Viewpoint – Learning from Past Mistakes: Empowering the Retail Customer

by James Isaacs

When I began my executive search career in 1998, I thoroughly researched the BCCI scandal to understand and learn from the mistakes of the past. As I went on to hire and train subsequent generations, it was Equitable Life, then Enron, Andersen Consulting and Barings that became the teachable lessons. Today, it’s Lehman, HBOS, Fortis, Kaupthing, RBS, Lloyds, Northern Rock, Co-operative Bank, Fannie Mae . . . the list goes on and on.

It has taken nearly 80 years since Glass-Steagall’s introduction for the Bank of England to announce ring-fencing measures for banks holding at least £25bn in deposits to protect their retail operations from investment banking. With this, we see HSBC UK joining the ranks of other resurrected brands like TSB and Williams & Glynn.

We’re now emerging from the dark recessionary years to find a new world—marked by the crossfire between capitalism, regulation and ethics—and a marketplace fuelled by consumer demand for mobile technology and transparency. Mixed with all of this are differing inflationary paths globally and a healthy dose of polarizing politics.

So what good and who is coming out of the most recent round of harsh market lessons? And what exactly is “good” now? My perspective is specific to the innovation and provision of fair and reasonable financial products and services to customers that satisfy an existing or created need.

+ Peer-To-Peer Lending – After the Dot-com bubble burst, we saw the birth of a new peer-to-peer lending industry. Many have turned to non-bank alternative funders during the downturn, attracted by low risk and attractive rates. The UK peer-to-peer lending market has been responsible for £3.15 billion of loans since 2005 and its success will be rewarded with increased levels of scrutiny and regulation.

+ Web Aggregators – We’ve also seen the UK lead the way in the comparison market, a model founded by MoneySupermarket in 1993 has now grown to provide more transparency and easier choice to consumers across insurance, loans, energy and credit. With IPOs planned at eye-watering valuations, the industry has been criticised by the Energy Select Committee for not providing complete transparency. These companies are responding and seek to show all deals on offer, including those that do not earn them a commission.

+ “Watch-dogging” – In the UK, Martin Lewis’ has made a pretty fortune (£19million by accounts) and has crafted himself as a champion of the consumer by demystifying the complexities of the financial services and energy markets. In the US, Magnify Money seeks to do the same with ex UK Managing Director of Barclaycard Nick Clements creating another personal finance website that claims to provide completely unbiased recommendations.

+ Free Credit Reporting – Ken Lin founded Credit Karma in 2007 and has since grown the company into a $3.7 billion business by not charging customers for credit report but, instead, by monitising the relationship and charging other businesses to sell appropriately priced products to them. We see companies like Noddle and the recently launched Credit Score seeking to replicate their US counterparts’ success.

+ Fin-Tech… generally – Low barriers to entry, access to funding and availability of outsourced technology has helped businesses such as TransferWise and Nutmeg to make inroads and disrupt traditional business models. Feeble bonuses, perceived reductions in corporate career prospects, redundancy, revenge and/or a taste for entrepreneurism and risk-taking are driving talented individuals to go it alone.

+ Challenger Banks – Saving perhaps the most talked-about until last … some challengers have impressed and the soon-to-launch Tandem has the makings of an interesting business model. Through in-depth analysis and a corporate culture built on a real sense of social purpose, they will provide their own crowd-sourced, innovative portfolio of products. Others have arrived with much fanfare but offer little but a missed opportunity, I feel. I must admit to struggling with Vernon W. Hill II’s book, Fans! not Customers, and have a suspicion that some IPOs in the retail and commercial banking sector are/were more about individuals making personal wealth than about providing something better.

So, what’s next?

Ideas are coming faster than ever and range from the consolidation of customer’s financial affairs via a central platform to the development of yet more wearable payments technologies (note the trial for a payments glove back in early 2015).

My million-dollar bet would be on the disintermediation between the customer and the financial product manufacturers and a significant move towards better digital interfaces, cross-product/provider transparency and much better service and user experiences. For examples of where this is being done elsewhere, look at what iTunes has done to our recognition of the record label industry and BBC’s iPlayer for the way in which we chose and select our viewing.