So, unlike my prediction of just yesterday, the Diamond geezer has gone.
Like a revolving door Marcus Agius, the Chair of Barclays Bank, resigned on Monday.
Now, two days later, Bob Diamond has resigned and Agius is back.
What is going on?
Well, first there has been a massive public and political backlash against Barclays Bank over this culture of corruption, exposed through the LIBOR crisis.
Worse than this though Bob Diamond, as one of the UK’s highest paid CEOs, is seen as directly accountable for this.
He could have withstood such a backlash, as demonstrated by the Board accepting that Agius could go and Diamond could stay.
So why did Bob Diamond resign?
All the media pressure got to him?
No, he’s far more thick-skinned that that.
All the political pressure got to him?
The Board got to him?
Has to be.
But the Board got to him after the political and media backlash.
Remember, the Board got to him after accepting that he would stay and Agius would go.
So why did the Board change their mind?
Because Bob Diamond starting threatening to spill the beans on all the skeletons in the UK Banking sector’s closet.
Specifically, yesterday, he threatened to expose the Bank of England’s role in the LIBOR scandal.
There’s the rub.
That changed all as now, it was Bob Diamond trying to save his skin potentially at the bank’s own reputation with the new lead UK regulator.
So Bob had to go.
It will be interesting to see what he says to the Treasury Select Committee tomorrow.
Meanwhile, I would stop blogging about it but this story is a critical change in the history of UK and possibly global banking, so it’s too important to ignore.
Here’s the story so far:
Key emails: how Barclays manipulated Libor - The Telegraph
Banking crisis: why Bob Diamond is not the only one to blame - The Telegraph
Letter from Barclays chief Bob Diamond to Andrew Tyrie - The Telegraph
Barclays rate fixing scandal: Bob Diamond's letter to staff - The Telegraph
SFO in talks with City regulator over Barclays - Osborne - The Telegraph
Chairman of Barclays 'set to quit' over Libor rate-fixing scandal - The Independent
The case against Diamond’s departure - Financial Times
Barclays scandal: Bob Diamond resigns - as it happened - The Telegraph
The Libor Conspiracy: were the Bank of England and Whitehall in on it? - The Independent
'Fred Goodwin Law' is mooted to ban disgraced bankers for life - The Independent
There’s a strong dialogue about why new services such as PayPal and Square take off so fast, and the answer is a combination of usability and accessibility.
If something is easy and it works, then it can gain critical mass fast.
That’s true of Facebook, Twitter and other social media.
The more intuitive, accessible, easy and social it is, the more viral it becomes and hence gains mass market fast.
That’s true of Zynga’s games and Youtube’s videos.
And it’s true of mobile payments, which is the secret sauce that Barclays believe they have discovered with Pingit.
First, for those who aren’t familiar with Pingit, it’s like a PayPal for mobile and offers simple P2P mobile payments whether you are a Barclays customer or not.
Developed internally by Barclays through a private cloud service, it was launched in February and the ad campaign started in April:
What proved interesting in the launch is the speed of use of Pingit.
Barclays claimed the number had reached over 700,000 as of May 16th, 80% of which is on iPhones apparently, even though it’s also available on Android.
I’m sure the ads help, and Barclays claim that their social media is helping.
Here’s a screenshot of the Facebook page …
… that led me to their viral video …
… although it’s not that viral with only 1500 views.
What really helped is that Apple highlighted Pingit as a showcase app, due to its fast download numbers rising, and that #Pingit was the second highest trending topic on twitter the day after launch.
Barclays then said that they were surprised at the uptick in usage volumes, and how the average transaction had been anticipated around the £25 mark but was so far averaging around £75 per transaction.
That surprised me too.
The demographics prove interesting:
Now they’re pushing for merchants to offer Pingit via simple QR codes and Corporate Identifiers.
The idea of the Corporate ID is that firms can buy Pingit accounts such that customers just put in “Tesco” or “Waterstones” and the payment is made without needing to know the company’s account numbers or other details.
That’s pretty cool.
Even better is that you can embed all the data you need in a QR code.
So, as you walk past an ad for a charity campaign, hold your phone over the QR code and make an immediate donation.
Or, even better for the utility firms, send out a bill to a customer with a QR code embedded that includes all the payment details and the payment amount.
All the customer needs to do then is hold their phone over the code, check the payment amount is correct and Pingit.
For the corporate, there’s also the added advantage that not only do they get all the customer data back they need – account number, payment details etc – but it is now enriched with the customer’s mobile telephone number for further verification and potential marketing.
Fast, simple and easy … and innovative.
I hadn’t seen such stuff before and certainly not from a UK bank.
The final points really rammed home why this is important.
For a corporate, the idea of a real-time refund is phenomenal.
Imagine an angry customer calls.
“You’ve just taken a direct debit from my account for £175 when it should have been £100, what are you going to do about it you &$%@!”
And the call centre representative replies: “well sir, here’s your £75 back with an extra £25 to say sorry”.
And there it is, on your phone, there and then.
A real-tme faster payment refund via mobile.
If you need any more convincing, the Barclays teams threw out a couple of research numbers which show that, by 2015:
There are lies, darned lies and statistics.
All I know is that when you have a simple P2P mechanism for mobile payments fit for smartphones that corporates can leverage, then something’s changed.
And it has.
The negative bit
As a non-Barclays customer you have to go through a very complex account verification process that involves not only a PayPal like penny drop into your current account with a reference number that you need to enter; but this is followed by a letter to your house via snail mail with another verification number.
OK, OK, I know it’s all secure KYC stuff, but it’s a pain in the arse and will put a lot of people off.
The app is not robust yet, and the latest update froze a lot of people’s phones which is getting negative vibes on the app store.
Teething troubles I know, but it’s not going to help the cause.
I was asked to talk about the role of social media in banking this week, and was a little irritated by the question.
Because social media has a very strong role in some banks.
Then we come to the UK.
Who needs to be social.
Not one of them has an official company blog or, if they have, they’ve hidden it.
This is because I researched a little bit for my presentation by seeing if any of them had one.
And they haven’t.
Now I was reminded of this because, five years ago, I introduced a leading UK bank to Wells Fargo’s Head of Experiential Marketing, Tim Collins, to discuss social media.
Tim was already well into blogs and virtual worlds, and was expanding the bank’s footprint into facebook at the time.
They asked him why he bothered?
His answer was simple: “if you’re not part of the social world of conversation amongst your customers, then they will talk about you negatively and you have no voice to respond. If you engage in the online conversation, then it becomes far more civilised, interactive and interesting.”
There were lots of things discussed.
For example, the UK bank said they tried an internal blog for three months but got so much negativity they shut it down.
Tim responded by saying that Wells Fargo had the same thing from customers at first but, by having a team monitor their social media 24 by 7, they always responded to any negativity straight away with a response explaining why it happened that way.
Customers were far more polite and calm when they saw their rude postings garnered a civil reply; hence it led to being engaged in a conversation. Through conversation, the bank learned a lot more about what frustrated customers. The result is better products and services.
However, it is quite clear that the bank cannot engage in such activity half-heartedly, as you need to be responsive and therefore have people dedicated to social media interaction.
Like a call centre, it’s a response team to online questions and issues.
He also said that now other customers often reply to rude postings, and that their best service agents are their own advocates.
I hear this from many other banks now too.
Finally, Tim talked about the reasons why they first got into social media and it was in part related to one customer who had created a website called wellsfargosucks.com.
Unfortunately, that website came up as the first result in any google search.
Therefore, in order to ensure the right image of the bank was presented, the bank sees social media as a key method of moving the right message to the top of the search results rather than leaving it to negativity from media or anti-bank activists.
So now I come back to my UK bank social media research.
Here’s what I found.
Lloyds Bank – no blog, and mainly investor discussions.
HSBC – no blog, one negative headline in top five search headings.
Santander – no blog, a few negative headlines but at least they put an advert against their name.
Barclays Bank – no blog but great search results!
NatWest – oh dear, dear, dear.
I feel like I spend a lot of time these days dissing contactless payments, or at least those that rely on NFC and RFID chip technologies.
The reason being that I cannot see why I would want to get something out of my pocket to touch on a terminal – these are actually contact payments, not contactless – when I could walk into a store and just say put it on my tab using Square Card Case, or as it’s now called Pay by Square.
Pay by Square is just an app on the phone that, once set up, allows the user to walk into any accepting merchant and just say “it’s on Chris’s Square account”.
No touch and go, just say and go.
I like it.
There are other proximity payments around, such as QR codes as I’ve blogged before, so contactless using NFC and RFID may be a short-lived solution.
That doesn’t mean that heavyweight backing in the UK from Barclaycard and Visa is going to dampen the process, as both are promoting contactless big time.
I’ve already mentioned Visa’s work around the Olympics and what they believe are impressive stats.
As of March 2012, Visa claim that the UK has 20 million contactless cards issued by seven providers, with over 100,000 terminals deployed.
That makes the UK a high proportion of the 31 million cards so far issued across 15 European Union countries – forecast to rise to 80 million by 2015 – and is really down to Barclaycard’s early commitment to getting contactless on the road.
As mentioned the other day, Barclays Bank are trailblazing a first mover lead trail in many areas, and particularly in mobile and mobile contactless, so when they invited me to an ‘exciting announcement about mobile technologies’ I could not resist to find out what it was.
The event opened with David Chan who runs Barclaycard’s consumer services for Europe talking about the four evolutions of cards from the old zip-zap machines which carbon copied the embossed raised numbers from the card in the 1970s (and still used by some today!), through mag stripe, EMV chip and now contactless.
He referenced the fact that big stores like Tesco, Asda, Boots and WHSmith were now joining the contactless revolution along with early movers like Starbucks and MacDonalds.
Interestingly, London’s tube and buses will take contactless payments, not just Oyster payments, via their contactless terminals by the end of next year, and this year will see a 50% increase in the number of pay points accepting contactless.
This is why Barclaycard predict the UK will move from £20 million of contactless payments in 2011 to £6 billion by 2016!
The constraint however is that it is card-based and not as easy to use as a mobile.
With most folks more likely to have their mobile than their wallet, the big announcement was therefore the launch of the Barclaycard PayTag.
Effectively, it’s just a contactless sticker to put on the back of your mobile but, with great fanfare, Barclaycard launched some videos and other stuff for its launch …
They then had the various hacks and journo’s try out the stickers on fake mobile phones to show how easy it was to buy their free lunch using the contactless tags.
I was amused when one of the journo's turned to me and said: "what? I came all the way here just for the launch of a sticker?"
There’s a whole load of other stuff about the launch I could add here (press release etc copied at the end of this blog), but I still have reservations about contactless, mostly because it is five years since the UK started this process and we’re still a long way from critical mass and partly because other technologies are taking over already.
First, the UK’s slow progress is due to a lack of cohesive rollout as demonstrated by the counterpoint example of Poland.
Poland is Europe’s leading market for contactless payments, with over 54,000 terminals and 5.7 million Visa contactless cards deployed as of March 2012.
All of the acquirers and key merchants were on board from the start and, between December 2010 and December 2011:
All in all, by entering into contactless later rather than sooner, the Polish deployment has seen far more success than the UK.
Obviously the UK can catch up and the release of the PayTag sticker will definitely help but, even if there were a cohesive execution of contactless in the UK today with Visa and Barclaycard leading, I would still have reservations.
Sure, Barclaycard need to make it work as they have invested heavily, as has Visa, so both firms tell me that they wholeheartedly expect contactless to work alongside cards, mobile, proximity and other payment methods for the foreseeable future.
As soon as I can say and go, then I’ll give up with touch and go.
The only thing is that the say and go might take another few months or years to rollout.
Meantime, the touch and go folks will have their day.
