As announcements go, it wasn’t a very big deal when the British Bankers’ Association said at the end of the year that it is urging its 200 member banks to participate in a broad, two-pronged initiative to boost the industry’s image. Part of the plan is to monitor “people’s concerns before they become massive scandals”—a worthy goal, to be sure. But this wasn’t an isolated symptom of the problem. At around the same time, a Financial Times survey of 93 Members of Parliament revealed that fully two-thirds of the legislators believe British banks should be required to create a stronger barrier between investment banking and what’s known as ‘high-street’ operations. More worryingly, this wasn’t a liberal push for more regulation—the number of Conservative MPs backing the idea is actually higher than their Labour counterparts. There’s already a proposal to create a ‘ringfence’ around retail banking, but the new research indicates that many think the changes don’t go far enough.
That’s really the recurring theme here. If 2012 was a year of major change for banking institutions and individuals around the world, then 2013 will require even more.
A tsunami of bad news throughout the year was capped off by the news late in December of massive fines levied against UBS. The Swiss banking conglomerate ponied up $1.5 billion to global regulators, including $700 million to the Commodity Futures Trading Commission (CFTC) alone, the largest such settlement in the agency’s history. The fines stemmed from the charges of manipulation directed primarily at the bank’s Japanese securities subsidiary, all part of the mushrooming Libor scandal.
Some are even calling for the company to be shut down—an action that would surely cause ripples throughout financial markets worldwide. This brought up unpleasant memories of a similar situation earlier in the year, when HSBC was accused of money laundering and other transgressions. In that case, the company agreed to pay $1.2 billion in restitution, yet calls for more stringent penalties met with strong resistance even from regulators. The reason: more criminal charges could destabilize the global financial system. Moving forward, it should be apparent that regulators, and the public at large, will lose patience with a ‘too-big-to-charge’ environment in which massive institutions are able to avoid serious penalties because of their size and clout.
Continuing with the bad news global tour, Japan got a new Prime Minister around Christmastime, and he promptly sent signals that he will bring pressure on the Bank of Japan to essentially monetize the national debt outright. Whatever the merits of his strategy—which goes beyond any stimulus spending in the U.S.—the feeling is that it goes a long way toward taking away the Bank of Japan’s independence. This is a major story that hasn’t received much attention so far. Expect that to change in 2013.
While these are established institutions, there was also evidence that new players with different business models have a hard time breaking in. TandemMoney was an interesting idea designed to meet the needs of the unbanked and underbanked by providing a line of credit that required customers to sign up for direct deposit. A combination of savings and credit would thereafter deal with unexpected expenses. The company saw itself as an innovative startup that would protect consumers from institutional loan sharks. Instead, it will be seen as a cautionary tale—unable to satisfy regulatory scrutiny, it soon shut its doors.
Despite this seeming litany of bad news, it definitely isn’t all gloom and doom. In fact, the industry as a whole is not exactly suffering—the four largest banks in the U.S., particularly Bank of America, had quite a good year, and according to reports some regional banks did even better. A few greatly outperformed their much larger competitors, and that trend is expected to continue. Cautionary tales aside, nimbleness and innovation are still being rewarded.
Other aspects of change are equally welcome, at least to non-Luddites. For one thing, the move toward mobile banking continues to escalate.
We all know about the trend in developed markets, but it seems to be spreading far beyond those borders. The State Bank of Pakistan just announced that between July and September alone, the number of new mobile banking accounts spiked by an astonishing 25%. The news provides more evidence that in developing nations where the lack of infrastructure is a serious hurdle to economic growth, the building of mobile capabilities allows them to leapfrog traditional foundations and gain a major advantage through the proliferation of mobile technologies. (Neighboring India has already taken significant steps forward in this regard.)
Also, despite the buzz, mobile isn’t the technology paradigm changing the face of the industry—cloud computing is another. To give just one example, National Australia Bank just provided an update on its highly ambitious 10-year technology transformation plan drastically improve the customer and banker experience and avoid obsolescence in the process. The bank has already upgraded its network from eight voice and data networks to one, and will virtualize employee desktops, among many other advances. At the heart of the change is the core banking overhaul, which will enable it to retire more than 100 legacy applications. In December, the bank opened a social media command center with cloud-based technologies that enable the staff to field thousands of comments and service requests every month. This is exactly the kind of ground-level change that forward-thinking banks around the world need to undergo.
In fact, one interesting trend to monitor this year will be changes in the CEO position. It’s a safe bet that those executives who get the ax will get it not because they’re resisting change but because they’re not changing fast enough.
Which brings us back to where we started. If the year just ending was a challenge, the next one will be even more so. From presidential elections and regulatory reform to emerging markets and mobile apps with startling capabilities, we’re all in transition mode. Organizations everywhere can see that there must be a transformation in foundational principles, bedrock strategies and longtime operating practices. It’s scary but exciting, and institutions that can change with the times will find more opportunities and better returns than ever before.