Over the past month we have read, watched and listened to politicians and regulators discuss how, ten years ago, the UK banking system was almost brought to its knees.
In a matter of hours, some of our biggest banks were on the verge of running out of money. That’s a couple of hours from ATMs running dry, customers unable to withdraw their savings and the economy grinding to a halt. To avert a crisis, the then-Chancellor Alistair Darling and Prime Minister Gordon Brown put together a financial package of up to £500 billion to provide liquidity to their shattered balance sheets. It would change the banking world forever, both in how banks are run and the way they are perceived.
Ten years on, banks have more stringent capital requirements, meaning they must hold more money on their own books, protecting depositors and making sure they do not take excessive risks. Additionally we have a newly established regulator in the Financial Conduct Authority, overseeing everything from who can lend consumers money to whether the rate you pay on your mortgage is fair. Finally technology and competition have moved the goalposts. There are hundreds of new providers allowing greater choice and giving consumers and small businesses access to products ranging from peer-to-peer loans to invoice finance facilities, all through a mobile phone app.
All of the above have improved how financial services work, but it has not meant that public perception is at the same level. While one chief executive of a high-street bank boldly said that the time for apologies is over, trust among the public remains low.
Yes, mis-selling scandals, for example, aggravate the problem, but I believe it is more down to what customers experience on a day-to-day basis. As a CEO of a fintech business, I see the benefits of consumers being able to manage their accounts online or on the move, but for many banking customers the disappearance of the bank branch network and the experience within has undermined trust and capability. The banks are in a tricky position. Royal Bank of Scotland told the Scottish affairs committee in Westminster that since 2014 there has been a 40 per cent drop in the use of branches and that mobile transactions have increased by almost three-quarters over the same period. How can you maintain an extensive branch network if fewer people are using them? Add to that growing competition and stricter regulation on capital, then something’s got to give.
It appears that gap is in the small business lending world. Once upon a time, the high street bank branch had a business relationship manager who thoroughly understood what was happening on the ground locally. That model is dead and banks have centralised these functions.
This naturally provides an opportunity to new and nimble competitors like small business lender ThinCats. However, for many firms the knowledge gap leaves them worse off. No longer do they have the wisdom of professionals who could see when they needed to invest to grow. Banks may say they accept more than 80 per cent of loans to SMEs, but businesses are applying for loans because they lack an understanding of the alternative financial solutions available that, in many instances, would better serve their needs.
Banks play on apathy with both retail and business customers. The latter is perhaps more consequential because we need the small businesses to grow to create the jobs and the industry of tomorrow. At ThinCats we have identified more than 4,000 small businesses in Scotland that require investment to expand over the coming years. We can do this because we have the data and we have people that talk to the businesses.
Ten years on and banks may be safer and less reckless with their lending, but they have left behind their customers – and we are all worse off for it.
John Mould is chief executive of ThinCats