What should we expect from our banks?

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As I have written elsewhere, bank bashing is a favourite Australian pastime. In recent months, this has struck a new crescendo. There have been various allegations, legal cases and regulatory investigations surrounding such misconduct as mis-selling of products, rate fixing, over-charging and money laundering, all culminating in a hastily announced Financial Services Royal Commission.

Cartoon by David Rowe, sourced from the AFR, published November 30, 2017

The banks had tried to get on the front foot, by abolishing ATM fees, reigning in some of their lending practices, and appointing a former Labor politician to help them navigate the growing calls for a Royal Commission (largely coming from her former colleagues in the Labor party). But the (Coalition) government clearly decided enough was a enough, and sprung their own inquiry into the industry.

For the benefit of overseas readers, Australia has a highly concentrated banking sector, which is also highly regulated, highly profitable, and in some ways, a highly protected market oligopoly. There are only four major banks (also know as the four pillars, as they cannot acquire one another, nor can they be acquired by foreign banks), and a few regional banks. There is a smattering of non-bank financial institutions, but by their very nature, they don’t offer the full range of banking products and services. As an example of this market concentration, the big four banks traditionally account for something like 80% or more of all home loans.

Aside from the Royal Commission, there are a number of policy developments in play which will inevitably change the banking landscape, and the dynamic between market participants. In addition to the growth of FinTech startups aiming to disrupt through digital innovation, there are four key areas of policy that will impact traditional banking:

  1. Open Banking – giving customers greater access to and control over their own banking data
  2. Comprehensive Credit Reporting – mandating the hitherto voluntary regime among the big four banks
  3. The New Payments Platform – designed to allow real-time payment and settlement between customers, even without using bank account details
  4. Restricted ADI Regime – to encourage more competition in the banking sector

The major banks have tried to laugh off, rebuff or diminish the threat of FinTech disruption. They believe they have deeper pockets than startups and just as good, if not better, technology processes. Moreover, customers are traditionally so sticky that there is an inherent inertia to switch providers.

But with banks having to set aside more risk-weighted capital to cover their loans, they may be vulnerable to startups focusing on very specific products, rather than trying to be a full service provider. Banks no longer have the technology edge, partly because of the legacy core banking systems they have to maintain, partly because they lack the know-how or incentive to innovate. And changing demographics will influence the way new customers interact with their banks: “mobile first”, “end-to-end digital”, and “banking for the gig economy” are just some of the challenges/opportunities facing the sector.

So what should we expect from our banks? I would say that at a minimum, a bank should provide: trust (but with Blockchain, DLT and trustless, zero-knowledge proof solutions, banks are no longer the sole arbiter of trust); security (linked to trust, but again, with biometrics, digital ID solutions and layered encryption, banks do not have a monopoly on these solutions); capital protection (although no bank can fully guarantee your deposits); reasonable fees (still a way to go on account keeping fees and some point of sale transaction fees – while disruptive technology will continue to challenge legacy costs); and an expectation that it will not bet against the direct interests of their customers (like, shorting the housing market, for example). The latter is particularly tricky, when banks are mainly designed to deliver shareholder value – although of course, most Australian bank customers also own shares in the banks, either directly, or indirectly through their superannuation.

In recent months, and based on personal experience, I think a bank should also know its customers. Not just KYC (for regulatory purposes), but really understand a customer as more than just a collection of separate products, which is how most banking CRM systems seem to work. Given how much banks spend on consumer research and behavioral data, and how much they talk about using big data, artificial intelligence and machine learning to anticipate customer needs, it’s a constant frustration that my bank does not really know me – whenever I contact them, for any reason, I always feel like it’s a process of “product first, customer second”.

Moreover, I can’t think of a single new product that my bank has launched in the past 15 years of being a customer. Sure, they have rolled out mobile apps and online banking, and they may have even launched some new accounts and credit cards – but these are simply the same products (accounts, loans, cards) with different prices and a few new features. Even the so-called “special offers” I get for being a “loyal” customer bear no relation to my interests, or even my spending patterns (despite all the data they claim to have about me). And because banks are product or transaction-driven, rather than relationship-driven, their internal processes fuel silo behaviors, to the extent that the left hand very often does not know what the right hand is doing.

