Consumer choice in banking

Originally published on Billing Views.

Last week the news was full of comments from a certain politician about UK banks being forced to reduce their market share by selling branches. However this idea sadly misses the point about how best to increase competition in the banking market.

If the banks are forced to dispose of branches they will likely want to lose their least profitable branches, thereby creating a pool of poor quality branches that no one will want to buy and that would not be sustainable on their own. If government intervention chooses the branches they will dispose of then that means the banks have lost all control over their business. To quote Dave Birch, politicians tend to think along the lines of ‘we must do something, this is something, therefore we must do it’.

Branch disposals force customers to become customers of a different bank whether they want to or not. In my case, despite the well publicised systems problems at NatWest (which to be fair have never affected me) I quite like the bank and the products I use (as far as they go). I would not be impressed if government diktat told me I was now a customer of a new bank.

Forcing customers into new banks misses the point of creating competition and giving customers choice. What we need are new banks with new banking models. Take Moven in the US; Brett King has created a new, mobile centric banking model that is predicated on banking products that put the customer in control through empowering them with information that allows them to make informed decisions. That is creating competition; not hiving off a bundle of branches that offer me-too products to customers who don’t want them.

Banks should of course be allowed to close branches without government interference – it’s great news for them as it reduces their cost base.

What we need in the UK is a white label banking model that allows innovators and brands to create banking products without the problems of getting banking licences and the ongoing regulatory overheads. Licensing and regulation are the responsibility of the bank providing the innovators and brands with their products. One lonely example here in the UK is M&S Bank which combines the Marks & Spencer brand with HSBC provided banking; although that example is unfortunately still predicated on an in-store branch centric model. However, are banks ready to move to a white label model? The mobile operators did it with MVNOs so maybe the banks will.

Recent research from YouGov suggests that consumers want new engagement channels like online and mobile, not branches. The last attempt at creating online only banks in the UK failed, with providers like Cahoot, IF, Egg and Lloyds (scrapped before launch) failing to make much impact; however that was before fixed and mobile broadband became ubiquitous and consumers started to transact from mobile devices. This time around adoption would look very different. Mobile devices are everywhere and if consumers feel empowered by their apps they will use them. Technology will determine the future of the banks – it’s up to the banks to embrace it and the politicians to let them.

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