Don't panic Captain Mainwaring, but banking is changing forever

IN a speech last year George Osborne called for a return to Dad’s Army-style banking, championing Captain Mainwaring as a role model for lenders to emulate as a means of repairing their fractured relationship with customers.

The fictional financier of Walmington-on-Sea might have been a figure of fun, reasoned Mr Osborne, but at least he knew his customers and was a trusted figure in his community.

The Chancellor told an audience of small business owners: “It was interesting that the bank manager was at the very centre of local life, knew all the businesses, knew the people who ran the businesses and was empowered to make judgements about who had a good idea, who maybe had had a couple of failures in the past - but that wasn’t their fault - and had a good idea going forward.”

Mr Osborne added: “That is all gone. It’s all 'computer says no’.”

Was the Chancellor horribly out of touch to call for a return to a perceived golden age of banking when web-based payments now account for £15 in every £100 of transactions?

For centuries banks have cultivated an image of permanence and stability. The word 'bank', when applied to financial services, is generally understood to be derived from the Old Italian ‘banca’ – a bench used during the Renaissance by Florentine lenders who would conduct their transactions on sturdy wooden counters covered by leaf green tablecloths. Thus, the link between a solid, dependable financier and the place where they conducted their business, was set.

But does that have any relevance in an era when most banks are reporting a 10 per cent fall in branch transactions each year and most of us make bill payments and receive wages via cyberspace?

The recent fashion for converting beautifully ornate banking halls, with marbled floors and vaulted ceilings into pubs shows how the Victorian and Edwardian idea that banks should project a grandiose image is largely defunct. Modern banks have done away with counters, and offer services such as automatic cash and deposit machines, iPads, and free Wi-Fi access. Staff wear badges encouraging customers to use their first names. Capt Mainwaring you imagine would be horrified by such familiarity.

In the UK mobile and internet banking is now being used for transactions worth about £7bn a week. Internet banking services typically receive seven million log-ins a day.

In Mainwaring’s era, branches would open weekdays only and cashiers would pull down their ‘closed’ shutter at 3.30pm. You could only find your balance by visiting a branch and getting a member of staff to write on a slip of paper. Booking an appointment to discuss a mortgage or loan application could take weeks. So much for the golden age.

Now we can get access to our money around the clock on every day of the year by making a few taps on a mobile phone screen. Mortgage advisors can approve a home loan application online in less time than it takes to watch an episode of Dad’s Army.

The banking industry has always evolved with the times to embrace new challenges and consumer attitudes. Technology plays an increasingly important role in this evolution.

Eric Schmidt, executive chairman of Google, said recently that “everything significant we are working on is around mobile.”

Tellingly, the financial services sector is increasingly in fear of competition from online companies such as Amazon and Google rather than rival banks, according to a survey of bankers conducted by software company Temenos *.

Banks are also wary that customers may opt out of conventional banking and migrate to what are known as peer-to-peer services – online sites that match them directly with borrowers or lenders.

About two million people have signed up to a scheme that allows them to receive money on their UK bank account by using just their mobile phone number.

Mobile payments service Paym, which was launched last April, saw a total of 1,851,612 mobile numbers registered on its database by the end of December. Nearly half of all transactions take place on Friday, Saturday or Sunday, with younger people being the biggest users of the service, according to figures released by Paym. Research also shows that the most common reason to use Paym is to pay back a friend, followed by paying a partner and paying parents.

People aged 64 and over make up just 4 per cent of Paym users, while 16 to 34 years-olds are the biggest users at 71 per cent.

Traditional lenders are rising to the challenge. Barclays launched a mobile payments scheme called Pingit, which is available to customers and non-customers, in 2012.

Since its launch, Pingit has had 3.7million downloads and to date £918m has been sent using the scheme.

Another mobile payment scheme is Zapp, which allows shoppers to pay for goods and services online or in shops as well as council tax and utility bills with their smartphone, using an app linked to their bank account.

Advocates for more traditional forms of banking highlight the fact that losses from online banking fraud rose by 48 per cent in 2014 compared with 2013.

The rise is due to increased use of computer malware and con-artists tricking consumers out of personal details.

Campaigners say the figures prove banks should continue offering choice to customers who might want to go to a branch.