Anyways, here’s the edited press release from the Barclaycard gig for those who like such things:
19th April 2012, London: Barclaycard today announced the launch of Barclaycard PayTag, a new way to pay with your mobile phone. Millions of Barclaycard customers will be offered the chance to make payments with any mobile phone by simply sticking a Barclaycard PayTag to the back of their handset.
Available at no cost, and exclusively to Barclaycard Visa cardholders, Barclaycard PayTag is an extension of a customer’s credit card account. At a third of the size of a normal card, it can be discreetly and simply stuck to the back of any mobile phone. Once attached, it can be used to make payments of £15 and under, rising to £20 in June, by simply being held over a contactless payment terminal.
56% of UK consumers said that the item they are most lost without is their mobile, according to a YouGov poll of 2,085 UK consumers between 5 -10 April 2012, and so Barclaycard are giving people the option of using the phone to make easy, convenient, everyday payments without the need to upgrade their current handset.
The announcement comes as Visa predicts that the number of contactless point-of-sale terminals in the UK will rise by 50% to 150,000 this year. Major retailers that offer, or are introducing, contactless include Waitrose, McDonalds, Boots, WH Smith and Tesco. By the end of 2012, London buses will also accept contactless payments, followed by the Tube and the rest of the transport network in the Capital in 2013.
Barclaycard PayTag is safe and secure, and comes with the same 100% fraud protection as any Barclaycard. An exclusive group of customers will be invited to receive their Barclaycard PayTag in the coming weeks, before they are offered to millions of Barclaycard customers later in the year.
Research carried out on Barclaycard’s behalf predicts that £3 billion worth of purchases will be made with mobile phones in the UK in 2016 ( 2012 Ernst and Young research). Barclaycard PayTag provides customers with the choice of simple mobile phone payments now, without having to wait to upgrade, and at no additional cost.
Visa note that there 31 million contactless cards in use with 227,000 terminals from 51 acquirers and 60 issuers in 15 European Union countries today, representing a six fold increase in transaction volumes during 2011
We seemingly spend all of our time bashing banks these days, me included.
They’re either slow, unresponsive and ignorant of change, or they’re greedy, arrogant and screwing the economy.
You can’t win.
That’s why my new book was going to be called: “don’t tell my mum I work for a bank … she thinks I’m a piano player in a whorehouse”, but that title’s already taken.
Now however, there is some good news.
There is one UK mainstream bank that is leading the pack.
They’re innovating on the high street, in their card operations and in their mainstream banking services.
It’s hard to praise Barclays when they are 1000% tax-evasive, but when you see innovative bank services you have to fez up and applaud.
Why am I so effusive about Barclays?
Because they actually get it.
Barclaycard caught my attention some time ago.
First, there was the major campaign for contactless payments from waterslides to rollercoasters which was an integrated campaign with social media games via facebook and iPhone competitions.
They were the first bank to introduce mobile contactless in the UK, and they’re also running innovative programs around crowdsourcing customer views in the USA with Barclaycard Ring.
But it’s not just the card operations as there was also the Barclays branch of the future in Leicester Square, and more.
Now, there’s Pingit.
I saw the new ad for the first time yesterday:
It immediately made me download the app, and it’s pretty simple although they ask for a lot of upfront security processes which will put off a number of users.
The real power of Pingit is that it is a really simple idea – use Barclays to send mobile payments – and, more than this, that it’s a method of capturing the consumers’ and corporates’ attention.
The reason being that the app sits on your phone with Barclays branding all over it, whether you are a Barclays customer or not.
Simple but brilliant.
And if you don’t believe Barclays innovation strategy is working, here’s an email trail I received recently from an innovative friend:
From: Go Getter, innovator
To: Mrs. Y, Commercial Banking, ABC Bank
I was wondering why your bank reporting on the client account never shows transactions falling on a weekend? I believe under Faster Payments banks can clear payments during weekends. It looks like all the weekend transactions show up on the following Monday.
Is this a limitation within your bank or the type of account – and can it be changed?
From: Mr. X, Commercial Banking, ABC Bank
To: Go Getter, innovator
I work alongside Mrs. Y who passed on your query to me. I have spoken with our super helpful support desk people this morning who confirmed that even with Faster Payments they only clear the next business working day. They also advised that its not even anything to do with the type of account or their software and therefore cannot be amended. If you have any further questions or require technical assistance in the future then its best to call our super helpful support desk people on 0870 321 5432 (calls cost £85 per minute).
Regards, Mr. X
From: Go Getter, innovator
To: Entrepreneur, CEO
I’ve been thinking about our banking relationship with ABC Bank, and would like to seriously consider changing banking partner.
ABC do not strike me as interested in innovations for consumers or businesses. They’re also somewhat insipid. As an example: what Mr. X is telling me below is unhelpful, because Faster Payments is a 24/7 service and as a consumer I can both send and receive on a weekend – and whilst I followed up immediately, I suspect I won’t hear back from him any time soon.
I get the impression that of all the banks, Barclays are the ones with the most ‘innovation’ in terms of services and applications – they launched the PingIt app very recently, for example, and I also know from dealing with our BACS software suppliers that Barclays tend to do more for small-medium sized businesses. Both of our competitors are with Barclays, which in itself is interesting – perhaps they have a desire to take on innovative businesses as part of a drive to be the most forward-thinking.
For more on Barclays innovation strategy, read the interview with their COO Shaygan Kheradpir.
Jon Durant notes on his blog that Barclays has been an innovative bank for many years:
Barclays has a strong tradition of firsts and innovation: it launched the first credit card in the UK back in 1966, the first loyalty scheme in 1986, the first to accept bill payments via the internet in 1997 and the first to support contactless payments in Europe in 2011.
This reminded me of the innovative loyalty scheme they launched in 1995 called BarclaySquare.
I wrote a detailed research paper about industry alliances way back then, when the internet was still in its fledgling days. Here's a little more about this innovation for those who enjoy memory lane:
Another perspective of cross-industry operation is the virtual alliance, e.g. a joint venture within an electronic channel.
Banks are no longer islands of delivery - they are combining resources and efforts to leverage their position, specifically on the Internet.
This means that the more a bank can deliver in the consumer value chain - either through in-house delivery capability (e.g. managing consumer’s tax returns) or through joint venture alliances where the bank manages the partnership and extended value chain - the more they will do so.
Barclays Bank in the UK is an example of an early such alliance.
In the UK it is estimated that four million people have access to the Internet, but of those, only 1.5 million are using the Web on a regular basis. This seems a fairly limited audience, but that underestimates the value of this market. According to Money World, this audience is almost 100% ABC1, 80% male and 66% between ages 25-44, all segments financial services want to reach.
Barclays decided to differentiate their site by adding non-financial services to its Internet site.
Through BarclaySquare, the UK Internet Site for the Bank, the bank has teamed with retailers to leverage the bank’s card base. As well as getting information on Barclays products and giving feedback, customers can go to the shops or buy airline or train tickets.
Barclays aim is through a virtual alliance to be the Internet Brand.
As Consumers remember that the site they shop at is called Barclaysquare from Barclays Bank, the shopping mall, brought together by the Bank, becomes the brand.
It is only once you go through the bank’s gateway that you find a florist - Interflora; a clothes shop, Debenhams; a catalogue merchant of durable goods, Argos; a Toy company, Toys ‘r’ Us; an insurance company, Sun Alliance; and a telecoms company, BT.
Launched in June 1995, BarclaySquare allows consumers to pay for a range of goods on the Web using Barclay’s own Visa or MasterCard.
The early results have been pretty good.
From June-November 1995, Barclaysquare had 100,000 visitors; 600,000 page requests; 400+ retailer enquiries; and 3,000 e-mail messages.
In December 1995, over 15,000 visitors used the system.
In 1996, it had 1.5 million page requests and the first quarter of 1997 created 500,000 hits, a 10% increase.
More than 20 retailers work with BarclaySquare including Sainsbury's, Victoria Wine, Interflora, Argos, Eurostar, British Telecom (BT), Toys 'R Us, Victoria Wines and the Airline Network.
"The Barclays (Bank) Web page is contained within BarclaySquare and some people browse at that as well on visits," said a Barclays spokeswoman. "It has proved very popular and is an innovative and pioneering way of Web site marketing."
Barclays is planning to boost the profile of the scheme by mailing its 3 million credit cardholders with a magazine promoting the scheme's advantages. "We are also encouraging more retailers to join," he said.
If you're wondering what happened to BarclaySquare (a pun on Berkeley Square), it didn't get the takeup as Barclays is not Amazon ... so it's up for sale.
This week's UK Computing magazine has an interesting interview with Barclays retail COO Shaygan Kheradpir. In a pure scrape of the entire article, I thought it worth reproducing here:
Enabling customer-facing staff to access bespoke financial services apps using tablet computers is just one of several ways in which COO Shaygan Kheradpir is transforming the retail banking experience at Barclays, writes Stuart Sumner.
Banks are traditionally thought of as risk-averse companies rather than agile innovators, but Barclays Retail COO Shaygan Kheradpir is drawing on his knowledge and experience as a former CIO to try to change that.
His vision of the banking business is one in which end users and developers freely mingle, sharing ideas and feedback. He wants to increase staff mobility and flexibility by enabling tablet use in the office, with a Barclays app cloud providing everything staff need to work and communicate.
According to Kheradpir, this vision will become reality later this year.
“We have a saying; crawl, walk, run. We did the crawl last year until we were all comfortable, working out where tablets will work and where they are less appropriate. Now we’re in the walk mode.
“Eventually you will see these devices in the customer-facing front line at Barclays.”
To illustrate how tablet devices could benefit staff, Kheradpir cites the camera on the iPad 2.
“In the old way of doing things you scan a written form or meeting notes and upload them to the network.
“But why do it that way? The camera on the iPad 2 is better than most scanners. It can upload the file directly to the internal cloud. You can secure it and tag it and off it goes. Why have paper and a scanner?”
In Kheradpir’s view, tablet devices are more secure than PCs, partly because their software requires less regular patching, but also because the IT department can restrict how and where the device is allowed to connect to networks.
“Tablets have context, they know who and where you are. You can leverage that information to build a more secure ecosystem.
“My iPad is fully secure. We deployed with Mobile Iron and there is heavy mobile device management on it. It knows where it is, and what networks it is allowed to attach to.
“We also use encryption from Good Technology, which we deploy as an app.”
Creating an internal app store
Enabling the deployment of this app and others will be the Barclays app store, which staff will use to download software that will let them carry out core business functions and network with one another.
“It’s for business-focused apps that employees need for their daily activities, but also for internal social networking and collaboration,” he says.
The app store will also be used by various layers of the organisation, including customer-facing staff.
“Many of the tasks that happen in the front line of the bank are app-oriented. They are specialised tasks like applying for a mortgage or a credit card,” he says.
“And what are apps? They are deep and narrow. They’re not like PC applications, which are broad and shallow. You want apps to do one, often complex, task.”
Kheradpir says the bank will not upload the apps to Google’s or Apple’s existing app stores due to security concerns.
“Obviously, you can’t stick it into Google’s store or Apple’s store, so you have to be able to deploy it where you want it, very securely. That’s the basis for an internal app store,” he explains.
The app store project will be deployed this year, following trials in 2011.
He says that these innovations are possible because of the structure of the teams he oversees; the operational and technical support teams need to be closely integrated.
“You need the front-line operational and the technical groups to be one team. Breakthrough delivery happens when you have mini start-ups fused with the reality of the marketplace and what customers want. You have to involve the end users at every level,” he says.
“Look at Twitter or Facebook, their teams don’t work in a segregated way. You have cohesive teams, some more operational, some more technical, but they’re together and they make interesting trick shots by working that way.”
