The Bankwatch

Tracking the consumer evolution of financial services

Thoughts on the bank business model

I am going to pick up a copy of “The New Capitalist Manifesto” tomorrow.  I have been following @umairh for some time, and he is an enthusiastic writer on the problems with companies today.  I will be honest and state that parts of the argument can appear to become hyperbolic.  They can sound emotional and become associated with those that choose to create riots at G20 meeting locations.

That is why I have thought more than written on this.  Having said this, the focus of this blog, banks,  leaves lots to be desired about their characteristics.  They appear completely disassociated from their customers, 100% driven by quarterly results and stock market impacts, and are driven by shifts in marketing programmes which are quite obviously attempts to paper over the same organisation.

Then again the people inside banks, the employees actually want something better.  When you look in the eyes of a bank employee, their intention to help is real, their constraint is the banks process and technology.  Those people are real.  The ones who are involved in charity events, local social clubs that provide charitable donations are also real.

What is not real is when the bank takes credit for those donations.  This finds its way into speeches and annual reports and becomes a tick in the box of social accountability for the bank.  This from Michael Porter.

The Big Idea:  Creating Shared Value

Companies must take the lead in bringing business and society back together. The recognition is there among sophisticated business and thought leaders, and promising elements of a new model are emerging. Yet we still lack an overall framework for guiding these efforts, and most companies remain stuck in a “social responsibility” mind-set in which societal issues are at the periphery, not the core.

Lets go deeper.  It is well documented and known by each of us, that trust in institutions and banks in particular is at a low point.  There is nothing that we can see that will make that better in the future trajectory of business.  This is however introduces a dichotomy for people.  On the one hand they understand the mistrust in organisations but they also understand the need for their pension plan to increase in value and that is based on profits.

Trust in business (and banks) will not return unless we have a new model.  The very idea of a new model is in itself a paradigm.  We have a capitalist model, stock exchanges, dividends and share value appreciation.  How can that be changed?

Again from Porter.

The purpose of the corporation must be redefined as creating shared value, not just profit per se. This will drive the next wave of innovation and productivity growth in the global economy. It will also reshape capitalism and its relationship to society. Perhaps most important of all, learning how to create shared value is our best chance to legitimize business again.

Creating shared value (CSV) should supersede corporate social responsibility (CSR) in guiding the investments of companies in their communities. CSR programs focus mostly on reputation and have only a limited connection to the business, making them hard to justify and maintain over the long run. In contrast, CSV is integral to a company’s profitability and competitive position. It leverages the unique resources and expertise of the company to create economic value by creating social value.

Relevance to Bankwatch:

I actually do not have a complete answer yet to the question of what banks need to do and even if they can, which part of me actually doubts.

I do know that banks cannot expect to succeed forever under the current model.  If we look out 50 years, it only makes sense that in 2061 we have a different and better model that will have overtaken the model that is exemplified by JP Morgan that actually has more impact on us all than we care to believe.  More power to them, but that will never be good for people who want bank accounts, debit/credit cards and mortgages.

More to come.

PS:  The Maya Message – from Collapse – Jared Diamond:

Maya kings sought to outdo each other with more and more impressive temples, covered with thicker an thicker plaster – reminiscent in turn of the extravagant conspicuous consumption of modern American CEOs.  The passivity of Easter chiefs and Maya kings in the face of the real big threats to their societies completes our list of disquieting parallels.

Written by Colin Henderson

January 22, 2011 at 23:02

Posted in Uncategorized

5 Responses

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  1. […] This post was mentioned on Twitter by Finno.nl, Caroline Pandey. Caroline Pandey said: Thoughts on the bank business model http://ff.im/-wGZdM […]

  2. Colin,

    Indeed, the current banking system and resulting cyclical failures are the result of a structural problem. In times of crises, new demands are created. These demands can be the tipping point to stem the creation of new businesses/solutions.

    It is an exciting time in the financial world. Solutions are coming. The existing structure will be altered, but it takes humans to break complacency to embrace change in sight of a better day! The best news about this latest crisis is we have the power of the internet and human connectivity to tap into to create a solution.

    Consistent with the message communicated in the video you posted recently about consumer centric finance!

    Keep doing what you’re doing! You’re on the right track.

    Michael Slavin

    January 24, 2011 at 14:23

  3. Michael …. Thanks for stopping by and now I am curious about your business at http://www.privlo.com – some similarities to our own http://www.communitylend.com

    Colin Henderson

    January 24, 2011 at 18:02

  4. […] did up this post on evolution of bank business models last week in anticipation of reading Umair Haque’s new book, “The New Capitalist […]

  5. In looking at the obvious banking industry failures we can only look forward to change at this point and hope it’s positive change. I liked this article I found on the nature of selling in the banking world. http://sharondrewmorgen.com/2011/01/selling-for-the-banking-industry/

    Zack Boyle

    January 30, 2011 at 21:56


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