Banks are greedy, banks have caused the crisis, banks overpay their executives and thereby promote disputable business ethics. Banks have had a rough time. Probably rightly so.
And rough times are not over: today UBS and Credit Suisse announced massive lay-offs, and we have seen the same in the US and in Europe. With so many things going wrong, there must be some things going well?
In a business like mine, we assume we need banks everyday. Clients pay their invoices to our bank account, we pay our staff, our suppliers, and our management fees. Sometimes there are considerable sums on our bank accounts, sometimes there is fairly little, or not enough. We need to manage our cashflow carefully, and we need to invest. Banks do nothing to help us do that. They tell us what was paid to us, and what we paid to others. That is the first service: we have a bank account, and the bank informs us about the mutations. Coincidentally, they do that through their online banking software, and through printed statements. It is surprisingly difficult to persuade them not to send these statements anymore, although they are a colossal waste of energy, paper, logistics and money. I cannot remember the last time I have looked at them. Still, being an organized person, I diligently file them, and feel uncomfortable when I miss one (when filing).
Secondly, the banks provide us with credit cards. I love credit cards, mostly because I usually use them to pay for things I really like, or things I really need: lunches and diners, software, music, ebooks, subscriptions and anything from the Apple Store – and I like almost anything in the Apple Store. But do I need plastic? More about that later.
Is it really the bank that provides us with company credit cards? When we take a closer look all services related to cards are outsourced. The banks role is restricted to the approval of the application and once a month a debit transaction on our current account. So the bank is a service provider for this facility.
Thirdly, the Banks can provide capital. This, they are very reluctant to do.
Because we grow, we need cash. On average our clients pay in 44 days, we like to pay our people and suppliers in maximum 30 days. So there is two weeks we need at least last month’s turnover. And then there is VAT, investments et cetera.
Banks request stacks of documents, they want Profit and Loss statements, Balance sheets, they want consolidated Profit and Loss statements, and Consolidated Balance sheets, they want them from three years back, and projections for five years ahead. And they want security. No assets, no cash. They want the directors to sign as guarantors, the shareholders to sign as guarantors, their wives to sign. And all this time they have hardly touched on Why we started a business, how we run it, and what we are doing. They do not know about our staff, our partners, our clients.
In the end, they will probably do factoring (that is: have the invoices our debtors are going to pay as a security) or they will finance a fraction of what I will put up as collateral privately (read: the nett value of my property). Disappointing? Sure, but with some patience and with the history, the prospects and the advisors we have we will succeed. One of them is in the Supervisory Board of one of the largest banks in Europe. How difficult can it be…
Still this industry is in for a lot of changes.
Recently Gartner presented the concept of the bank as Independent Payment Advisor. This refers to a role for the bank as enabler in a cooperative fashion in order to have others provide tailored solutions to niche markets. This is a good concept and banks are in a way already accustomed to this in the processing side of the payments area, in the market area this is a new step. Nevertheless it seems the only way to go as development speed cannot be matched by any bank, committed to excel in payments or not.
The true value of the bank of the future is the value from the past. The bank who knows his customer, his preferences, his trust- and credit worthiness and is able to authenticate and protect its customer. In order to achieve this in modern times banks will have to collaborate with others who know the customer even better.
There are alternatives for banks and their services popping up left right and center. What do you think about MoveNBank, a mobile-optimized banking startup founded by Bank 2.0 author and consultant Brett King.
You can find information about Brett and his plan on Facebook page, on his Twitter feed and in his Startuply profile. In short, MoveNBank will soft launch next year, and with very limited staff, a small office and no branches, without paper or plastic provide a NFC (Near Field Communication) enabled payment services as well as “reinventing credit scores and more with an open, social transparent, and viral model”
This sounds a bit like P2P Lending – which we would call Crowd Funding. In the Netherlands we have seen initiatives like Mkb-crowdfunding.nl, Symbid.nl, Kickstarter.com, and http://www.investormatch.nl/, in the US we are keenly looking at https://www.profounder.com/
Brett King in his blog (http://www.banking4tomorrow.com/) and on Twitter: @brettking) writes about P2P lending and has examples from the UK:
“Lending Club, Prosper and Zopa are just three examples of recent successes in the P2P lending space. Lending Club is lending around $20m a month in loans, and have lent more than $300m, with an average loan size around US$10,000..
Zopa has lent more than £150m which means they are now approaching a 2% market share of the total UK retail lending market. Zopa’s average loan size is around GBP 5,000, but what is more significant is their Non-Performing Loans (NPL) ratio. Major U.K. banks typically recorded NPL ratios in the 2%-3% range from the mid-1990s through to 2007, but by the end of 2009 Lloyd TSB’s gross NPL was as up to 8.9% and HSBC’s hovering around 3% (source: Standard and Poors). So how did Zopa perform in this environment? Zopa’s NPL ratio sits at around .9%. That’s 10% of Lloyds and 1/3rd of the best bank in the UK HSBC!”
Of course for credit cards there are many alternatives, from iDeal, Paypall to payments with the mobile phone. Why do we need a bank account if we have a ten-digit mobile number, anyway.
And if all else fails: we will put everything on red.
Of course we are following all these developments with keen interest, not only because we need these services, but also because we can play a role in this industry, and help innovative financial companies implement their strategies. Arnold Sneijers is doing an assignment with NETS and Ward Hagenaar has been active in this industry for a long time. His publications and contacts helped Qhuba get selected for a executive search quest to find an entrepreneurial CEO for a startup B2B online bank.
Ward and his Client agree: “New banks don´t pop up regularly due to heavy regulations. The payment services directive reduces these regulations to acceptable level and our client will take this opportunity. The goal is to be able to compete effectively by doing things in a different fashion. The corporate clients will be placed central and served by a dedicated transaction bank. So no mixing up of interests like investment banking but a straight focus. The new bank will be and remain very agile as its main systems will be outsourced in save and capable hands. Cherrypicking best of breed solutions the bank will compete by offering hypermodern smart client interfacing. Efficiency for client and bank resulting in a better service. Operating like this the office can be restricted to a small setup at limited costs. Not specifically focussed on new services but providing a better service at targeted accounts for a competitive price.” We want to be the first customer.