He adds that this integration of teams means that problem solving and troubleshooting happen in real time, rather than over weeks as disparate teams slowly respond to emails and get through a backlog of tickets.
“What if you develop something that doesn’t work well? You can only change it quickly if you are tightly fused with your customers. Because who really knows what isn’t working? The customer knows, and your front-line colleague knows. They know it in real time.”
This also helps with understanding the nature of any issues – misunderstandings are less likely to occur when the development teams, and their customers who use their products each day, sit and work closely together.
“To the extent you can have technical teams in real-time fusion with operational teams, there’s no translation required. They see what’s going on and quickly jump on it and improve it.
“But when it’s segregated it becomes like a batch-oriented process where a bucket brigade has to hand off stuff. Then it’s slow, clunky and the delivery timescales are not commensurate with breakthrough technology.”
He argues that this is a vast improvement over more traditional organisational set-ups, with development teams kept separate from their end users.
“This is very different from the old model where you write a big fat requirements document then hand it over to some coder who has no context for what you’re trying to do.
“This was fine for the 20th century because typically you were taking something manual and automating it. But you’re not going to delight a customer with efficiency alone.”
He explains that the way his team is organised, everything is focused on the customer experience.
“In our way the team has context and has the tools and authority to implement their ideas. We focus them around customer experience because if you get that right, efficiency comes by default.”
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Spent most of this week at a payments conference.
The theme was relentlessly around mobile payments, as this area of the market has truly kicked off as a major focal point for banks, telecommunications firms, retailers and merchants.
There was a particularly interesting debate about contactless payments, as this is also something that is being heavily promoted by some.
For example, VISA gave an interesting presentation about the London Olympics, with the whole Olympic village being contactless.
VISA reckons that by the end of 2011 there were:
No wonder the processing firm saw a six-fold increase in contactless transactions in 2011.
Telefonica also gave an interesting presentation about their payments plans for O2 in the UK, with NFC being a central part of the plan.
This video illustrates their approach and the benefits of NFC contactless mobiles well:
Having said that, Japanese experiences may indicate that mobile contactless isn’t all it’s cracked up to be.
Japanese firm DoCoMo launched contactless mobile services in 2004. Eight years later, such payments are only used by a third of consumers who have contactless mobiles.
In a recent survey shown to me by Makoto Shibata of Bank of Tokyo-Mitsubishi:
Two-thirds of consumers aren’t using mobile contactless, even though they have contactless mobile telephones and have had such services since 2004.
Because they have real concerns about mobile contactless payments being insecure but, more importantly, because they are difficult to use.
You not only have to find out how to trigger the contactless chip by reading the telephone’s instruction manual, but also find it hard to transfer the chip if you change telephones. This is because each chip is embedded in the phone and so you have to trigger a new chip each time you change your phone.
This is certainly true of my experience so far however.
I orderd the Barclaycard/Orange contactless mobile telephone last year, for example.
Once it arrived, not only did the Orange network coverage provide zero reception to my home address, which made the phone useless, but the set up of the contactless service was so darned complex that I gave up.
In fact, I don’t think contactless has much of a future anyway.
It’s been a slow burn, but it’s finally arriving thanks to the pioneering efforts of firms such as Barclaycard, who launched their original campaign way back in 2008.
This video premiered in October 2008:
Four years later, I still only use my Barclaycard for Oyster contactless payments on the subway. Most other places, I can’t find a contactless terminal. And even when I do need to pay, to reach out like the lady does in the O2 ad, to touch terminals seems so 1990s.
For these reasons, and particularly based upon the Japanese experience, I believe in proximity payments rather than NFC contactless.
Proximity means that you don’t touch or do anything, other than confirm it’s ok.
It’s far easier to think of a GPS payment based upon geolocation, rather than a contact payment.
And that’s what contactless payments really are today, using NFC and RFID.
They demand the consumer makes contact between chips.
What we need is proximity payments, such as the Square Card Case.
And with PayPal introducing a Square killer yesterday ...
... this is far more likely to be the way of the future.
Net:net - don't bother with contactless if you want to save some dollars and cents.
Today, I read a few headlines that make me sit up and take note.
First, the news that China’s just bursting over a billion mobile users. Yes, China is a big economy with 1.3 billion citizens. A billion mobile users is big news as it means that almost all Chinese citizens now have access to wireless infrastructures, with India following fast behind (880 million mobile users and 1.17 billion citizens.
Second is the news of the 25 billionth download of an app from the Apple iTunes store and yes, it’s a Chinese chappie who’s downloaded the 25 billionth app.
Apps were launched just three and a half years ago, and now each person on the planet has an average of four apps downloaded in such a short time.
Billions of apps.
Third, the news that Zynga’s mobile user traffic grew five-fold in 2011.
In the company’s latest call, CEO Marc Pincus says that they now have “15 million daily active users in 2011. That’s up from 13 million in December. That’s an addition of 2 million users in the past month, and an addition of over 5 million users over the course of the quarter. In the third quarter, Zynga had 9.9 million daily active users for its mobile games.”
Things move fast in the new real-time world of the mobile internet.
Bringing it to payments and banking, I found my next bits of news with Square releasing another piece of their puzzle.
This one’s an important one as it’s targeted at the heartland of one of my old businesses: NCR.
NCR stands for National Cash Registers.
Today, it’s No Cash Registers, just an iPad with a Square app.
According to USA Today, Square “has helped merchants process sales for $4 billion worth of goods — double what it announced late last year. More than 1 million people are able to accept credit cards with Square. Their average purchase is $75. The original Square card reader, a small white plastic device for accepting payments, has more than 1 million users nationwide and works on Apple and Android devices.”
Then there’s the news of Barclaycard launching a crowdsourced credit card.
In a sign of the times, and a lead for the future, Barclaycard’s American division has launched the Ring MasterCard.
The Ring MasterCard is run by a virtual cardmember community, where cardmembers have visibility into the card's financial profit and loss statements as well as an online framework that gives them the ability to influence decisions about how the card is managed and serviced.
There’s a give back program, that will allow the community to share in the profit generated from its collective decisions.
Using social media, the community will also provide a forum where cardmembers can exchange ideas, share knowledge and provide direct feedback to Barclaycard US to help determine future features of the product.
According to Paul Wilmore, Managing Director-Consumer Markets, Barclaycard US:
“We want to change the way people think about credit cards and their credit card company by putting the power back in the hands of customers ... through simple and transparent terms, we want to pull back the curtain that has traditionally separated banks from their customers and give our community a say in weighing economic tradeoffs that can create a better cardmember experience.”
Things change fast in the world of mobile internet, real-time payments.
Next step: a crowdsourced bank I can download as a mobile app.
Oh, found one.
Talking about the St Paul’s protesters yesterday, you do wonder if they maybe have a good point or two to make.
Like their American counterparts, I’m sure they do but unfortunately it’s all a bit loose and airy-fairy, with a mixture of happy-clappy hippies, anarchistic anti-capitalists and an articulate few who can say it’s all about corporate greed.
Trouble is that’s too loose and unfocused to be an agenda for change that will work.
What’s needed is a singular objective such as: tie every corporate action to something that delivers benefits to society, or something like that.
A method whereby every transaction, every commercial movement, every electronic transmission submits a direct benefit to communities, citizens and taxpayers.
It doesn’t have to be in a tax form – it could be committing staff time to community projects – but it has to be allied, linked and integrated into commerce directly and with transparency.
Anyways, that’s not my agenda.
My agenda is banking and what needs to change there, and it was interesting talking with bankers yesterday about St Paul’s and other matters, in that the subject of religion came up several times.
Morals, ethics and religious focus is a mantra that’s been around a while now.
It first came up for me when I presented at Gresham College a couple of years ago.
At the time, there was this big debate about much of banking being ‘socially useless’, and how to turn this into something socially useful.
Various banks made commentary about this theme, and it was interesting that the two most outspoken leaders were both lay preachers: Sir Stephen Green, Chairman of HSBC at the time, and Ken Costa, former Chairman of Lazard International.
Back in 2009, both were talking about the industry losing its moral compass and how it was requisite to bring that bank.
The latter is now very active in making that happen by promoting an ethical code to the City, after leaving Lazards in March this year.
The issue for Costa is one of faith, as he is very active in the Church.
This is why he’s penned several articles about faith in commerce, with the latest in the weekend Telegraph saying that the City must rediscover its morality.
In the article, he states that although he believes that free market are the best way to create growth and jobs, boards and shareholders must have a better understanding of what constitutes real value.
“The present duty – on all boards to maximise shareholder value as the sole criteria for satisfying the return to shareholders – cannot continue. I am aware that this is a big change that will need detailed discussion, but we need to start with big ideas.
“For some time and particularly during the exuberant irrationality of the last few decades, the market economy has shifted from its moral foundations with disastrous consequences. I cannot recall when public feeling worldwide has run so high, and even if only a minority takes its anger on to the streets, no one should imagine that the majority is indifferent to their cause.”
Mr. Costa should know what he’s talking about as he’s been appointed by St Paul’s to negotiate with the Occupy London Stock Exchange (#olse) group to see how to create an ethical corporate agenda for change.
He’s actually supported by a large group of people called: The City.
It may be surprising to some that the St Paul’s Institute ran research that was about to be published as the protesters moved in, which discovered most City workers believe inequality is a real issue.
The survey interviewed 515 financial professionals during August and September, and found that 75% thought that the wealth divide is too great and two-thirds believe that bankers are paid too much.
Interestingly, over half stated that deregulation of the financial markets had led to unethical behaviour (you can download the report if interested).
And maybe there’s the point.
Historically, banks have had a religious backbone.
For example, in my meeting yesterday were former directors of Barclays Bank and Barings Bank. Both said they started each day with “Director’s Prayers”, with a salutation to God each morning as a group.
That backbone has been lost since the Big Bang, they claimed (October 1986).
One of them said that the City would fall apart if you practiced what God preaches.
When queried, he clarified to say that you buy when you think the seller is an idiot and you sell hoping that the buyer is one. That’s how to make money in the City, and that’s where the ethos breaks down.
Does this mean that we all have to move to Sharia rule?
But it does mean a change of thinking, a return to grass roots and a way of looking forward with more certainty.
This was the core of Bob Diamond’s speech to the BBC Today Lecture last week.
Bob Diamond is the CEO of Barclays Bank and, in a lengthy speech, he focused upon trying to answer the question as to how bankers can become “good citizens” again.
“First, we have to build a better understanding of how businesses and banks work together to generate economic growth; second, we have to accept responsibility for what has gone wrong; finally, most importantly, we have to use the lessons learned to become better and more effective citizens.”
He feels that banks have done a poor job of explaining how they can be ‘socially useful’ and makes clear that this is something that needs to be explained. He goes on to explain that a banks role is to make it easy for companies and governments to access capital by establishing a large consistent market of buyers and sellers.
“To do this they put capital at risk in order to discover what the market is willing to pay. When banks do this well, interest rates are lower. If interest rates are lower, government and business borrowing costs less. Without this, the result is clear - an increased cost of borrowing, higher taxes, lower public spending, slower economic growth and higher unemployment. Providing this kind of support to clients requires banks to take risk but this is not speculative trading, so it bothers me when these activities are caricatured as gambling.
“These activities serve a social purpose and meet a real client need whether they are carried out on behalf of governments, pension funds businesses or individuals.”
Critically, he makes the point that just as bankers caused the crisis they can also put it right.
“First, it's about how we behave, especially with our customers and clients; second, it's about what we do, and in particular how we help those customers and clients create jobs and economic growth; and third, it's about how we contribute to the communities we serve in many other ways.”
