BankerVision

The two-faced banker

Last night I was at an event hosted by Adobe and IDC. The theme was whether innovation, differentiation and competition would last in the current financial climate. Now, as usual, bloggers aren't supposed to talk about the substantive points that were made by attendees, so I'm not going to repeat anything meaty here.

But I do feel I have to comment on something disturbing which I noticed last night, and have been noticing more and more lately.

There seems to be this body of people in our industry – usually people employed in retail banks, it seems to me – that are getting vocal in their condemnation of our industry as a whole. There is nothing wrong with this, of course, but what is bothering to me is that quite often they don't seem to have a grasp of the fundamental issues which have led us to the present situation.

When you have a banker parrot the popular misconceptions that are published daily in the press, you know there is a problem.

Now, I know that some parts of the banking business don't necessarily have the same level of knowledge about the way things work as others. You often find, for example, that IT people don't really understand the underlying things that their systems are actually doing. They know the technology, but the revenue flows are processes to them, not the specific incarnations of market forces in which their institutions operate.

Specialists have always had such a narrow view.

My point, however, is that if you get up and make pronouncements from the pulpit of "expertise" as someone who works in a bank, please accept that other bankers in the room are going to be horrified when you sound like a talk radio show.

Now, I'm not denying for a moment that the industry is challenged on many fronts at present. But it hardly shows we're in control and know what to do next when the people in charge seem to have about the same grasp of the challenges as people who have never worked in a bank ever.

Note to bankers: make sure you are credible in front of your peers, have a clue about what is going on at present and how we got here, or else keep your mouth shut. You make us all look terrible.

What would happen if...

Last night I was on a panel at the WeBank event at Nesta in London. It was a debate on the future of peer-to-peer lending and social finance. The panellists included Giles Andrews CEO of Zopa, and we had a lively debate, me playing the role of antagonist of course. I always seem to get cast in that role, as I was saying to a few people afterwards, the token banker with an innovation job who "doesn't get it".

I always laugh, of course. Being a bank innovator is quite a different thing to being one in a start-up, or even one in a well running company with some years of history such as Zopa. In exchange for our greater access to resources, we are also subject to far more significant constraints. We have to run what I call the "Can we get it up" test: an assessment of whether we have the political capital to actually make something happen or not. The more unusual and unprecedented something is, the more political capital we need.

In a start-up, by contrast, if you want to do something, you just do it.

Anyway, I was at this panel, and both the other P2P companies (the other was as yet un-launched Kubera Money) said something very interesting: they have cordial relationships with the regulators, and expected that to continue. In other words, they were expecting fairly light touch supervision.

Now, don't forget these are outfits running on fee income. They aren't going to have any fat in their operations, and so it is probably just as well they don't have the compliance load a fully supervised bank would have.

The regulator is also very, very busy, of course, particularly now.

But I can't help but wonder what would happen if one of the big four banks here in the UK rang up the FSA to tell them that they were entering peer to peer in a substantial way.

I simply cannot imagine that a light touch supervisory regime would be the result. Perhaps they'd go even further than the U.S has already gone on this topic.

Now this brings me back to the main point I raised on the panel. P2P is either disruptive to banks or it isn't. In order to be so, it needs to serve customers we can't, at a price lower than we can, or else be more convenient or have some other operational advantage which is unattainable for banks. Credit crunch aside, I don't really see how P2P has any of those things, frankly.

As Giles said yesterday at the panel, though, "we are absolutely going after share from the big banks". So these are not new customers going to P2P, then.

So rather than a disruptive, under the radar insinuation into the business which P2P might win, what we have here is a long drawn out competitive battle for share. That's a pity, in my view.

If they grow too big, banks will respond. The response will trigger a regulatory avalanche which banks are already set up to manage, but smaller P2P companies aren't.

And during all of this, they'll be engaged in a ruinous price war with bankers on fees and other charges. Costs going up, but revenue going down.

Not a pretty picture.