"Many banks and service providers want to encourage people to manage their accounts online and will stress convenience and speed as selling points," said Judith Donovan, who chairs the Keep Me Posted campaign.

"However, the fact remains that online fraud is increasing year-on-year with many criminals having a demonstrably greater grasp on technology than many of the institutions they are targeting.

"This is particularly concerning for older or vulnerable people who might not be as capable when using technology - how can these people be sure that they are not being targeted by criminals?"

Since 1989, the UK has lost more than 40 per cent of its bank and building society branches, in part due to the rise of phone and internet banking, a 2013 Nottingham University study found.

But to suggest that banking on the High Street will soon go the way of record shops and second hand booksellers is way off the mark. Interestingly, more than two thousand bank branches have been refurbished in the past two years, underlining an ongoing commitment to traditional outlets and face-to face customer service.

Swedish bank Handelsbanken is swimming against the tide by opening new branches across the UK, which includes sites in the North-East. Its principles: never to accept any form of government aid even when cheap money is on offer with no strings attached; to give each branch freedom to decide how to deal with its customers; and not to pay its workers bonuses has helped it to carve out a niche in what looked like an overcrowded UK market. Andy Haldane, chief economist at the Bank of England, called Handelsbanken’s prudent approach "back to the future."

“Its business model is fascinating, Quaker even, in its orientation,” Mr Haldane said, drawing parallels with institutions such as Darlington's Backhouse's Bank, founded in 1774 by James Backhouse, a wealthy Quaker flax dresser and linen manufacturer who built an enviable reputation for trustworthiness. Backhouse's eventually merged with other Quaker banks to form what became Barclays Bank, which has been riven by scandals over the last decade. Handelsbanken appears to be reviving principles which some major lenders have lost.

"There's an amazing revolution in the way people are banking," Anthony Browne the British Bankers' Association (BBA) chief executive says.

“People are increasingly using mobile banking for day-to-day transactions like checking their balance, paying bills, and taking out loans, he said.

"The reason why it (mobile banking) has grown so much is just that it's a lot more flexible," Mr Browne said. "It's driven by customers - they can do it any time of day or night. You can pay a bill while at the pub - that sort of thing."

Visits to branches are declining overall due to alternatives such as online banking, but branches "are here to stay", Mr Browne said.

"Branches are an integral part of the industry," he says. "They will be more focused on the big decisions - taking out a mortgage, taking out a big business loan, where you need to have a face-to-face interaction."

At the other end of the scale is Atom Bank.

Later this year on the outskirts of Durham City a team of brainboxes, led by Anthony Thomson, the founder and former chairman of Metro Bank, will launch the UK's first "digital only" bank. Its founder claims that it will offer the first real alternative to the traditional high street banks. It will provide a full range of products, including current accounts and mortgages for both retail and business customers via mobile apps and online, but it will operate no branches.

Atom hopes to lure some of the people who have lost faith in banks by positioning itself as a fresh face and offering the kind of high quality customer service that has made online lender First Direct so beloved by its account holders.

A series of damaging scandals, that range from mis-selling, bankers' bonuses, the financial crisis and niggling IT problems have dogged Britain's high street banks in recent years and led to an increase in account switching. Atom's mission, according to Newcastle-born Mr Thomson is "to change banking for good."

"The aim is to become the first ever telepathic bank. With predictive technology we think we will know what it is that you need," says Mr Thomson, who as adept at conjuring up buzzwords as he is at piloting a challenger bank.

The historic burden of banking IT, frequently referred to as legacy systems, remains an investment priority for the Big Four banks - Barclays, HSBC, Lloyds and Natwest - who are desperate to cling on to their market share. But revamping these systems to cope with demanding customers in 2015 while managing day-to-day operations has been compared to performing open heart surgery on a bank. Starting from scratch will offer Atom a potentially crucial advantage over its bigger, older rivals, says Edward Twiddy, chief operations and innovation officer of Atom Bank.

He says: “It is good that people are getting more choice and we welcome competition from existing banks - but none of them will be new. None of them can start from a clean slate – with no legacy IT problems, or complex offers. We are genuinely new and we will do things differently.”

Even Capt Mainwaring would be forced to admit that this is a war the old guard are likely to lose.

* For details of the Temenos survey visit: https://www.temenos.com/en/market-insight/universal-insight/temenos-7th-annual-survey-of-the-financial-services-sector/