It’s a good speech – although some critiqued it as just being platitudes, motherhoods and apple pie – but as Bob says at the end:
“To the question ‘can banks be good citizens?’ the answer must be ‘yes’. But I'm mindful of what was said to me three years ago: ‘Bob, think about the fact that no-one will believe you.’ We're in the early stages of working to restore trust. I'd like to be able to say we're achieving that, but I know that for you, seeing is believing. You may not be able to see what's different today, but over time I very much hope you will see that and more.”
And note, he doesn’t use the words religion, ethics or morals once in this speech.
It’s not a question of religion.
It’s a question of culture.
“Culture is difficult to define, I think it's even more difficult to mandate - but for me the evidence of culture is how people behave when no-one is watching. Our culture must be one where the interests of customers and clients are at the very heart of every decision we make; where we all act with trust and integrity.”
And I’ll be watching to see just who makes decisions with trust and integrity.
I guarantee that under these definitions, it isn’t Goldman Sachs.
Lloyd Blankfein on the one hand claims that their bank is doing "God's Work" whilst, on the other, when asked by Senator Carl Levin at an SEC hearing last year: “Do you think (investors) care that something is a piece of crap when you sell it to them?”, Lloyd calmly answers: “no”.
There’s something slightly hypocritical in that response isn’t there?
And whilst one maverick firm can break the oath of morality to do what’s right, then all others have to follow to compete is the usual mantra.
A moral compass, an ethical view and a religious purpose in banking – or, just being a good citizen – surely has to merit a bank doing what’s right for the customer.
Until some banks and bankers get that through their thick skulls and cultures, nothing has changed.
So the Vickers Report has finally crept out into the wilderness.
All 358 pages of it.
Half of it talks about how to increase the competitiveness of banking and the other half about what to do if a bank fails in another crisis.
The latter has garnered all the news headlines, whist the former has been generally overlooked.
More copy has been written about this report than anything else in banking over the past week or so, with a selection of headlines that makes the mind reel. Here’s just a few:
If you want the truth, you can read the full Vickers report, which I’ve been reading this morning and so far have found nothing too surprising, as most has already been leaked.
Here’s a summary of the key points on ring-fencing:
And on creating new competition:
For the most part, I’m disappointed with this report. It’s not that I’m against bank reform, but what is the right sort of bank reform?
What this report appears to do is tread a fine line between bank anger, government need and public input, and comes out on the side of muddle.
It’s already had plenty of flak for this, but let’s pick on a couple of things.
First, account portability. Why hasn’t the ICB included this, as it makes eminent sense as discussed back in December at the ICB meeting I attended.
What the report actually says about this is as follows:
“The Commission recommends the early introduction of a redirection service for personal and SME current accounts (to make account switching easier) which, among other things, transfers accounts within seven working days, provides seamless redirection for more than a year, and is free of risk and cost to customers. This should boost confidence in the ease of switching and enhance the competitive pressure exerted on banks through customer choice. The Commission has considered recommending account number portability. For now, it appears that its costs and incremental benefits are uncertain relative to redirection, but that may change in the future.”
In other words, the cost of using different account numbers between banks allowing portability is too great. For example, if might from RBS to Lloyds with account number 75280025, there may already be someone at Lloyds with that account number. Therefore, to introduce account portability of account numbers, you would probably need to renumber all the bank accounts in Britain with unique ID’s. That’s why it’s been dropped.
But then the report adds more details to this idea (page 218) and shows it is feasible:
“Under account number portability, a customer’s sort code and account number would not change when the customer changed banks, thereby avoiding the need to change any payment or credit instructions. Evidence to the Commission suggested that the effect of account number portability could be achieved through the creation of an ‘alias database’. This proposal is for a new database to be created with a new code for each account that would be assigned to each sort code and account number: a customer would give the direct debit originators (and creditors) they deal with the new code, which would never change; when the customer moved banks, the sort code and account number assigned to the customer’s code would change and nothing else.”
Later on (page 222), it expands on the risks and opportunities of account portability:
“One significant benefit of account number portability (whether done through making existing account numbers effectively portable, or through the creation of an alias database) is that it would remove the cost of switching to direct debit originators, as well as those who make automatic payments into customers’ accounts. However, given the importance of the payments system, it would be critical to ensure that the migration to account number portability did not disrupt the flow of payments or introduce greater operational risks into the payments system.”
In light of a need for bank reform, this would have been a worthwhile aspect to develop now, and it is something left in the report for further evaluation so you never know.
Nevertheless, the big question is whether this would improve competition anyway?
Competition is more about the barriers to entry – governance, licensing, capital, technology etc – and hence, these are more mighty areas … that the report also fails to address.
The report mentions competition 414 times, and yet the main recommendations of the interim report:
... have all been watered down.
Then we move onto ring-fencing, which purely addresses the aspects of what to do if a bank fails.
"Structural separation should make it easier and less costly to resolve banks that get into trouble. By ‘resolution’ is meant an orderly process to determine which activities of a failing bank are to be continued and how. Depending on the circumstances, different solutions may be appropriate for different activities. For example, some activities might be wound down, some sold to other market participants, and others formed into a ‘bridge bank’ under new management, their shareholders and creditors having been wiped out in whole and/or part. Orderliness involves averting contagion, avoiding taxpayer liability, and ensuring the continuous provision of necessary retail banking services – as distinct from entire banks – for which customers have no ready alternatives. Separation would allow better-targeted policies towards banks in difficulty, and would minimise the need for support from the taxpayer. One of the key benefits of separation is that it would make it easier for the authorities to require creditors of failing retail banks, failing wholesale/investment banks, or both, if necessary, to bear losses, instead of the taxpayer."
Living wills and all that aside, the proposal to leave banks as integrated universal operators – good for Barclays – by purely creating a delineation between their domestic commercial and retail banking operations versus their global links is a duck out.
Because it does not address the issue of why banks fail, but just what to do when they fail. This is a positive thing according to some and yes, sure, it's a good thing to know what to do when a bank fails ... but why not try to deal with the core of failure as, even if we know what to do, a bank failure in its investment arm will still destroy value in its overall operations.
Northern Rock illustrates this well where, as a pure retail bank, it failed due to securitising its loans and mortgages in the wholesale markets. Surely these aspects of potential liquidity failure should have been in the report, and how a bank builds an illiquid position that leads to failure, rather than just what to do post the event.
And no, I'm not forgetting that through a ring-fence recommendation increased capitalisation of both the retail and investment operations will help, but an illiquid position is still on the cards and that is surely a point that should have been the core of the reforms, not the post-failure fall out?
Equally as Sir John Vickers has been saying in today's press calls: “the too big to fail problem must not be recast as a too delicate to reform problem”, but is he reforming or just adding insult to injury?
As the action of ring fencing is a unilateral action not being followed by any other major nation right now, it may be the latter.
Renowned former Federal Reserve Chairman Paul Volcker gets to the heart of the matter when he says that he “completely doesn’t understand the British approach, where they can leave all these questions unanswered. They said they wanted a retail bank in the same holding company as everything else. I don’t know what ‘everything else’ means. Is that not a bank too? It’s just a wholesale bank. Who makes the payment system work – the retail bank or the wholesale bank … the philosophy is you are a group of banks that serve the consumers, the retail customer, and that hold their deposits with the central bank and so forth, does not solve the problem with all the other parts of the financial system. I also don’t believe in a firewall or Chinese wall between them, as you need a very high ring fence to stop the deer jumping over.”
Sir John may claim the fence is high, but it cannot be high enough.
When a Barclays investment bank fails, it will still bring down Barclays Bank as Barclays investment banking operations represents 42% of the bank's total revenues (Royal Bank of Scotland generates a third of all revenues from investment operations; HSBC 27%; and Lloyds Banking Group is unceratin as it has no official investment banking arm).
Meanwhile, the costs are at least £4 billion to implement these reforms and the overall programme has really hammered the value of the UK banking sector in the world's financial markets:
With much of the loss of value this year due to Sir John's committee's actions combined with the Eurozone crisis.
So my key question is that we are living in a world where Basel III, G20 reform, European Union Directives along with American restructuring is creating so much imbalance in the global financial system that adding to such imbalance though unilateral action is questionable.
This is corroborated by the views polled by City AM and Politics Home.
“Among just those working in the banking sector, however, support for the idea has collapsed - and while a small majority of bankers still back a ring-fence, net support have fallen from +46% to +15%. This is surely a reflection of recent rumbling in the press on the dangers of such a scheme to the sector.
Those working in the banking sector, however, thought the idea would make no difference in preventing a repeat of 2008, while thinking it would be actively damaging to promoting UK economic recovery, getting banks lending, as well as keeping HQs in the UK.
All in all, the whole area is a cauldron of trouble and messiness that this report has done little to resolve and, if anything, has fuelled more debate about the UK’s sole stance in the face of global regulatory drives.
So what should we do?
We should ensure that we work in harmony with Wall Street on the capital market reforms whilst implementing domestic policies to lower the barriers to entry for new entrants in banking.
The former may be seen as being difficult, but the #1 objective of the UK should be to maintain UK’s attractiveness as a centre for financial services.
That’s the piece that has been most badly damaged by these proposed reforms.
Luckily, it won’t be implemented until 2019 in order to ensure consistency with the developments of Basel III, so delay was inevitable after all.
A few further comments:
Andrew Gray, UK banking leader, PwC, said: “The report from the ICB today sets out a clear statement of the direction it believes should be followed in order to reduce the risks of banking in the UK, increase competition and ensure globally competitive banking based in the UK. The measures recommended will have a far-reaching impact on the way in which banks operate in the UK in future. A key question for government to consider will be the trade-off between improved financial stability and facilitating economic growth. The core proposals revolve around the use of ring fencing of retail banking activities to ensure both the financial stability of the banking sector, but also to ensure the government is not called on to rescue the banking sector in the future. Ring-fencing on its own does not change the risks inherent in banking (except when it comes to resolving failed firms) and the ICB recommends higher capital levels than those proposed by the Basel Committee. The importance of a strong banking sector as an integral part of the UK economy is clearly recognised, as is the need to ensure the UK remains a globally significant centre for financial services. Overall, these proposals, while not unexpected, will represent a significant change to the UK banking landscape. These are detailed proposals which will take time to digest and, in doing so, more questions will emerge. It is too early to assess the real impact on the UK banks and the wider economy. The real consequences will only become clear once the Government decides what is to be passed into law.”
Michael McKee, Head of Financial Services Regulation at DLA Piper, commenting on the Independent Commission on Banking - Final Report, said: "The ICB Final Report has stuck to the line set out in the Interim Report. Most interesting is the detail of how the ring fence will operate. It will focus on deposits of individuals and small businesses - but this is likely to catch a lot of private banking business too. The ring fence looks like it will be quite a "hard" ring fence - a retail bank will have to deal at arms length with other parts of the group and apply large exposure rules. Moreover the ICB sticks to its guns about a minimum level of 10% capital for retail banks and also wants a lower leverage limit than international proposals. Overall, therefore, the ICB has withstood political pressure from the Liberals but has taken a tough line on the content of its ring fence."
Edward Sankey, Chairman of the Institute of Operational Risk (IOR), said: “We are concerned that the Vickers Commission are proposing economic solutions to what they believe are economic problems. However the IOR believes that the root causes of the financial crisis were failures in people, processes and systems, which are the targets of operational risk management. The proposals will not on their own do anything much to reduce the possibility that failures by people, processes and systems will not again threaten banks and their clients. Time and again we have seen that more sophisticated regulation and restriction leads to more sophisticated efforts to find ways through them, or even plain evasion. We have a great opportunity to make lasting reforms that will not only help to ensure a sustainable and profitable UK banking sector, but also strengthen UK economic growth. Unfortunately the Vickers Commission is focusing on the wrong solutions – solutions that will do little to correct the failures in people, processes and systems that preceded the crisis.”
