us that they are full of probity but we don’t trust them • Banks encourage us to talk to them but are they listening?
  11. 11. © Contexis 2017 The Big Bank’s perspective The relationship between banks and SMEs has become transactional What is the unmet demand that is being served by all these new banking licenses?? Most banks are chasing the same clients and ignoring large parts of the market Banks don’t have any upside in this game; only downside. And margins are challenged in a low interest world
  12. 12. © Contexis 2017 The Big Bank’s perspective Fundamentally banks are there to make money but we have tended to compartmentalise clients and don’t see them as people. We are overly product led and not relationship or understanding led We risk a pray and spray approach, where some bright spark has come up with an idea and we tell our people our clients need it when they don’t.
  13. 13. © Contexis 2017 So, what do entrepreneurs want from their Bank? I want something different. I just don’t yet know what I want from a bank - and I don’t think the bank knows either
  14. 14. © Contexis 2017 Disruption; the existential threat? . The alternatives to traditional business banking
  15. 15. © Contexis 2017 Do we even need a Bank? I don’t think this is an existential threat. Why bother to change banks when it’s a low-cost commodity? If banks can’t understand how to lend in the modern world with flexibility then they do have an existential threat
  16. 16. © Contexis 2017 New entrants, new ideas The new entrants are adding value, things that matter. Triodos is focused on sustainability and societal benefit What does Monzo give you? It’s the gratification, the fun. They are building a bank based on customer need Monzo and Tide will change what people expect from their bank It’s impossible for a bank like Barclays to move at the speed of Tide
  17. 17. © Contexis 2017 As a customer, I do wonder if anyone is listening.. Banks are talking about “customer centric” as if it was a revolution! That’s what business is all about! Business used to be all about the product now it is all about customer. Banks have simply not noticed that shift
  18. 18. © Contexis 2017 The death of Banks 15 years ago I was turned down by 42 Banks. Now we have seven Banks and hundreds of millions in turnover. The banks couldn’t or wouldn’t understand our business so we funded ourselves through a private bond. We have done that twice. The real disruption is peer to peer lending. Apple are looking at peer-to-peer; they don’t need the banking infrastructure
  19. 19. © Contexis 2017 The curse of legacy thinking Is there the desire for the Big Banks to start up new technology services? We have asked every Bank and they always have reasons for not doing this, either legacy or regulatory reasons The problem as I see it is that my Bank runs on a 1960s IBM - and I want Monzo
  20. 20. © Contexis 2017 The curse of legacy thinking Why is it that when we wanted a new payment system, we as an industry couldn’t respond. PayPal developed it. It was an entrepreneurial not a banking solution. To survive we need to learn how to address that problem PayPal is reacting immediately because they can read their customers and their needs almost in real-time; have you just had a holiday for example..
  21. 21. © Contexis 2017 The fastest elephant in the elephant race? Banks are moving so slowly. It reminds me of the record industry. The EMIs of this world moved so slowly against Apple, Spotify etc. it feels like that History tells us that large, inflexible organisations always fail in an environment of disruptive technology Shifting a Big Bank is so difficult. Challenger Banks can move fast because they have no legacy
  22. 22. © Contexis 2017 The inconvenient truth behind Amazon Themadeafortunebutitwasn’tthenwhocreatedrefrigeration.Theyrejectedthetechnologyandbelieved intheincumbency.It’sthesameforSonyorKodak.It’s takes us 20 weeks to make a loan decision, 7 days to get a debit card. With Amazon doing everything next day, for how long is this tenable?
  23. 23. © Contexis 2017 Institutional arrogance? There is institutional arrogance in the Banks. A sense of entitlement. It can’t happen to us. It can And it will The Big Five are claiming to move faster - does anyone see any evidence of this?!
  24. 24. © Contexis 2017 The existential threat Themadeafortunebutitwasn’tthenwhocreatedrefrigeration.Theyrejectedthetechnologyand believedintheincumbency.It’sthesameforSonyorKodak. The disruptor never comes from the incumbent industry. 200 years ago the biggest US industry was cutting ice from lakes and sending it around the world. The ice Barons of Boston made a fortune but it wasn’t them who created refrigeration. They rejected the technology and believed in the incumbency. It’s the same for Sony or Kodak. It’s the same for the Banks.
  25. 25. © Contexis 2017 It all sounds pretty bleak so far.. Is it really that bad? The surprising answer turns out to be .. maybe not..
  26. 26. © Contexis 2017 The surprising level of affection we still have for the Bank At the moment the Big Banks still have the hearts and minds of most customers. If you continue to abuse this, the future is a wholesale move to someone who will offer substantially different benefits The Banks right now have the opportunity to turn around the situation
  27. 27. © Contexis 2017 The rosy future for UK banking?.. in two words.. Relationship and Data
  28. 28. © Contexis 2017 1. The enduring power of relationship The power of the Relationship Manager is extraordinary when they are given the knowledge and the opportunity. The value of their connectivity is exceptional. They can spot opportunities for me and for the Bank The insight the Banks seem uniquely unable to grasp is that you focus your people on what people are great at and your technology on everything else. People are great at relationship. Banks turn their people into order takers.
  29. 29. © Contexis 2017 The enduring power of relationship All they need to do is ask questions and learn how to listen and only then what service they can offer - and that might not be anything to do with banking. But people or listening skills are not encouraged or taught Why aren’t all Banks providing a service that starts with ‘what are you trying to achieve with your business’? What is missing that means this doesn’t happen?
