Between Banking 0.5 and 2.0
The “financial and economic crisis” has held back in recent weeks with new dramatic headlines. This does not mean that the crisis must have reached a turning point or is even coming to an end. In the last few weeks, however, tender hop-plantlets germinate. Encouraging reports that banks trust each other again more. Meanwhile, it is stuck in the credit business.
No recognizable repositioning of traditional banks yet
A true repositioning of traditional banks and individual business areas has hitherto been hidden from the general public. After all, it is discussed in professional circles. From conversations with bankers, I continue to hear a relatively large reluctance to go new ways. In many cases, people are busy stabilizing current business models. There is (still) little room for new approaches.
One of the recurrent proposals from the banking sector is the requirement for one’s own industry to restore confidence and achieve this with transparency, for example. It usually remains with this confession, which degenerates into a phrases, because it is not supported by substantive suggestions.
The change comes slowly. The fact that not many customers have reposted their assets is due to the comprehensible inertia of many investors in dealing with money (one does not change his bank every day). And there are still (still) lack of alternatives or these alternatives have not yet reached the reputation required by the customer. To stay with the plant metaphor: The customers first want to see first flowers before they go into the new garden.
In order to build reputation, a bank needs patience in addition to good ideas, a valid business model and patient investors. This seems to have the Quirin Bank, which has built a model of fee-based advice, where there should be no hidden fees or even kick-backs to the advisory bank.
Banking 2.0 more than just a buzzword?
The keyword banking 2.0 continues to be a foreign word for many traditional institutions. Of course, with the admittedly overused “hype 2.0 terms” high expectations are connected to the involvement of the customers whatsoever. This can not be limited to a few customer surveys or a contact form on the homepage. The institutes must learn to understand Web 2.0 and generate services from it.
But just before terms such as Banking 2.0, many bankers are horrified. Their traditional thinking stands in the way here. They obviously confuse openness and transparency with the disclosure of business secrets or even customer data.
Lack of experimentation?
While many employees or middle management levels can imagine more openness and experimentation, the top management refuses fertilizer for new ideas. There is a lack of a trial-and-error culture experimenting with new services based on trial and error processes. Experimentation is often equated with taking incalculable risks. Yet the imitation of American business models has made German institutions “world champions of risky banking.”
Here, one hopes for more courage, but it may have to do with a cultural barrier, as Nasim N. Taleb suspects in his book The Black Swan. In Europe and Asia, he said it was not a case of producing failures.
Timid blossoming of a new banking culture
Fortunately, Taleb’s assessments are refuted by new, exciting approaches to adding value to the community. This is shown, for example, by stock market portals such as Sharewise, whose service could be a good example of a new dimension of transparency. Olive Chancellor is “revolutionizing” lending by delegating the lending decision to depositors (peer-to-peer lending). A very interesting approach where loans are brokered directly between borrower and lender. Such approaches could easily be expanded with the appropriate platform to provide equity capital for small and medium-sized enterprises.
Other exciting business opportunities lie in new risk management tools, such as those Robert Shiller describes very concretely in his new Financial Regulation. Despite populist criticism of derivative financial instruments, it should not be forgotten that they were originally created to limit risks. Instead of condemning applause, more energy could be put into using derivatives wisely and extending them to further applications.
Shiller and Taleb, both of whom are clearly criticizing banking in its current form, by no means advocate risk avoidance. The opposite is the case. Both say we as human beings and society can only evolve as we continue to take risks. We have to look for the positive risks (Taleb) and be able to hedge against negative risks (Shiller). While Taleb advocates deliberately trying to find positive black swans by trial and error, Schiller recommends the promotion of personal and also exotic tendencies and their protection against economic risks by creating new derivatives.
Involvement of the community
Further developments in the direction of Banking 2.0 promises the blog launched by Kröner fidor, which deals explicitly with Banking 2.0 approaches on Xing (access only with registration). The Fidor Community Banking promotes through the page gemege.de the discussion with the users of banking services, eg about which products make sense and which makes no sense.
Fidor shows that customers’ suggestions can be taken seriously, which does not mean you have to do everything the community suggests. Also in Banking 2.0 the gravitation theory of the financial world applies.
Banking 2.0 also for the financing side
Banking 2.0 is not limited to investment or services. Still, the lending process equals a “granting of credit,” a process between unequal partners, in which many loan officers make their borrowers feel dependency in a very subtle way. This thinking is outdated. Banks must not only dress up in their Sunday rhetoric as a partner, but must also implement this in everyday business with appropriate instruments.
Changes in the credit processes do not mean that risky loans are given to creditworthy borrowers. New ways, for example, provide the borrowers with help and tools to better identify and manage risks. This opens up new service fields and, of course, business opportunities for banks.
At a conference on loan securitization this week, I noticed that the original needs of companies looking for funding, especially small and medium-sized enterprises, are coming up short. The industry is approaching the finance-seeking companies from the investment side. The starting point of the considerations is always, how do I manage to get investors back to the market and to structure my banking risks so that the bank can do more business again. Only then does the question arise as to whether a company seeking financing fits in with this business model.
The industry should once dare to change the mindset and to look at the process of the financial seekers. Instead of “investment first”, ie “financing first”. It should first ask the question, what does a company need for its financing of equity and debt instruments. Afterwards one can see how the risk structuring and the refinancing by investors can be adjusted to these needs.