Andrew Wingfield from SJ Berwin’s Financial Institutions Group commented: “The ICB’s proposals totally focus on retail protection and would impose a cost ahead of any bank failure. The costs of restructuring and higher equity capital levels will place returns under further pressure and the ICB’s proposal will likely be a Herculean task given that people and IT systems are intertwined within banks. The key recommendation (in our view) is around a clear message to UK banks to ring-fence their operations with the tone of the political debate already showing signs of an irreversible process and the Government committing to immediate steps towards implementation. Over the next few weeks, it will be interesting to see whether support for the recommendations wanes as the party conference season approaches. However, the message is softened by a long final implementation deadline of 2019, which is intended to synchronise the timeline with the implementation of new international standards under Basel III. In our view, all Banking reform measures adopted by the UK authorities need to be carefully analysed in order to ensure that the full consequences on the economy and the recovery of banks’ ability to support customers is understood.”
There’s been quite a lot of coverage recently of the British Bankers Association’s (BBA) report about bank branch closures in the UK.
Based upon the stats, UK banks are closing three branches a week. That still leaves over 9,000 branches out there, but they are shrinking.
The reasons are many – cost efficiency, movement away from remote locations, operational overheads, etc – but the clear trend is away from branch and towards automation.
That being said, there are still branches out there and, as folks who read this blog regularly will know, a debate about their value always ends up saying that banks will need branches, just not so many.
But the reason for posting this is two-fold.
One is to repeat the BBA’s stats.
The big names – Santander, Barclays, HBOS, Northern Rock, Royal Bank of Scotland and NatWest – had 9,496 high-street outlets between them in 2009 but 187 closed last year, cutting the total to 9,309.
HSBC closed the most, with 58 of its 1,369 branches disappearing last year; the trend has continued this year bringing this down by a further 79 to 1,290 branches today.
Part of the reason for this is that there are 44 million internet banking users registered in the UK, according to the BBA’s stats. As more and more people are engaged in self-serving online, less and less use branches and hence they are not needed.
That does not quite stack up with the Office for National Statistics (ONS) figures however, which show that around one in four households still does not have internet access:
"In 2010, 30.1 million adults in the UK (60 per cent) accessed the Internet every day or almost every day. This is nearly double the estimate in 2006 of 16.5 million. The number of adults who had never accessed the Internet in 2010 decreased to 9.2 million, from 10.2 million in 2009. There were 38.3 million adults who were Internet users."
Even worse are the demographics, which imply it’s the young and wealthy that the banks now reach whilst ignoring the old and infirm.
For example, among the over-65s, just one in three use internet banking compared with two thirds of those aged 25 to 44.
This stacks up with my recent analysis of the ING Direct acquisition by Capital One, which shows that ING Direct’s demographics are skewed heavily to the young and wealthy, whilst traditional banks are directed more towards financial inclusion and the elderly.
What this means long-term is that some banks will want the old and wealthy, the young and the poor; whilst other banks will want the young and wealthy, the old and the digital.
These aren’t simple demographics however.
Banks will appeal to different audiences based upon their channel mix, service offer, customer engagement in person and remote. Some will be heavily branch oriented whilst others remotely focused, but they will each find a niche.
The only change will be that there will be far more niche players, rather than the homogeneous branch based grouping we have today.
So today marks the start of the bank reporting season in the UK which, based upon last week’s results in the USA and Europe, will be pretty bleak too.
First, we have HSBC which is a mixed bag of news.
According to the Telegraph, HSBC will report “a profit for the first six months of the year of $10.9 billion, becoming the first of the UK's major banks to announce its interim financial performance.
“The profit figure, which means HSBC made nearly $1.7 billion of profit in each of the first months of the year, is slightly down on the same period in 2010 when the bank reported a before-tax profit of $11.1 billion.
“HSBC currently employs 335,000 staff around the world and the redundancies would equal about 3pc of its total workforce.
“Mr Gulliver wants to reduce HSBC's cost income ratio to between 48pc to 52pc. In the second half of last year the bank reported a cost income ratio of 60pc and in the first six months of this year analysts at Credit Suisse estimate this has fallen to 57pc.
“Profits from HSBC's personal financial services business are forecast to have more than doubled to $3.2 billion compared with the same period in 2010, largely as a result of reduced losses in the bank's North America business, which lost $1.5 billion in the first half of last year …
“Global banking markets, HSBC's investment banking division, is expected to have recorded about a £1 billion fall in profits compared with the first six months of 2010 at £4.6 billion.”
One point of note is how HSBC is restructuring, started with the sale of its 195 branch network in upstate New York to First Niagara Bank for $1 billion (£609m).
HSBC also recently sold its Russian business and further sales of international retail banking businesses are considered likely, though the bank has ruled out selling any of its UK, French or German operations.
One point to note in HSBC’s globality is the retrenchment of operations, and the refocusing from shrinking markets – the USA – to growth markets – Asia. For example, although profits were boosted by growth in emerging markets, there were still write-downs in the USA of around $3 billion, two-thirds the figure of last year and adding to the cumulative pot of near $70 billion losses on Household since its acquisition in 2003.
This is why Stuart Gulliver announced in May, that HSBC would slash costs by up to $3.5 billion by 2013 with the savings “ploughed back into fast-growing markets around the world, especially in Asia. The lender has already said it would be hiring at least 2,000 extra people in mainland China and Singapore over the next five years, as it seeks to tap the fast-growing Asia Pacific market.”
Apart from HSBC, and looking around the other banks, the outlook is also grim.
Lloyds and RBS have seen their shares plunge 30% and 17% respectively in the last six months alone, while Barclays' shares have plummeted 26% and HSBC has lost 14%.
Much of this is down to severe downturns in trading, with some bulge bracket firms reporting that year-on-year trading was down by over 25% in June.
At Barclays Capital, the investment banking arm of Barclays, analysts estimate that profits could have fallen by about 40pc to just over £2 billion in the first half of the year compared with the same period in 2010. In 2009 the division reported revenues of £13.7 billion, up nearly 90pc on 2008. A year later revenues had dropped by more than a third to less than £9 billion and this year the forecast is for a fall of another 8pc to around £8.1 billion.
Taxpayer-backed Lloyds Banking Group is expected to report pre-tax profits of £1 billion on Thursday, a steep reduction on the £1.6 billion reported a year earlier. Losses in Ireland and Australia, although still high at £2.2 billion, will be £1.4 billion lower than the second half of 2010.
Royal Bank of Scotland closes the week with its results on Friday, which are expected to reveal £611 million in reported profits, down 19% on the previous year. Much of this will be due to disappointing investment banking results, down 31% over the same period last year. This represents a more than halving in profits in its global banking and markets business to £1.3 billion. Nevertheless, RBS will show overall business lending is up, driven by increased borrowing from large corporates.
Analysts estimate the combined pre-tax profits of the so-called "casino banking" divisions at Barclays, HSBC, Royal Bank of Scotland, Standard Chartered and Lloyds Banking Group fell from £11.1 billion in 2010 to £9.1 billion in the first six month of this year.
All of this means lots and lots of job losses.
Apart from the 10,000 at HSBC, there were 15,000 job losses announced in June by Lloyds Banking Group, taking the total number of redundancies at the bank since its rescue by the taxpayer to about 40,000. Royal Bank of Scotland has already shed 28,000 staff since the financial crisis started.
Barclays has been shedding staff for months, with Barclays Capital, its investment banking arm, cutting about 600 people worldwide since January and its retail business losing almost 2,000.
At UBS, as many as 5,000 jobs are set to go across the group, including the bank’s wealth management arm. Credit Suisse is eliminating about 2,000 positions, largely in its investment bank.
Goldman Sachs, the US investment bank, was the first to announce a substantial cull of jobs last month, saying it was trimming 1,000 posts after a poor performance by its fixed- income trading division.
The overall expectations are that as many as 15,000 City-workers, or about 5pc of London-based financial services staff, will lose their jobs before the end of the year, resulting in a drop of more about £1.3 billion in lost income tax revenues for the Exchequer.
This is based on an average salary of £150,000 and income tax of 50pc, employer national insurance of 2pc and employee national insurance of 2pc, this works out an average lost tax income per lost City job of £81,000, or a total loss of about £1.3 billion in tax revenue.
To put this into context, financial services workers paid a total of £18 billion income tax for the tax year 2009/10, or 15pc of the UK total, so this year's redundancies alone could lower the sector's income tax contribution by about 7pc.
It’s not all bad news however, as Standard Chartered is set to announce pre-tax profit of around $3.5 billion, up from $3.1 billion in the first half of 2010. Again, this reflects the strength of Asia.
Also, the taxpayer “made a net profit of £339.8 million pounds in the first half of 2011 from the assets they still hold in Bradford & Bingley Plc and Northern Rock (Asset Management) Plc.” So that’s not so bad then.
Meanwhile one Spanish Bank, Bankia, has offered the ECB Cristiano Ronaldo as collateral for their loans. What is the world becoming?
The above is an amalgam of a variety of articles as follows:
Just got home from travels and found a leaflet on my doormat.
Usually such leaflets get thrown in the bin, but the strapline “start a whole new movement” in orange intrigued me.
I wonder what this is about I thought, as I’ve never had junkmail from what I assumed was Orange, the mobile phone operator. Orange had never written to me before.
Turning to the back of the leaflet, the sight of a mobile telephone with “powered by Barclaycard” immediately caught my attention.
So I opened the leaflet and yay, this is the launch of Britain’s’ first mobile contactless programme in action (doubleclick image below to see large version).
The leaflet asks me to clink on an Orange webpage for more information ...
... and, on the webpage is a video explaining more:
The ordering is simple, and the phone is available for just £59.99 ($100) on a pay-as-you-go contract that’s quite attractive.
Maybe this really is a way for mobile carriers and banks to partner?
Either way, it shows Barclaycard on the leading edge once again. After all, they appear to be the only card firm that regularly gets coverage on this blog as an innovator:
All in all, the mobile payments revolution is under way and, in the UK, this one leads the way.
After the bank reporting season in the UK last week, the most notable row that has emerged – alongside bonuses and a lack of lending – is the lack of taxes banks pay.
Banks are remarkably adept at being tax efficient – or should we say, tax avoiders – and this has been known for years. It is tolerated by governments as the taxes they avoid are all legitimate accounting techniques to minimise corporation tax whilst, on the other hand, they are big payers of national insurance contributions, pay-as-you-earn and other employee earnings-related taxes.
This conundrum puts governments in a bind: if they clamp down too hard on their banks, then they lose a possibly major chunk of tax revenues. However, by not clamping down on the banks, they lose a major chunk of tax revenues anyway.
This dilemma is the one facing the UK government in particular, as they see a dysfunctional banking system that they want to tax heavily but they know that, if they do, the banks will leave.
This was clearly demonstrated by the often mooted rumour about HSBC relocating to Hong Kong – that’s been around since Michael Geoghegan’s office moved there two years ago, although it’s interesting that new CEO Stuart Gulliver has clearly said the office should be in London – and Barclays to New York.
Such sabre-rattling frightens the likes of George Osborne and Vince Cable, but does it frighten the likes of Mervyn King and Sir John Vickers?
Probably not, as Mervyn King has been quite outspoken over the weekend about bankers bonuses and poor treatment of customers whilst promoting the idea that banks should be split between boring banking – retail and commercial – and casino banking – investments. A view that appears to be increasingly endorsed by Sir John Vickers, who will provide the regulatory framework for long-term bank reform later this year.
If it does go this way – higher taxes on bonuses and salaries, the forced split of proprietary trading (the casino bit of investment banking) and general restructuring, then be assured that it will mean the banks will relocate.
Not Lloyds and RBS – the government owned banks – but the big two of the big four: HSBC and Barclays.