Finally, with more and more of the working population becoming self-directed (self-employed, freelance, portfolio career, contracting, gig-economy, etc.) banks will have to innovate to meet the financial services needs of this new workforce. Bring on the disruption, I say.

Next week: Box Set Culture 

 

 

 

 

Australia Post and navigating the last mile

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Over the years, Australia Post has featured in this blog. And here. And over here too.

You would think I had no more to say on the topic. (Believe me, I’d prefer to have something else to write about – but it’s the summer, it was a long weekend, the weather is frying my brain, etc.)

But Auspost just loves to keep delivering poor service (see what I did there?).

From direct personal experience, four times in about as many weeks Auspost have failed to meet their own service levels for parcel delivery. In short, on each occasion their drivers claimed to have attempted delivery, but did not leave any notification. As a result, the parcels were delayed, and it was only when I received the “Final Reminders” from my local post office that I had any idea these items were awaiting collection.

Each time, I have lodged a formal complaint. In fact, I was encouraged to do so by the counter staff, who indicated that my experiences were not unique, and that they were as exasperated as I was. They also suggested that the front line staff are not being listened to by management.

With each complaint, I have been advised that “the relevant people will be spoken to”, and I have been assured “it will never happen again”. But it keeps happening, and nobody at Auspost can adequately explain why.

OK, so once could be a genuine error. Twice sounds like poor performance. Three times, and it starts to seem like a regular occurrence. But four times, and it points to a systemic problem, a failure which Auspost seems unable or unwilling to address.

So pervasive is Auspost’s reluctance to engage in genuine, honest and open dialogue with their customers (remember the National Conversation?), that at one point, a supervisor I spoke with refused to confirm the address of my local parcel delivery office. During another call, when I asked for some basic information as to whether other people in my area had made similar complaints, I was advised to submit a Freedom of Information request to obtain that sort of data.

After the second occasion, and sensing that Auspost was not getting the message, I also submitted a complaint to the Ombudsman. However, the latter said that “twice was insufficient” for their office to take any action. Ironically, the exact same time as I took the call from the Ombudsman, the postie was delivering yet another “Final Reminder” card, in respect to a third parcel for which there had been no evidence of a previous “Attempted Delivery”. I’m still waiting for the Ombudsman to get back to me….

More importantly, I’m still waiting for Auspost to notify me of what specific steps they have taken to resolve this pattern of poor service.

Meanwhile, Auspost keeps boasting about all the parcels they are delivering, thanks to the boom in online shopping. It’s just a pity that (from my experience), they are doing a really poor job of it.

Next week: What should we expect from our banks?

 

 

Equity crowdfunding comes to town

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Earlier this month, the Australian Securities and Investments Commission (ASIC) announced it had approved the first seven crowdsourced funding platforms (CSFs). It seems that after much debate, equity crowdfunding is finally open for business.

Image: Aaron Pruzaniec, sourced from Wikimedia Commons

Although not named in the ASIC media release, the seven successful applicants are:

There are significant limitations to the CSF legislation – namely:

  • the type of eligible companies (only smaller, public unlisted companies);
  • the amounts individual investors can invest (up to $10,000 per company per 12 month period); and
  • how much companies can raise (no more than $5m in any 12 month period)

Also, there is no indication as to whether other CSF license applications are still pending, or which applications may have been rejected. It may also be difficult to assess the relative merits of each platform, since there only appears to be one class of license.

Meanwhile, legislation is already in the pipeline to extend the CSF regime to proprietary companies – which would significantly expand the potential number of issuers.

Compared to some of the largest initial coin offerings (ICOs) over the past 18 months, a $5m capital raise looks like small change. If anything, ICOs took the decade-old crowdfunding experience and supercharged it with Blockchain, cryptocurrency and decentralized issuance platforms. But then, regulators tend to lag markets and technology; plus, their primary focus is protecting the interests of less sophisticated retail investors (as well as market stability).

