Banking services are finally growing up.
From the bad old days when a bank would take three working days (of course they didn’t work Saturday or Sunday, be serious) to credit a payment to your account, we now have a growing number of innovative banks using technology to communicate in real time with their customers.
A shift in power
In the bad old days, your account was something of a secret box to which the bank had the key, just letting the customer have a look inside when it suited the bank.
Now, customers can view their balances 24/7, and know what is happening in real time. Payments and transfers are not only immediate, but they are also confirmed as they happen via smartphone notification.
In one respect, this is a terrific improvement. The basics of spending and transferring funds are now brilliantly simple with the ‘challenger’ banks, and increasingly (if reluctantly) with the old high street giants. It all works the way it really always should have – simple and user-friendly. As long as the user has money coming in and going out in roughly equal amounts and on a regular basis, this is excellent.
Is there still more to be done?
These are, however, quite short-term considerations.
If we step back and look at the likely longer-term life patterns for many people, we can see that these new banks are generally pretty good at day to day stuff, but not doing anything so clever for the bigger picture.
How people live and work has changed, banking - broadly - hasn’t. Whilst this new tech is neat, it can’t solve everything.
For example, we know that most working lives are undergoing a revolution. Self-employment is growing, job security is vanishing, short term and zero-hours contracts are increasing. Periods of unemployment may interrupt the flow of work, and hence of income. Life events will also impact on the pattern. Although you wouldn’t guess it from financial advertising, around 40% of marriages end in divorce. Lives do not follow one steady path, but consist of a series of unpredictable changes of pace and direction.
…So what’s the issue?
The big financial products which are offered barely reflect these patterns. Pensions and mortgage products are probably the two biggest financial commitments most people make (apart from having children), yet both are still more or less designed for regular, steady incomes. Features can be bolted on to allow some flexibility, but the original products were not designed for this.
Ideally, both mortgages and pensions should be capable of being carried across from job to job, and in the case of mortgages, more people should be made aware of ‘porting’, which means they can take it from property to property. These products should belong to the customer, not to their employer or pension provider, nor to their property.
Mortgages become even more challenging when we consider the cost of housing in urban areas, and the relationship between prices and income. Buying a house in one of the higher cost areas is pretty much out of the question for all but a few lucky individuals. Simply offering a mortgage which is unaffordable to most people doesn’t feel like enough. Help to Buy and Shared Ownership schemes move a little in the right direction, but they are hedged about with restrictions and limitations, and many who need help fall outside of the schemes – they are not mass market solutions.
A new challenge to address
The issue banks need to address is how to find a way forwards which allows for both the high cost of property and the uneven life patterns discussed above, whilst keeping things under the control of the individual.
It will be odd - if not entirely surprising - if in the near future, the only people who can afford a property in a major city are those whose parents had one already, and who had the common decency to pass away at a convenient moment. Some extension of the banking system to develop more rational systems of ownership would be a real step change for both banks and their customers.
Would this be a challenge? Absolutely - but it’s one that’s absolutely necessary for banks to take on to adapt to a new reality.