Monday, February 16, 2009

Banks - how about focusing on new value?

Banks - especially Investment banks - are now being squeezed from all sides - revaluation of securitized papers to unrealistically low market price levels, losses from credit books as economies nosedive, new costs from all sorts of more or less needed regulation, restructuring costs etc - all also leading to higher funding costs.

On the other hand there is clear evidence that customers are prepared to pay for reliable house banking relationship (only to forget it again when times get better..) - in good times you can manage with bad bankers but in bad times you cannot manage without good ones (I have been through a couple of downturns in 30 years as a commercial banker - and dare to say that we managed to keep virtually all enterprises afloat that were worth the effort). The normal behavior also then was that higher risks called for higher margins, more securities and stricter covenants and as long as the owners chipped in their part,  financing was reorganized and even increased to bridge over the troubled waters.

Despite most bankers having done a proper job then and now - media at large was and is again resorting to lynching mentality - "a banker cannot be good - hang them all..". With nobody questioning this, it is to expected that elections will be won with this kind of slogans (even if media credibility is systematically being eroded - by media itself). Then it has to be said, that the case of stupid extravaganzas in a few instances - after having had to resort ot taxpayers' support - makes it easy for the populists.

But what should banks do now to start to rebuild their scattered images? Back to profitability and basics is for sure one route - simple robust real services - less marketeer driven gimmicks and "products" nobody really understand. But more than that, there is a big area where banks are now needed more than ever before. This is the what we call extended payments services. All the way from potentially doubling the payment volumes by moving into networked sourcing, routing and presenting e-invoices, e-orders, e-confirmations, e-salaries, e-pensions etc to e-id, e-signatures and real time payments - services needed in the networked and increasingly real-time economy. Only banks have the possibility to handle this in a cost-efficient way for the largest sector - the SMEs and the consumers. As the investment needs are minimal and the sales force is there anyway it should not be difficult to reach profitability as soon as the transaction volume tipping point is achieved. The downside is in any case minimal.

Lowering of costs > better productivity > stronger competitive position in a global economy is now badly needed in the entire corporate customer base. Will banks take their responsibility? 

1 comment:

Setok said...

Just a quick mention to say that we at Scred have been following this blog with particular and understandable interest. Currently writing some internal docs about the new form of money and what is missing from current banking systems.

Hope to meet you at some point.