It’s also worth remembering that a limited crowdsourced funding model has been available in Australia for several years, almost as long as crowdfunding itself: Enable Funding (formerly ASSOB) was established in 2007, but with a much more restricted license than the latest CSF legislation. (And in other countries, early-stage companies have been able to more easily raise equity capital via market listings on secondary boards of the main exchanges – e.g., Mothers in Japan, GEM in Hong Kong, and AIM in London.)

The new CSF regime (and whatever else comes in its wake) does raise a few interesting points:

1. Although expressly confined to equity issuance in the form of common shares, by giving it a more generic name, does this mean CSF will be used for other types of securities (bonds, structured finance)?

2. What expectations has ASIC placed on the number of raises, and the total amounts to be raised, over the next 3-5 years – how will it measure or define the success of CSF?

3. More importantly, where is investor money expected to come from – will investors switch from property or other assets?

4. How will the increasing practice of issuing digital tokens as traditional securities (and potentially vice versa) add to the demand for CSF platforms and services?

It’s very early days, of course, and very small scale, but judging by the response so far to one of the first companies to take advantage of the CSF legislation, investors like what they are seeing.

Next week: Australia Post and navigating the last mile

 

 

 

 

 

 

Bring Your Own Change

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I receive frequent requests for advice or suggestions on how to make a career change. Having been through a significant career transition myself (in fact, I am probably on my 3rd or 4th career…), I am usually more than happy to help if I can.

Networking Image by Ghozt Tramp sourced from Wikimedia Commons

Anyone who has had to navigate a career change will no doubt have been introduced to the concept of networking, primarily as a means to access the hidden or non-advertised job market. The strategy usually involves targeting a particular industry (or even a specific company), and approaching a known contact in that sector (or company) with a view to learning more about their industry, their organisation or their role – and hopefully to gain an introduction to someone in their network who might be able to help in accessing or identifying a suitable role or opportunity.

Now, I am a strong proponent of networking – both to learn and to share – although I am not a huge fan of “open networking”. So I tend to be suspicious of unsolicited requests to connect with me – especially when there is no defined context, or there is no specific purpose underpinning the approach, other than a general desire to access my professional network, or a vague notion of hoping to learn from my experience.

I appreciate that making a career change is sometimes very difficult, especially in the challenging workplace environment (thanks to rapid change, digital disruption, and the gig economy, etc.). Change often becomes harder the older we are. Plus, our path may be complicated the more niche our qualifications, and/or the more generic our experience. (See my previous blog on generalists vs experts.)

I also acknowledge that the transition may not be made any easier because traditional notions of “work” and “employment” are no longer as relevant or as valid as they were. (Conversely, Australia continues to enjoy relatively low unemployment rates, in combination with strong new jobs growth, and greater workforce participation.) Plus, many large employers are still fixated on hiring square pegs to fill existing square holes.

Do I think that more needs to be done to help people transition into and within the new workplace environment? Absolutely. Even if it’s simply to provide them with encouragement, or to challenge their assumptions about what a contemporary career trajectory looks like. (As a society, we are not very good in helping people to make sideways moves, or to adjust their ways of working.)

So, having gone through significant career changes and work transition myself, I am a great believer in “bringing your own change” – i.e., start doing what you need to, in order to effect the change or transition you desire. But what worked or works for me, may not work for you, and my career choices may not be the right choices for you. I can maybe provide some insights on why/how/what I did, but in many situations, I was very fortunate that someone was willing to take a chance on me, and give me an opportunity. Yet equally, I probably helped to engineer these situations because I try to keep an open mind, I maintain a sense of curiosity and I like to think I ask the right questions. By demonstrating flexibility and a willingness to challenge the status quo, I believe it is possible to create the right environment to effect the change you seek in the type of work you do, or the role you perform.

Next week: Equity crowdfunding comes to town