Now, is this a big loss?
Yes and no.
It comes back to the taxation piece.
According to a report by Pricewaterhouse Coopers, banks more than pay their way in the UK economy.
The industry contributed an estimated £53.4 billion to UK government taxes in the 2009/10 financial year, accounting for 11.2% of the total UK tax take.
The figure, which excludes the 50% top rate of tax and the Bank Payroll Tax, is down by £8 billion from the previous fiscal year but the sector has overtaken North Sea oil and gas to become once again the largest payer of corporation tax in 2010.
The sector employs over one million workers which helped to generate £24.5 billion in employment taxes.
That’s slightly less than the amount stated by the banks in Project Merlin’s documentation (HM Treasury published summary, pdf document), where the banks say they will “contribute a cumulative £8 billion of total tax take (covering direct and indirect sources, including the Bank Levy and VAT) in 2010 and, on the same basis, £10 billion in 2011.”
But what’s £45 billion here or there?
The real issue is that the banks can easily offset tax liabilities based upon clever accounting.
For example, leading accountant Richard Murphy writes that the UK banks received an effective subsidy of £19 billion, by writing down this amount as deferred tax liabilities due to expected losses in 2008:
“If some £19 billion in tax might not be paid as a result at some time in the future, there is an extraordinary double subsidy going on for these banks. Not only were their losses underwritten by the state in 2008 (and in most cases they still are receiving some form of state support, if only by way of asset guarantees), but they will now receive a second round of subsidy when over years to come they will offset those state subsidised losses against the profits they might now make only because they have been saved for the benefit of their shareholders by the UK government.”
So there is some issue here about tax isn’t there?
It’s one raised often by the Treasury Select Committee and, in particular, by campaigner MP Chuka Umunna who asked Bob Diamond in the last meeting how many offshore companies the bank had in global tax havens.
About 300, Bob Diamond answered.
Similar questions are being raised by analysts about Lloyds and HSBC.
Ian Fraser writes a good summary of the analysis of Lloyds results over on Naked Capitalism, and the point made is that creative accounting can make any bank look good.
Lloyds were buoyant about rebounding from more than £6 billion in losses in 2009 to a £2.2 billion profit in 2010 … except that the statutory profit was a loss of £320 million.
There are many definitions of profit.
Charges of £1.65 billion as the cost of integrating HBOS with Lloyds, a £500 million purse to reimburse mortgage customers for over-charging and a £365m loss on the sale of two oil-rig subsidiaries had been stripped out of the ‘profit’ figures.
There are many definitions of profit.
There is also a thing called “fair value unwind”.
In Lloyds accounts, they have a specific area relating to the HBOS acquisition representing fair value, and the “fair value unwind represents the impact on the consolidated and divisional income statements of the acquisition related balance sheet adjustments. These adjustments principally reflect the application of market based credit spreads to HBOS's lending portfolios and own debt.”
In other words, it is the write down of what was over-valued in the HBOS takeover and, as a result, higher valuations on HBOS assets and business lines since the deal was done had added £3.12 billion to Lloyds’ headline pre-tax figure.
There are many definitions of profit.
There was a further £7.9 billion of largely unidentified ‘available for sale’ assets also moved into a newly-created accounting basket of ‘held to maturity’ assets as part of the “fair value unwind”. This is a good move as such assets don’t need to be marked to market, which can also improve the accounting view.
There are many definitions of profit.
HSBC has faced similar questions about taxes from US authorities and UK activist groups, whilst Royal Bank of Scotland doesn’t have to worry about profits right now – they made a £1.1 billion loss – but they don’t have to worry about taxes either: “RBS finance director Bruce van Saun also admitted today the bank would pay no corporation tax again in 2011 as it has deferred tax assets of £6.3bn it can use up from previous losses before paying any tax.”
All in all, this new dialogue is quite concerning as transparency in bank accounting is hard – there are differences between USA and International Accounting rules for example, between GAAP and IFRS, and then there are all these complexities layered on top between mark-to-market, fair value, liabilities and impairments, on balance sheet and off balance sheet, and so on and so froth.
Which finally brings me to Basel III.
Why does this report worry me?
Checkout the management summary:
“We believe that changes in regulations for bank capital are a ‘game changer’ for the sector.
“The proposals from the Basel Committee published in December 2009 will increase the quantum of capital in the system, improve its quality, force out complexity from balance sheets and ultimately drive down ROE.
“We undertake a thorough analysis of what happens to the banks’ capital in an attempt to replicate as closely as possible the anticipated findings of the Basel Committee’s own impact study, due H2 2010.
“The results are very interesting.
“The UK banks Lloyds and HSBC are significantly impacted by the proposals.
“We see Lloyds, in particular, having a new Core Tier ratio of only 4.4% by the end of 2012.
“The fall is mainly due to the full deduction from common equity of investments in other financial institutions of £10bn (mainly insurance), which under the present FSA transition rules, is only deducted at the total capital level (not 50:50 from Tier 1and Tier 2 capital as for most other banks).
“Basel III is essentially crystallising the problem that Lloyds has been able to get away with for years of double counting the capital in other financial entities on the group balance sheet.
“We also see HSBC’s Core Tier 1 ratio falling to 6.0%, significantly below peers and in line with what we would deem to be an appropriate regulatory minimum.
“The reasons for the substantial fall in the Core Tier 1 ratio are more varied than for Lloyds and arise mainly from the deduction of negative AFS reserves, the deduction of minorities, the increase in market risk weights and the deduction of investments in other financial entities.
“For the last point, HSBC has, like Lloyds, taken advantage of the FSA transition rules currently in force and opted to deduct investments in financial entities at the total capital level rather than 50:50 from Tier 1 and Tier 2 capital.
“We believe that management may ultimately desire to raise more common equity to obtain a capital buffer and regain parity with peers.”
Be assured that bank accounting rules are under intense scrutiny, and will be more so in the future.
But no bank is going to appreciate Basel III adding layers of excess capital requirements to their already over-burdened balance sheets.
For example, take note of this quote from Karen Fawcett, Senior Managing Director and Group Head of Transaction Banking with Standard Chartered Bank (pdf of SIBOS Issues, October 2010): “If the regulations are implemented as they are currently written, we could be seeing a 2% fall in global trade and a 0.5% fall in global GDP.”
What the banks are really saying is that if Basel III is implemented as it is currently written, and if banks ever move to accounting practices where apples can be compared with apples, then global trade will decrease because the lubricants of trade – leverage and risk – will be curtailed.
Is that such a bad thing?
Blog inspired by Ian Fraser’s tweets
So we start the year as we mean to go on, with a bunch of MPs grilling a banker about bonuses, bailouts, lending and such like.
Banker bashing 2011: same sheet, different day.
This time it’s the turn of Bob Diamond, Chief Executive of Barclays Bank, to take the heat in front of the Treasury Select Committee (TSC).
And yes, he can take the heat, as he’s sitting on a personal fortune estimated at over £100 million with an £8 million bonus this year.
So go on, take a punch ...
... and the Committee did.
Following the meeting live on the Parliamentary website, supplemented by tweets from journalists Robert Peston and Ian Fraser, along with the blog of the Financial Times, made for a fun morning’s viewing.
The Committee is led by recent FSClub keynote Andrew Tyrie, who began by pressing for an answer to the question of whether shareholders get to see the bonus allocations before they are allocated.
“So the shareholders don’t know what you’ll be paying and the structure of the bonus scheme you will announce?” asked Tyrie, to which Diamond soft shoe shuffled.
An hour later and the subject bounded back again thanks to John Mann, Labour’s EveryMann, who started talking about how it would be easier to get a camel through the eye of a needle than a rich banker to get through the gates of heaven.
No wonder Bob responded: “You’re not a big fan of Barclays are you?” to which Mann said: “I’m a big fan of getting answers from you.”
He was then, in the words of Robert Peston, “filleted” by fellow TSC member George Mudie who pursued a line of questioning around why banks need to pay such massive bonuses to already well remunerated people when no other industry does this.
Mr. Diamond put it down to the nature of competition in banking ... a weak answer as it has so often been made clear that there is no competition in banking except amongst incumbents who are protected by licences.
Maybe a better answer, when challenged with whether he recognised the bonus issues as being “toxic in the real world”, was:
“We are sensitive, we are listening, and one of the reasons I was looking forward to today was to have an opportunity to put some balance and some understanding….we’ve done a very poor job over the years in explaining how the compensation process is integrated in the other aspects…how investment banks contribute to society…and I certainly pledge to do more in that regard.”
Or maybe not.
Nevertheless, a key point was made that if the UK clamped odwn hard on bonuses, then banks could easily relocated – having acquired Lehmans US operations, Barclays Capital could easily place staff into that office – and this would have the consequent effect of UK taxes being gifted to the US treasury.
As Mr. Diamond intimated - or was that threatened? - “Why would the United Kingdom not be proud to have one of the world’s best investment banks located here?”
Hmmmm ... another line of questioning I found intriguing came from Chuka Umunna, a smart young labout MP, who asked about Barclays tax avoidance practices.
He began by asking how many Barclays subsidiaries are incorporated in the Isle of Man?
Mr. Diamond didn’t know.
Mr. Umunna did. There are 30.
He then asked about Jersey.
“The number is 38,” says Chuka.
Cayman Islands – 181.
Chuka made it clear that “these are well known tax havens…a cursory reading of your group returns suggests you have over 300 companies operating in tax jurisdictions around the world.”
Mr. Diamond came back with: “I can assure you the bank is not evading taxes” and, as Mr. Umunna responded, he wasn’t asking about evasion which is illegal, he was asking about avoidance on a “grand scale” but (just) legal.
There were a number of other exchanges about bailouts, competition and the ethics of banking, with qauite a few intriguing and amusing comments:
Bob Diamond on the perceived invincibility of banks:
“Banks should be allowed to fail…It’s not okay for taxpayers to have to bail out banks.”
On steering Barclays through the storm:
"Let me be clear. Being Barclays or being HSBC in this country, where a number of banks did fail, there is little differentiation between banks that failed and those that didn't... We are very very proud that we managed through this period, profitably... and with the interests of our clients."
On reintroducing the principle of unlimited liability:
"Take Bob Diamond out it. You own two big banks. Would you be able to attract the calibre of Stephen Hester (RBS chief) and Antonio (Horta-Osorio - incoming Lloyds chief) with unlimited liability? I can't think of a single nationally directed institution that didn't end in tears, it is not the natural place to be."
The MPs on Bob Diamond:
"This is very nice, but it's not getting to the point. I've got tears pouring down my cheeks... I can hear the bloody bagpipes going." - George Mudie, Labour MP for Leeds East's response to Bob Diamonds violin-inspired speech about emigrating to Massachusetts from Scotland and Ireland; He told the Committee that as one of nine children, if he wanted a new bike, he knew he would have to save for it himself.
Andrew Tyrie, Conservative MP for Chichester and committee chairman, described Barclays shareholders as “interested, clever, uninformed” and "half-asleep", as Diamond told the committee that shareholders had never asked for information on bonuses.
"Over Christmas I read my seven year old The Emperor's New Clothes.... before taking apart his arguments on competition, on the threat that banks will leave... there is no evidence that banks will move. It's extremely disappointing, you are in denial about the taxpayers' support for you; denying a lack of competition in the industry; you're denying customer satisfaction; you're denying the lack of support for small businesses... the Emperor is wearing no clothes." - Andrea Leadsom, Conservative MP for South Northamptonshire.
"Why is it easier for a man to pass through the eye of a needle than a rich man to pass into the Kingdom of Heaven?" – John Mann, Labour MP for Bassetlaw, applies the well-known Biblical saying after Diamond’s vague replies on bonus, saying it’s a matter for the board.
