If you want to understand how completely out of touch traditional banks are with their customers’ needs, you need look no further than a recent conversation I had with the Bank of Scotland. I sought a relatively small mortgage for a holiday rental property on the Isle of Harris in the Outer Hebrides, where visitor numbers are increasing exponentially each year.
Problem 1: thanks to the rise of Airbnb and similar platforms, more and more people rent holiday homes, but banks (certainly UK banks) don’t like holiday homes. Only a few lenders will touch them. Problem 2: despite being in an island nation, UK mortgage lenders don’t like islands. “Is there a bridge?” they ask, narrowing their dull eyes suspiciously. “No? Then our answer must be no.”
And so, despite holidaymakers’ well documented fondness for islands – think the Greek islands, the Caribbean, the Channel Islands – a successful holiday home business on an island is an untouchable prospect for British banks. In desperation, I called the Bank of Scotland, thinking – I marvel now at my naivety – that they would understand about properties in Scotland. I explained the situation to a private banking adviser. “An island, you say?” she said. “I’ll put you through to offshore.”
These are the kinds of absurdities that box-ticking leads us into, and as far as I can see, box-ticking is just about all that traditional banks do these days. My neighbour on the afore-mentioned island left a job as a small business adviser to move there because all the discretion he’d once enjoyed had been taken away and his job had become “a box-ticking exercise”.
Speaking to private equity fund managers recently, I found they had similar issues. Mainstream banks lack flexibility and are unwilling to consider the whole picture when it comes to providing credit, whether for a foreign exchange hedge or a holiday rental. It’s no surprise, then, that others are stepping into the breach. Challenger banks are disrupting mainstream banking, and other institutions are providing credit to the likes of private equity funds where tier 1 banks refuse to do so.
Employees tend to follow the money, and so recent data from the job search platform Joblift, which operates in Germany, France, the Netherlands, the US and the UK, provide a telling insight. Taking the example of the UK, Joblift analysed the fintech and traditional banking sectors over the past 12 months.
The results show an average monthly increase of 9% in fintech vacancies and an average monthly decrease of 3% in vacancies in traditional banking. Traditional banking vacancies take longer to fill than fintech vacancies, and fintech employees typically earn almost £10,000 more than traditional banking employees.
Fintech rivals have put the frighteners on traditional banks. As they manoeuvre to protect their businesses, other parts of the financial services industry are affected, including asset management. Intesa Sanpaolo’s recent decision to seek a merger partner for its asset management business as it responds to the threat of digital rivals is an illustration of this.
A disruptive shake-out looms, and there is a lot of fear around. The 2017 PwC ‘Global Fintech Report’ found 88% of incumbents in financial services are increasingly concerned they are losing revenues to innovators. But the shake-out is necessary. If a Scottish bank does not know the difference been the Hebrides and the Cayman Islands, and traditional banks everywhere are unwilling or unable to help their customers to thrive economically, then they fulfil no purpose and deserve to fail.
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