Benny Higgins, former chief executive of Tesco Bank, the finance arm of one of the world’s largest retailers, is dismayed by the response of Australian bank executives to the Banking Royal Commission.
“They are adopting tactics of denial, deflection and delusion,” the outspoken Scot, who has held executive roles at Royal Bank of Scotland and NatWest, told CIO late last month.
Though there have been endless apologies for the banks’ misdemeanours – Counsel Assisting Rowena Orr even telling the final round of hearings she didn’t want “to hear further apologies, or expressions of regret” – all the sorry-saying misses the point, Higgins says.
“Just apologising for all the single things that seem to have gone wrong, the catalogue they’ve accumulated – that’s the symptoms, the cause is culture. And I think an acknowledgement of the culture being at the heart of the problem is something that I don’t hear them acknowledge clearly enough,” he says.
“Frankly the Royal Commission is also demonstrating you can’t talk your way out of something you’ve behaved your way into,” he adds.
As direct a result of the banks’ attempts to deflect blame, on top of the misconduct and putting profits over customers, trust in them has nosedived, Higgins says. And that presents a huge opportunity for non-bank players; just not the ones you might think.
“[People] think with all the banks, one is as bad as the other. And that’s what provides the opportunity if a player with a different brand, with a different set of values, with a different culture was able to demonstrate what’s possible. It’s a long journey but it could be embarked on,” Higgins says.
Beneficiaries of bad behavior
With the bad behaviour of the big banks laid bare, it is believed in some quarters that smaller players will be the ones to benefit.
According to an EY report, start-up chiefs believe the Royal Commission will be a “net positive” for fintechs and neo-banks and give them a chance to “grab consumer mindshare”.
Higgins – now chairman of ASX-listed real-time Know Your Customer regtech firm Kyckr – is not so sure: “I’m not that optimistic for many of them”.
“I’m sure in ten years’ time there will be one of those little fintech banks that have succeeded. Because somebody might always succeed. But the problem is that critical mass is important in banking. It’s very hard to be small and beautifully formed and successful. You do need scale, it’s a scale business. That’s a big ask of these smaller businesses,” Higgins says.
Large financial institutions retain their ‘transactional trust’ – the consumer confidence in them to do the basics right, like debiting the right account after an ATM withdrawal.
What they lack now, Higgins says, is ‘emotional trust’.
“That’s confidence that the organisation that you’re dealing with will put you first and not put the short term profit and loss account first. I think there is the deficit that will take time to make up,” he explains.
Fintechs and neo-banks – which have been busy snapping uptherecently introduced‘restricted authorised deposit-taking institution’ (RADI) licences from the Australian Prudential Regulation Authority over the past few months – have yet to earn both their transactional and emotional trust.
“The question is: is there transactional trust in smaller businesses that didn’t exist five minutes ago? Building the brand, the transactional trust, the scale, is not easy,” Higgins – who joined Kyckr as chairman earlier this year – says.
So who is in a position to step up? In Higgin’s view the winners from the woes of the big banks will be the grocers.
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Australian retailers have an opportunity to enter the banking market in a bigger way – most already offer financial products with loyalty benefits bundled in – “and bring with them the culture of a retailer”.
Grocers like Coles and Woolworths are far better attuned to customer needs, as the market demands it, Higgins says.
“When customers are unhappy with prices, availability, quality, any of the above, there are no barriers to switching, there is complete transparency, and they switch,” he explains.
Compared with banking where “all the products are opaque, it’s very difficult to know exactly what you pay for certain things”.
“The future of banking might not be in the hands of banks, technology businesses might well have the opportunity to intermediate very effectively, retailers have got the opportunity to apply their brand and knowledge of customers. Different parts of the economic spectrum have different aspects they can play with. The banks could just be left with the heavy lifting like the payments infrastructure,” Higgin says.
“All of the above could play a bigger part than the banks know,” he adds.