[Dave Birch] I spent part of the holidays reading Forum friend Brett King’s Bank 3.0, his latest work, and this has naturally set me thinking about trends in banking as a context for trends in retail electronic transactions.


Here I am giving Brett a few tips on writing books and speaking in public.

I loved Brett’s Bank 2.0. I’m not a huge fan of business books in general and I don’t read very many, but like thousands of other people I found Bank 2.0’s combination of thoughtful analysis and well-chosen practical examples most educational and it certainly helped me to structure my own thoughts about the evolution of banking. In the new volume, Brett has a lot more to say about about connectivity, social media and engagement, all of which seemed to make eminent sense to me. So having read Bank 2.0 and Bank 3.0, do we know where banks are going? Actually, I think we do, at least in outline.

The path ahead for European finance is broadly clear. The banks will concentrate more on bread-and-butter lending like mortgages and cut down their exposure to other long-dated assets; a few lucky corporate issuers will be able to pick and choose how they get their capital; everything else will have to rely more on other sources of finance. More firms will turn to the bond markets. Very large pools of capital—held by sovereign-wealth funds, as well as by insurers and pension funds—will do more direct lending, often in partnership with banks. New forms of finance will nibble away at mainstream providers.

[From Non-bank finance: Filling the bank-shaped hole | The Economist]

Banking won’t go away, and nor will banks. But the banking functions required in the economy won’t necessarily be delivered by banks. Those of us viewing from the perspective of technology have always thought this obvious, but I think we need to recognise that technology isn’t the only driver for change. In fact, over the next 3-5 years, it won’t be the most important driver for change and while I agree wholeheartedly with Brett about the impact of technology (Brett says that “technology is no longer exceptional, nor is it an alternative choice for consumers — it is the way we do our banking” and he is absolutely right), the fact is that regulation will shape banking far more than 3D printing or electronic paper in that timescale.

The Banking Standards Commission wants the government to “electrify” the fence so banks won’t try to “game” the rules.

[From BBC News – Bank reform plans should be tougher, Banking Commission says]

The ring-fencing of retail banking to keep it separate from investment banking is hardly a new idea. When the United Netherlands common currency started in 1433, the good burghers of Antwerp, who knew a thing or two about growing a sound commercial environment, passed a law preventing moneychangers from either taking deposits or running payment systems. This basic regulatory principle has been alternatively enforced or neglected across business cycles ever since. Right now, the pressure is on to return to the sound banking structures of medieval Holland, but is an electrified fence the best way to achieve this? Perhaps an alternative might be to make it easier for new kinds of competitors to enter the space (the Zopas and Kickstarters and so on) so that non-banks can deliver the needed services.

Banks everywhere are under pressure from regulators, creditors and shareholders to refashion themselves into safer, smaller entities. Non-bank finance companies are turning the travails of these shrinking banks to their advantage.

[From Non-bank finance: Filling the bank-shaped hole | The Economist]

Hence the idea of the “near-bank”, the service that looks like a bank but that actually provides financial services from a mixture of bank and non-bank providers. This idea is explored in the SME sector in this week’s Tomorrow’s Transactions podcast with Nick Ogden of Cashflows, which is just such a near-bank.

The near-bank is not a new idea. In the long ago, hazy days of the then-new web, I wrote (with my then fellow Consult Hyperion colleague Mike Young) an article for Internet Research called “Financial Services and the Internet” (Volume 7, Number 2, p.120-128). We wrote about what we then saw as the two most likely long-term scenarios for future financial services in response to development of the Internet: the online-only “bancassurer” and what seems to have emerged as the modern financial services environment, where:

  1. Financial services customers use IT to build a seamless environment for themselves, “with the underlying best-of-breed products originating from a wide range of suppliers”.
  2. Financial services providers “retreat to a small range of products that build on core competencies, but supplied to a global market”.

A few months ago, I ran a workshop for an Asian bank exploring these trends and helping the bank to formulate some ideas about where to focus international efforts and afterwards had an interesting discussion about why customers might choose to use alternatives to banks for lending and borrowing (something discussed here last month). I said that I thought one aspect might be the desire for experiential and entertaining investing. However it might perform, my Barclays Cash ISA isn’t fun, or interesting or unique. There’s something that is fun about logging in to see how your bakery in Cornwall or bicycle messenger in Cambridgeshire is doing, even if you have only contributed a £100 chunk to the ten grand they borrowed to get started. And it’s also fun seeing how other people are doing (see, for example, e-Toro).

This desire for financial services that combine experience and entertainment I think connects with the evolution of social media so that connected savers and borrowers will begin to behave in very different ways, just as we are seeing connected consumers develop a different relationship with businesses that service them. The near-bank might be a more flexible way to navigate this new landscape, so when Brett gets around to Bank 4.0, I’m sure one of the central themes will be the portfolio provision of non-bank services by banks and near-banks alike.

These are personal opinions and should not be misunderstood as representing the opinions of 
Consult Hyperion or any of its clients or suppliers


  1. Dave,

    I wholeheartedly agree. One of the central themes of the book was also the inevitable split in manufacturing and distribution of retail financial services, and the near-bank concept fits into this model very well. The question of how to regulate near-bank or non-bank FIs more appropriately will need to be solved, but this won’t stop innovation in the distribution layer.

    The key thing to recognize is that changing utility of bank services and products means that you won’t logically be able to limit such to just being distributed through a physical channel of an existing bank. It’s not about the technology, it’s about customer experience as you’ve rightly pointed out, and heading to a branch of a ‘bank’ is simply no longer the best way to run this business. It might still be a part of it, but there is a lot more variations to explore that make more sense to a consumer who needs a banking product contextually.


  2. Thanks for these interesting comments guys – I think this might be a good topic for the London BarCampBank on 11th February – if either of you are in town and would enjoy participating, let me know and I will structure something.

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