Anyways, the one quote that remained with me throughout the whole grilling was this one from Bob Diamond: “There was a period of remorse and apology for banks, that period needs to be over.”
In other words, time to move on.
I think that was wishing on a star however.
If you’re seriously interested, here are all the top entries on this story:
And a few news reports too:
So along I go to the Independent Commission on Banking’s (ICB) Hearing this week on bank competition and financial inclusion.
The evening is the last of several meetings that have taken place across the country, as part of the Government sanctioned Independent Commission review of the structure of the banking market.
For those unfamiliar with the ICB, they are the idea of George Osborne, Chancellor of the Exchequer, who asked the Commission to “consider structural and related non-structural reforms to the UK banking sector to promote financial stability and competition.”
Chaired by Sir John Vickers, former Chief Economist at the Bank of England and a Director General/Chairman of the Office of Fair Trading, the ICB is due to make recommendations to the Government by the end of September 2011.
The evening I attended explored several connected issues of competition, choice and financial inclusion and it didn’t start too well I must admit as, having trailed into London, the organisers said that I wasn’t on the list.
This was after a confirmation from the organiser saying I definitely was on the list.
However, I hadn’t printed it off – no-one had! - so a small tete-a-tete ensued.
It was resolved amicably, with a clear statement that as the evening was organised as apart of government enterprises inc., it was not surprising that they couldn’t organise a drink-up in a brewery.
Or, in this case, a hearing in One Great George Street.
The panel itself consisted of several esteemed individuals:
All ably hosted by BBC Money Box presenter and former FSClub keynote, Paul Lewis.
The evening began with a poll of the 100-strong audience to see what sort of instituainots they represented.
The second instant poll question asked whether this audience thought it likely that they would switch their main current account within the next two years:
This compared with Consumer Focus research of over 2,000 adults, which found only 7% had switched and 17% had considered. Just under a quarter of the general populous therefore had switched or thought of switching, compared to a third in the room last night.
The audience were then polled as to what would increase competition in the banking sector:
This is a bit strange as websites like MoneySupermarket and MoneySavingExpert provide the number one above and have done for a while, and yet folks still don’t switch.
The second item is also not going to increase competition as I often blog about league tables showing service levels and complains. There are loads out there.
So I’m sorry but that question was just bosh.
On to the next one: what would help low income customers the most?
Hmmm ... I’d have thought money would help them the most.
Finally, the audience were asked how much they would be willing to pay to have bank accounts with fair and transparent charging if you are overdrawn.
I wasn’t sure how useful these questions were, but some of the answers did interest, as in a quarter of customers would be happy to pay £10 or more a month for a transparent charging structure.
Funnily enough, I pay about £20 per month for an account that lets me go overdrawn as much as I want with no fees. That suits me as I don’t have to worry about my account balance. Some may say that’s a lot, but there’s all sorts of other account perks, such as travel and gadget insurances for free, concierge services, direct access to a relationship manager, etc.
My bank calls this: ‘Private Banking’.
I call it: ‘Painfree Banking’, because I don’t have to worry about my account.
Ah well, guess I’m in their sought after category rather than being some low-income underbanked and can’t afford such accounts ... who then get merrily stiffed with charges.
I say the latter as the polling led to a debate that pretty much had the theme: how come banks allow painfree banking for the rich whilst stiffing the poor.
For example, when discussing why consumers don’t switch accounts, Martin Lewis suggested taht it is because the current account is the most service oriented of all bank products, but that it is subsidised by the banks cross-selling higher margin and fee-based products once they have the customer onboard.
Not quoting Martin accurately, but his view went something like: “Apathy, ignorance and inertia delivery most of the bank profits and it is a disgusting disgrace that we don’t have financial education in schools to overcome this.”
As you can see, it sets the tone for Mr. Moneysavingexpert.com. In fact, he went further to state that any system that gave free services to the rich whilst charging the poor to subsidise them, had to be wrong.
This set the tone for the evening and rather than being a nice discussion that was balanced, it felt far more like a bank bashing session from consumerists and the public if you ask me.
For example, Danielle went next.
Now she was far more considered by comparison, and focused upon financial inclusion, stating that 1.5 million adults in the UK have no bank account today, although six out of ten had one once before.
Part of this is because of the hidden charging structure which, by nature, attracts those with money whilst punishing those without. For example, the average savings on bills when paid by direct debits amounts to over £250 per year, but you need to have a house, electricity, telephone etc, to get those savings. Otherwise, the average charges on an account each year is £140, and that’s where the underbanked get stung.
This concurred with Martin’s point, but was articulated slightly less emotionally and more rationally.
Paul Lewis emphasised that the issue is more to do with the introduction of free banking in the UK in the 1970s which, forty years later, has led to a system where “they give you gifts to attract you in, and then sell you everything at very high profit margins to rake it back”.
Martin Taylor admitted that “in private, many senior bankers would love to move away from the free banking and charging model, but not of them has the courage to be the first to change it.”
He also underlined that when free banking was introduced in the UK, it was because the average fees paid were £100 per year. Then interest rates rose and banks could reduce these fees. By the time free banking came into play, banks were trying to compete in an interest rate environment at 17% and fees had become a barrier to gaining business.
Now that’s changed, and if anyone had predicted that banks would be offering free banking when interest rates were 0.5% forty years later would have left those 1970s bankers incredulous.
Bearing in mind that he was Chief Executive in the 1990s, he knows what he’s talking about.
A member of the public then said: “what we need is a whole new banking system, rather than propping up one that doesn’t work.”
Danielle then brought the subject back around to the unbanked and underbanked, stating that low income groups purely want to have control over their money. For example, many are reliant on payments from the government or from a partner and, if those payments arrive late which is out of their control, they don’t want to get high charges for someone else’s forgetfulness, which is what happens today.
Equally, when they want to borrow money, they usually only want £50, £100 or £200. Banks don’t cater for those needs, as they want to lend £1,000 or more. Therefore, there is mismatch in the system.
I thought that was a very good point.
Paul Lewis suggested that control was hard because electronic payments make it so easy for money to flow in and out of your account that you can’t keep up with it.
Martin Lewis countered by saying that electronic actually gives you more control over your money, as mobile and internet allows you to check 24*7 what’s happening.
Paul countered by saying that most low-income families don’t have mobiles or access to the internet.
Personally, I think Paul doesn’t realise that many low-income families have a mobile today.
Mike O’Connor chipped in that low income communities are meant to be served by Post Office Banking, which is not providing access to a bank through a Post Office but actually have a state-owned and run Post Office Bank.
And Mark Lyonette of the Credit Unions, said that it was clear that Credit Unions worked for these communities with half of Northern Ireland’s citizens having a Credit Union account (450,000 accounts), and 5% of Scotland of which 20% are in Glasgow.
As you can see, the conversation was wide-ranging and, although structured, felt fairly inconclusive to be honest.
It was more of a talk shop than anything which showed a conclusion.
Having said that, I walked away with a few observations.
First, the traditional banks serve those who have money well. For those who want flexible banking, we are willing to pay a monthly fee and it gives us painfree banking.
It may be subsidised by those who pay high fees and charges, but those are the people who are often just messy with their money, according to Martin Lewis, rather than structured and in control.
Second, for those in low income communities who are unbanked or underbanked, it is because banks don’t want them. The question then is why force banks to look after them? We need alternatives instead, and if those alternatives are credit unions or the post office, all well and good.
Third, if we want more bank competition, we need to make it easier to open a new bank. I’ve blogged often about how difficult that is and it’s getting no easier. If anything it’s tougher.
Finally, there is a big dichotomy between big banks and small banks. Most consumers don’t trust small banks, even though they give better service. This is why credit unions and building societies are generally small, apart for the one exception of the Nationwide. So small banks should focus upon community, including low income communities, and service. Big banks are trusted that they won’t fail and provide the hygiene services of transaction banking. That’s all most people want, safe and secure transactions. Simple.
Meanwhile, I did learn two other things at the event.
One from Metro Bank, our favourite new bank, is that 68% of Londoners and 32% of Brits have heard of Metro Bank ... not bad for a bank with four branches. Oh, and don’t be too smug about their size, they just got £52 million in new funding secured yesterday to expand to 18 branches by 2012, six more than the original target.
And Vernon Hill, founder of Metro Bank, was reported as saying to the Treasury Select Committee yesterday that the standard of retail banking in the UK is "shocking" and run by a concentrated group that apparently believes "you have to deliver bad service to make money".
He’s out to change that. Bearing in mind he achieved that objective in one of the hardest markets to crack – the USA – I think he’ll achieve something here.
Second, there is a new bank in Britain that I had not heard of before: the Secure Trust Bank.
Secure Trust Bank offers a current account that requires no credit checks, KYC or AML for the account opening.
It’s a prepaid bank account.
“The Prepaid Basic Bank Account comes with a prepaid card. Simply retain sufficient funds in your account to cover your regular commitments and outgoings. The rest can be transferred onto your Prepaid MasterCard for you to use as you would a debit card, at over 28 million outlets, any cash machine, retail outlets and for shopping online or over the phone. You can vary the amount that you transfer to your card at any time – online or by our automated telephone service, 24 hours a day, 7 days a week.”
Perfect for the underbanked, unbanked ... and those who want to anonymously gamble, buy porn and do other crap over the internet.
So there’s some competition in UK banking out there after all!
I love the understatement in some magazines when they refer to companies.
For example, they might say: “according to a report today from Microsoft, a software company”; or, “in the news today the BBC, a broadcasting company” ... a bit like US reports saying: “news today from London, England” or “Paris, France”.
OK, OK, I know that it could be “Paris, Texas” but if it was “Paris, Texas” then say “Paris, Texas”, as the real Paris is always in France and always has been.
You got it, it’s Monday and I’m not in the best of moods ... too little Christmas shopping done and several hundred cards to write.
Sod it, I’ll just send an ecard instead.
Far easier and probably can just ‘bcc’ everyone with it in one click, done.
So what’s pulled my chain this morning?
Yes, the Economist?
You see, they’ve published a fascinating item on bank lending, that shows bank lending to corporates and consumers has nose dived since the crisis hit, with the UK, USA and Australia particularly badly hit:
In fact, looking at Britain and Australia’s lines specifically, you see a massive boom in lending pre-crisis, with year-on-year rises exceeding 20%.
This is why the contraction in lending and credit is hitting so hard, as we’ve gone from over 20% rise year-on-year to a negative 5-10% year-on-year.
In other words, a net contraction of 25% to 30% over earlier times.
No wonder everyone’s hurting.
But why has this irritated me?
It should please me.
The Economist pulled my chain with their writing about this chart, saying: “According to Barclays Capital, an investment bank.”
Barclays Capital is not just any old investment bank.
It’s Bob Diamond’s bank.
And Bob Diamond is Bobtimistic to be Bob the Builder as Barclays’ Bobster in Chief.
You’re now probably thinking I’ve completely lost it but that’s OK, it’s Christmas.
I don’t mind losing it at this time of year.
Actually, the real reason for the Bobtimistic reference is that I had also just been reading Bloomberg Markets this week, with their front page story on the Bobster.
Here’s a flavour of that story:
As 1,100 managing directors from Barclays Capital descended on the Grosvenor House hotel near London’s Hyde Park in late September, they had more to celebrate than having successfully swallowed the North American unit of Lehman Brothers Holdings Inc. two years earlier.
Their guy, Bob Diamond, the Massachusetts-born founder of Barclays Capital, had just been handed the top job at parent Barclays Plc in a sign of how he had transformed the 320-year-old British institution in his 14 years as investment bank chief, Bloomberg Markets magazine reports in its January issue.
