The Bankwatch

Tracking the consumer evolution of financial services

"BankerVision: The reaction of bankers « Bankwatch"

 James comments to the earlier post on P2P lending raises some interesting points.

Also, banks have trust and security assets, branding and otherwise, which could go some of the way to addressing the 30% of loans unfunded problem.

And certainly the larger banks aren’t competing all that hard for deposits anymore, especially when wholesale money can be had more cheaply.

Source: “BankerVision: The reaction of bankers « Bankwatch – Mozilla Firefox”

The competition for deposits continues.  HSBCdirect, BofA, and ING are all in a deposit battle, that brings both deposits, and new customers.  Having said that, the best deposits are the free ones that sit in chequing accounts, so any deposit gathering efforts hope to attract those at least as an offshoot of other marketing efforts.

But the core point is here:

From the bank perspective, if there is an appropriate revenue share, I’d think a partnership of this kind would be highly lucrative. The economics are compelling. Practically no cost for a nice fee income stream.

The problem we always have, is that such efforts are incremental to current bank strategies.  That’s an expensive proposition.  If we could see a way to replace aspects of current lending practices with such a partnership then now we are talking.  Banks have enormous numbers of personnel located across thousands of branches.  Scale through selling/servicing multiple products is the model.

For example Banks could exit loan gathering at the branch.  Then loan requests would be routed through the partnership.  That’s an extreme way to make the point, but its not unheard of.  Credit card applications left the branch in essence years ago.  Credit cards are sold at the branch only as an addon product.  Most credit card app’s are handled virtually, by mail, call centre, Internet.  That’s part of the reason they are wildly profitable, because of the high levels of automation, (and of course high interest rates).

But would banks be successfully able to remove the staff associated with loans, and remain able to sell the other products within the branch.  This is the ultimate conundrum for Banks to move from branch to virtual banking.  Its hard to get there gradually.

Anyhow, the notion of a partnership is fascinating, and getting the economics right would be the interesting part.

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Written by Colin Henderson

August 26, 2006 at 11:24

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