The Changing World of Money - a review
- 21 Dec
By the power of LinkedIn, I found myself reading through a new KPMG publication titled: 'The Changing World of Money'.
Authored by Richard McCarthy, Head of UK Banking, and Warren Mead, Head of Alternative Finance, at KPMG, it is a warning shot for Retail Banking that it is in danger of having its lunch stolen by the combined power of alternative finance and FinTech.
There is not much new news for those of us immersed in the industry, but there are enough interesting snippets and soundbites to make it worth the read. Amongst my favourites are:
- Banks are approaching their e-books moment. In the same way that Amazon killed the independent bookshop, Retail banks are under a three-pronged attack on their lending, deposits and payments from everything from Altfi start-ups to retailers, coffee shops and tech giants.
- New providers are not in fact looking to eat all the bankers' lunch, they just want the best bits - or the bits they find most tasty. There is a parallel drawn with how Kwik-Fit emerged and took the tyres and exhaust business away from garages and dealerships
- The five big banks could lose 10% of their lending books to the challengers by 2020 if present trends continue. This will be painful for them, but not fatal. But what happens if it goes to 20%+?
- Credit analysis is moving beyond credit history. Galen Buckwalter - the scientist behind relationship matches for eHarmony - is now working on algorithms for assessing creditworthiness based on social profiles.
- The UK is losing its savings culture, which is creating demand for investment products better suited to individual risk preference and savings goals. Peer-to-peer is providing these, the banks aren't.
- There is £100m sat lodged on Oyster Cards, £1.4bn on Starbucks cards and a massive £9bn on PayPal accounts. We have a whole generation of people growing up who will no longer associate payments with going to the bank
- Bitcoin could be the Internet of money. Few people understood the Internet at first, but now it's as ubiquitous as oxygen.
We are left hanging on an answer to what the banks' response will be. We are told that they have the people and the resources to be fast followers - 'the challengers to the challengers' - but not how they will be deployed. The question though is if they have already left it too late.
HSBC may indeed be allocating £6bn to local lending decisions, but as Graeme Marshall, CEO of FundingKnight, pointed out in his blog, a whole generation of experienced lenders has been lost. How long will it take to find and train the new ones? We have young people growing up who no longer associate payments with going to the bank, and the point of a bank deposit account as anything more than a number 2 current account has long been forgotten.
The banks have survived challenges before, but the difference this time is that consumers are embracing and supporting the challengers rather than being suspicious of them. The depth of the banks' wallets and their hold over the retail banking market will insulate them for a long time, but as McCarthy and Mead point out, the biggest inhibitor to Alternative Finance is its lack of awareness, which, in itself, shows what the huge untapped potential is.