  30. 30. © Contexis 2017 Relationship Management Back to the future? I would gladly pay for this There must be an opportunity between the service-focused private banker and the automated proposition What if I asked you as an entrepreneur “would you like a new client”. As a banker, if I understand your business, I can provide those opportunities As an entrepreneur I would pay for this service. That is why we moved Banks
  31. 31. © Contexis 2017 Taking the time to get to know our customers better We take the time to get to know our customers better. Every one of our customers has a dedicated RM. We take time to really understand the customer and understand their investment and payback cycles. We are patient
  32. 32. © Contexis 2017 £8 billion of potential fee income.. We looked for people who are good listeners and were patient, who were willing to understand the needs of the business We attribute our spectacular growth to the relationship approach not the product or price Our research suggests there is £8 billion of potential fee income from SMEs in the UK alone
  33. 33. © Contexis 2017 Business people, not product sellers Some Banks are looking to upskill their Relationship Managers. But there has to be a choice; a low friction technical solution for those who want it, and a relationship focused service for those who would value it. What the Banks must do is turn their people into business people, not product sellers
  34. 34. © Contexis 2017 So, what’s stopping us? Because the banks have completely de-skilled their people. Their front-line people have no clue about my business - or any business When the RM has 300 clients how can they possibly advise or create value? The advice that used to be available through RMs has been retrenched and lost through greater centralisation
  35. 35. © Contexis 2017 The choice.. one size fits all won’t work any more it’s a matter of choice but surely the choice is for the client What do entrepreneurs actually want; low cost debt services or relationship? What we need to do is to find out what customers actually want from their banks; offer a basic frictionless, data-smart service at low-cost, AND offer a full service to those who will pay for it
  36. 36. © Contexis 2017 2. The power of data What the Challenger Banks and the peer-to-peer platforms are doing well is using data. The Big Banks have much more of that data but don’t know how to use it ’ The biggest opportunity for the Big Five is big data. And the biggest threat is big data
  37. 37. © Contexis 2017 BIG data Forward to the future We have a view into about 25% of all UK transactions. Apple or Google would do something sexy with that. We can’t seem to do this A.I. will start to replace some aspects of business banking. That’s a good thing. But the Banks need to be careful what they replace
  38. 38. © Contexis 2017 So, the future for UK banking is bright? Well, maybe..
  39. 39. © Contexis 2017 The opportunity to do both There are so many options if we’re just talking about debt but not if we are talking about value. Who has the network? Who has relationship and can offer partnership opportunity? AND who has the data? The Big Banks, uniquely, have the opportunity to do both relationship and technology Their biggest opportunity is to reboot personal relationships and work out how to streamline the vanilla stuff
  40. 40. © Contexis 2017 The future is bright.. “The future for European banking is binary; it’s either fantastic or disastrous. Banks will either learn quickly to use their assets or lose out. They have visibility of so much data they need to learn to use it. They have unique relationships at local level they need to learn how to stop abusing these and create more value. The future could be very bright. But if they don’t, alternative providers will become dominant…
  41. 41. © Contexis 2017 The future is bright? Ant Financial is five years old and already sees 90% of transactions in China. Their approach is wholly disruptive. They are already talking to technology companies in Europe…
  42. 42. © Contexis 2017 So, what have we learnt?..
  43. 43. © Contexis 2017 Business owners don’t trust their Banks? . It is rather more nuanced than that: • They don’t feel understood or listened to • There is no real relationship in the way entrepreneurs understand it • They are starting to ask why they even need a Bank
  44. 44. © Contexis 2017 And YET .. there is still loyalty and affection for a traditional banking model
  45. 45. © Contexis 2017 The Big Banks are under multiple threats . • Challengers are much more agile, much more customer-focused, much better at using data • Offering value; fun, ease, social conscience • Big Banks are: • too slow to adapt • strangled by legacy • arrogant • product obsessed • compartmentalising clients and not treating them as people
  46. 46. © Contexis 2017 And YET.. the Big Banks have all the data, if they only knew how to use it and all the relationships if they didn’t continue to screw them up
  47. 47. © Contexis 2017 The market is becoming ever more diverse • Multiple different forms of offering • Masses of choice for credit • New brands, new technology, easier and quicker solutions
  48. 48. © Contexis 2017 And YET .. banking is about much more than credit
  49. 49. © Contexis 2017 So, according to this group of entrepreneurs, academics and experts, what must the Banks do: • Learn to ask • Learn to listen • Respond with genuine choice
  50. 50. © Contexis 2017 So, according to this group of entrepreneurs, academics and experts, what must the Banks do: • Re-prioritise and rebuild relationships; the Bank’s ultimate USP; but this requires a wholesale reassessment of front line people from order-takers to business partners • Learn how to use data and innovate creatively with the customer in mind.
  51. 51. © Contexis 2017 “Amazing insights” Entrepreneur “A really stimulating discussion” Partner professional services “Great discussion. Really nice group of people” HRD, Global Multinational “honoured to be part of this” Entrepreneur Join in? Twitter: @contexis Linkedin: Join the Purpose in Business Movement Attend our next Roundtable: hello@contexis.com Get inspired: www.contexis.com/insights

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