Opinion

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Banks. Who needs ’em?

6 Mins

Specsavers is one of Britain’s most acclaimed companies. Led for the past 27 years by the modest wife-and-husband team of Mary (now Dame Mary) and Doug Perkins, the company has opened shops (and never closed one) all around the world. From Guernsey to Australia, the focally challenged ask themselves whether they should’ve gone to Specsavers. 

Its simple model has stood the test of time. Each shop is a separate limited company: 50 per cent owned by Specsavers; 50 per cent by the optometrist. Under this partnership, the store managers get use of the brand; share of profits; and a salary. They also get access to group services, such as marketing and IT.

Among these services is Specsavers’ treasury function that, among other things, provides loans to partners. With 1,600 individual companies to manage, it’s itself a sizeable operation. It may not take personal deposits, boast a fancy turquoise logo or have long queues of irritable customers snaking outside in the rain, but it’s pretty well a bank. (One day, given Guernsey’s liberal financial services regime, it might become one.)

Specsavers is not alone as a self-sufficient, cash-rich business that’s on top of its own financing requirements. This begs some big questions about what banking needs to look like in the future.

Reviewing the 900 responses to this year’s Real Business Satisfaction Survey*, in which finance and managing directors score their banks, auditors and other service providers*, it’s striking how many make scant use of their bank’s resources. Comments such as “we are net depositors” and “haven’t needed to borrow” were not uncommon.

One FD observed, proudly: “We have had limited experience of borrowing, as we have no requirements – which is business as usual for our company.” Another said: “We don’t need or use the bank but they are a governance necessity.”

This isn’t about to become another column about bank lending. That discussion is as stale as Man Utd’s midfield. No, the interesting question here is whether our banks grasp such shifting realities. Have they really got their head around the competitive challenge posed by technology? If not, might businesses in future simply opt for very different services? 

At our Entrepreneurs’ Summit in May, we challenged Business Secretary Vince Cable about his threat of tax rises if the banks miss their Project Merlin lending commitments. Surely, we said, this would just lead to higher fees for business? Isn’t the real problem our monochrome banking sector, dominated by four traditional institutions? Cable – and this was important – agreed. The priorities, he said, are to “change the ecology and get more banks in”. 

In small ways, that’s happening. Virgin is trying to get its hands on a branch network. You can walk into the handful of Metro Bank “stores”, open an account and get your debit card within 15 minutes. Good stuff, but hardly a revolution.

Much more intriguing is the awesome audacity of the new, technology-driven anti-banks. If history is made by unreasonable people, the majors should worry about Wonga CEO Errol Damelin

It’s only a question of time before online micro-lender Wonga starts looking at the small business market. It can already get funds into a personal account within 15 minutes; think what it might do for a business with better security? 

The borrower-lender matching service Funding Circle is a finance option that’s simply not available from our big banks: you’re a small business that needs a loan; you outline your requirements and desired terms; funders pitch for the lending opportunity. 

Professional disclosure: I know, and work with, some of Britain’s top corporate bankers. The best ones spend countless hours getting to know their customers, and have a nose for a quality business and management team. Our Satisfaction Survey results show that many companies – notably in the mid-corporate tier – are well served by their banks (especially as fund-raising options become more complex in the mid-market). 

That said, the plates are shifting beneath our banking sector. While small-business loan decisions get ferried to and from credit committees, to the exasperation of customers, tech-led competitors can approve deals in minutes. Putting the (admittedly rather large) question of public interest aside, might corporate funds one day move through secure channels that aren’t run by our current banks? Surely, yes. With regulatory reassurance in place, might sound corporates provide some of their own financial services? Again, it’s not beyond the imagination.

The arguments about bank lending still start from the assumption that banks, in their current form, are the only source of funding for business. That may not always be the case.

* The Satisfaction Survey provides the results for the annual FDs’ Excellence Awards, held in association with ICAEW. Visit www.fdsawards.co.uk

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