“Bobtimistic” is how Rich Ricci, Barclays Capital’s new co-chief executive officer, described Diamond’s eternally upbeat attitude to the assembled executives as he introduced a five- minute video send-off.
“I’d like to say that he’s too humble to recount what we are about to show in this video, but you’ll probably just have to hear it twice,” Ricci joked.
The tribute, heralded by blaring trumpets, featured a digital scrapbook titled “The Wonder Years,” with clips of Diamond hiking up his yellow suspenders in 1997 as he talked about making Barclays Capital a bond market leader; a mock image of him dressed like the children’s cartoon character Bob the Builder; his first pep talk to Lehman employees after acquiring the bankrupt broker-dealer in 2008; and photos of him with Rolling Stone Mick Jagger, soccer stars of London’s Chelsea Football Club and pro golfer Phil Mickelson.
Enough ... I’m now feeling really ill ...
I got a note today regarding the fact that the Head of Barclays Global Retail Division, Antony Jenkins, appeared on BBC Radio’s Today program this morning saying that the level of consumer complaints to banks in general, and to Barclays specifically, is “not acceptable”. The Financial Ombudsman Service said it received and upheld more complaints about Barclays than about any other bank last year, and Mr. Jenkins said Barclays are committed to reducing the numbers of complaints.
On the same day Eric Daniels, Chief Executive of Lloyds Banking Group, is quoted in today's Daily Wail as saying that the bank is “punching below its weight given our market shares” with regard to complaints.
As a result, it prompted me to revisit the FSA’s and the Financial Ombudsman’s figures. In so doing, I stumbled across some interesting anomalies.
First, the FSA’s complaints report. Here’s the key highlights for the first half of 2010 (H1-2010):
First, the figures for 2009 were excessive because banks had been waiting to process many overcharging complaints whilst a court decision was being taken. This decision was taken in November 2009, and resulted in a mass backlog of complaints being registered and processed. As a result of that anomaly, complaints about banking in H1-2010 decreased by 50% to 999,196; complaints about current accounts decreased by 63% to 599,249; and complaints about ‘terms and disputed sums or charges’ decreased by 63% to 575,348.
The number of complaints about payment protection insurance increased by 53% to 265,949.
The number of complaints relating to ‘advising selling and arranging’ increased by 22% to 364,891. 281,994 of these complaints were about general insurance and pure protection, and many of these were related to payment protection insurance.
The number of complaints relating to ‘general administration /customer service’ was the lowest since the second half of 2006 at 596,606.
The number of closed complaints increased by 76% to 2,819,678, as many of the bank charge complaints were reported as closed. The number of closed banking complaints increased by 126% to 2,166,304, with 84% closed within 8 weeks.
Total redress paid in 2010 H1 increased by 43% to £406 million. The largest amount of redress by product was for general insurance and pure protection which increased by 92% to £276 million. This may reflect the large number of complaints relating to payment protection insurance.
As can be seen, many of the complaints concern payment protection insurance. Eric Daniels says that he is not surprised they have risen astronomically because “more column inches have been given to [the issue] than the impending Royal Wedding”.
I can see where he’s coming from on this, as I was recently talking to one of Lloyds retail heads, who told me that the astronomical rise in PPI (Payments Protection Insurance) was a real processing headache, especially as “one in four PPI complaints are from people who don’t even have an account with the bank”!
Now then, going back to that comment about Lloyds “punching below its weight”. Among the major banks, the list of banking complaints noted by the FSA has Lloyds at the top of the list, which received 288,717 complaints in the first six months of 2010, closely followed by Barclays with 259,266 and Santander with 244,978.
So if Lloyds has the most complaints, how can it be “punching below its weight”. Oh yes, there was the other part of that comment: “given our market shares”.
There were 288,717 complaints against Lloyds Banking Group, more than any other institution, but this represents less than 1% - about 0.96% - of its 30 million customer base.
Compare this with Barclays who had 250,667 complaints, representing approximately 1.19% of its 21 million UK customers.
Second worst was government-backed Royal Bank of Scotland, as roughly 1.07% (166,172) of its 15.5 million UK customers made a complaint, although these figures do include its insurance subsidiaries, Churchill and Direct Line.
Santander was next up with approximately 1.02% (256,823) of its 25 million UK customers registering an official protest in that period, whilst HSBC performed best of the major banks with just 0.5% (81,271) of its 16 million customers making a complaint.
Interestingly, the proportion of complaints dealt with within eight weeks are also an indicator as to how well these banks are working, with Lloyds securing a completion rate of 97% for customers within eight weeks; Barclays dealt with 91% of cases within the period; whilst Santander closed only 46% of complaints within eight weeks.
This looks bad for Santander, but you then need to look at the Financial Ombudsman’s figures too.
The Ombudsman upheld a whopping 61% of complaints about Barclays, which was the worst performer. 50% of complaints were upheld against Royal Bank of Scotland and 45% against Lloyds TSB, compared to an industry average of 44%. It only supported a fifth of consumers against Santander, the best performing bank in this category despite the high numbers of complaints it attracts and the slow processing of them.
With regard to total complaints, and bearing in mind that Barclays had the most upheld, these figures are also of note:
Firm Number of new banking complaints recorded
Barclays Bank 4,797
Lloyds TSB Bank 4,051
Bank of Scotland 3,876
HSBC Bank 1,718
NatWest Bank 1,617
MBNA Bank 1,184
Capital One Bank 819
Clydesdale FS 701
Royal Bank of Scotland 618
Nationwide BS 594
Alliance & Leicester 430
Clydesdale Bank 419
Only 5% of customers rejected by their bank take their gripe to the Ombudsman, despite a better than average chance of success.
What that means, is that Barclays with 21 million accountholders had around 100,000 serious customer disputes, of which almost 5,000 went to the Ombudsman and 3,000 were upheld. Lloyds with 30 million customers had more like 80,000 disputes, with 4,000 going to the Ombudsman and 1,800 upheld.
So Barclays have double the number of disputes passed in the customer's favour over Lloyds with a third less customer base.
That's quite telling.
A good example of the sort of bad behaviour can be found in this blog: Barclays: not a great home for my savings. Their video is worth a viewing if you want to know the alleged misdemeanour:
In a world of social media, Jane's story (for it is hers) spreads fast, so it's not just the Ombudsman and the FSA that banks should fear these days ... but also the customer.
All in all, this little bit of analysis provided an interesting landscape of issues and performance by our banks in dealing with them.
Finally, given the headline: “Lloyds gets the most complaints” the above shows that, digging beneath the surface, this is entirely misleading.
Mr. Jenkins of Barclays gets it more right when he says that the level of consumer complaints to banks in general, and to Barclays specifically, is “not acceptable”.
So this morning RBS announce losses of £1.4 billion this morning, with various headlines reporting the news:
Admittedly RBS has taken a battering, but their management through the post-crisis hurricane has been pretty good so far, as evidenced by the interview with Stephen Hester the other day, and by his comment in the interim statement: “Our third-quarter results demonstrate that we continue to make good progress in our recovery. We are delivering what we set out to achieve.”
You wouldn’t believe it from that BBC headline above, but here are the real highlights:
Bottom-line: impairment charges tumbled a better-than-expected 40% to £1.95 billion compared with the same three months last year, pushing net losses down from £1.8 billion to £1.15 billion.
HSBC have also just announced a healthy profit forecast, without detailing the numbers, and Barclays report next Tuesday.
But, in looking at these announcements, I started writing down the challenges these banks face and was surprised to find how long the list became.
Here are the headlines:
Changes of Leadership
The banks have all just changed leaders with John Varley (Barclays), Michael Geoghegan (HSBC) and Eric Daniels (Lloyds) all stepping down to be replaced by internal candidates Bob Diamond (Barclays) and Stuart Gulliver (HSBC), shock move to Santander’s UK CEO Antonio Horta-Osorio for Lloyds.
Any organisation with a new leader has challenges.
In Barclays case, tic will be how to get Mr. Diamond, who is an investment banker through and through, to deal with the retail and commercial banking areas and avoid the bank just becoming another Goldman Sachs. Mind you, that’s no bad thing is it?
In HSBC’s case, it’s all about continuity and management of the great ship as one bank globally. Or rather, it’s how to continue Asian growth whilst dealing with the mess of regulations that will impact its global business portfolio.
For Lloyds, it’s all about keeping a tight ship and making sure the bank steers towards profitable growth in the UK markets through the new streamlined operations as HBOS and Lloyds TSB merge. That merger is already delivering £1.5 billion of savings per year and £2 billion next year. In selecting the charismatic Portuguese leader of Santander UK, the bank obviously sees this as being priority and that this is the man to do it. Nevertheless, it does raise questions in my mind, as Mr. Horta-Osorio strikes me more of a cost efficiency numbers man than a customer-centric banker.
Lending comes up all the time in UK bank dialogue, as evidenced last week:
Martin Woolf: “There is this big hullabaloo about lending. What is your stance on lending in Britain?”
Stephen Hester: “There is excessive critique about unsafe lending. That is what caused this crisis and yet the political criticism could be encouraging us to do that again. We take the view that we are guided by our goals, which is to support customers to be safe and reward our shareholders appropriately. Therefore, if part of what our customers need is lending and if our customers can pay us back, why wouldn’t we be lending to them?”
Well, the lending area is now driven by targets, with Lloyds and RBS on track to meet targets set by the UK Government for small business lending this year. However, there is still dwindling availability of mortgages and bad debts are still a big issue, so this little nugget won’t go away.
This is why the British Banker’s Association (BBA) set up a taskforce in August that reported to the UK Chancellor George Osborne with an action plan to create new credit capabilities through a 17-step action plan. The key point picked up by the press is the £1.5 billion stake in small business equity.
Neverthless, lending, bad debts and impairments is still an issue and hot topic, and will remain so for the foreseeable.
The Banking Commission
Talking of Martin Woolf Martin Wolf (Associate Editor and Chief Economics Commentator at the Financial Times, London) above, he’s part of the panel of the Banking Commission alongside:
What is the Commission?
It’s an independent Commission on banking, created and launched in June 2010 with the mission to consider structural and non-structural reforms to the UK banking sector to promote financial stability and competition, and to make recommendations to the Government by the end of September 2011 .
This will be through a series of hearings that start in December in Leeds, Cardiff, Edinburgh and London, with the bank chiefs called into account to give evidence.
Like a Treasury Select Committee, the Banking Commission will focus upon how to recreate UK banking through consultation and then recommendations for reform.
Talking of regulations and reform, there’s a huge amount of this going on from the Basel III rules to OTC Derivatives, along with all the existing issues of previous regulations on liquidity and markets, payments, clearing and settlement and more.
In fact, there’s a whole mess of regulation, with different rules in different regions and different perspectives from different individuals in each regulatory and influencing authority. If I was a banker, I would probably find that recruitment to regulatory compliance functions is excessive whilst layoffs everywhere else in the bank are the same.
In particular, regulatory reform is potentially happening too fast and too uncoordinated. As Karen Fawcett, Senior Managing Director and Group Head of Transaction Banking at Standard Chartered Bank said at this year’s SIBOS: “If the regulations are implemented as they are currently written, we could be seeing a 2% fall in global trade and a 0.5% fall in global GDP.”
Or, as another session asked: “Is Basel Faulty?”
Or, as we debated in March this year: “We think Basel's liquidity standards are rubbish”.
Take Basel and substitute with any other regulatory title and you get the idea: the banks cheese is moving and no-one, including the regulators, seem to know where it’s moving to.
Add in a mess of other stuff such as:
And if I were Mr. Diamond, Mr. Gulliver, Sr. Horta-Osorio or Mr. Hester, then I would be pretty pleased to have turned in any profit or value at all so far this year.
Maybe it’s time to stop the banker bashing and start the banker reformation?