A Sense of Purpose

• 28 June 2019
• Professionalism and Ethics | Retail Banking | Blog

The FCA suggests that the purpose of a firm sits at the heart of its business model, strategy and culture, and that purpose plays a fundamental role in reducing potential harm for consumers and markets.  As part of its work on culture and governance, the FCA has convened a multi-disciplinary Working Group to explore the role of purpose in financial services, which will develop a Discussion Paper for publication later this year.  The Working Group comprises representatives from all regulated sectors – retail banking, wholesale financial markets, general insurance, retail lending, pensions and retirement income, retail investment and investment management – and I was delighted to be asked, on behalf of the Chartered Banker Institute, to lead the workstream investigating the “purpose of retail banking”. 

The timetable set by the FCA is challenging; to support it my team at the Institute have arranged three roundtables in different locations around the UK to reflect (as best we can) retail banking across the UK.  Importantly, we are investigating the purpose of retail banking, not retail banks – i.e. the activity and service provided by a range of institutions including banks, building societies, credit unions, FinTechs and others.  Roundtable participants will reflect this diversity, as well as include representatives of customer groups and other key stakeholders. 

The first roundtable took place in Birmingham earlier this month and focused on creating grounded and meaningful goal statements that collectively describe a “purpose for retail banking” that is relevant to customers and colleagues, rather than an idealistic, more philosophical purpose of limited practical use.  Next month, in Edinburgh, we will be presenting these and identifying barriers and challenges that can get in the way of achieving these goals. Finally, in October, we will consider how purpose in retail banking can best be reinforced, and draft our recommendations to the FCA.  

Prior to chairing this first meeting, I attended the launch meeting of the FCA’s Purpose Steering Group. I don’t want to give too much away at this stage; the purpose [excuse the pun] of this blog is to keep you informed about this important strand of work focused on retail banking in the hope that when the Discussion Paper does come out, you will engage with it. Indeed, I am hopeful that we can encourage member contributions throughout the process – not only through those able to attend the roundtables. What I will say, however is that the key questions for the FCA and ourselves at this stage are:  

• Does an authentic purpose lead to engaged employees, customer trust and positive economic outcomes?  (The answer is an unequivocal “yes”, so a more relevant question to address is “what purpose(s) are more likely to lead to engaged employees, customer trust and positive economic outcomes?”)
• What gets in the way of aligning purpose, culture and business model?
• How can we reinforce the interplay between purpose, culture and business model? Who plays a role in this?

In preparing for our roundtables, I asked participants to share their own short stories of retail banking done well, and less well – which prompted some very interesting reflections and counterpoints, some of which are reproduced in edited versions below:

A couple of years ago, a certain retail bank was able to provide my wife & I a loan to purchase our first house together, without which we would never have dreamed of being able to afford. Whilst this happens to hundreds of people across the country every single day, it’s worth considering the wider positive impact of what this type of transaction enables for people – Getting on the property ladder, having a place they own & that they can call their home, somewhere to raise a family and to make a lifetime of memories – This is just one example of where banks can provide a platform for many people to achieve a big milestone in their lives, and unfortunately even to this day, the positive impact of this has been overshadowed by the reputational damage seen by a number of different scandals from long ago.

Gordon is a customer of a well-known “ethical” bank. Along with his ex-partner he is still paying the mortgage for the 2 bedroom house where his ex-partner lives with his son. The bank have assigned his mortgage to a company within their group that is currently charging him a variable interest rate of 6%, having slowly increased the rate from the 3.74% it was in July 2009. The stress of having to maintain such high payments contributed to their divorce. The house is in a state of disrepair and their son is being deprived of essentials.

He and his ex-partner are struggling to meet their mortgage payments. They asked the  bank for a better value mortgage but even though it is offering customers 5 year fixed rates of just under 3%, Gordon and his ex-partner have been told that such a mortgage is “unaffordable” and that they “do not meet the lending criteria”. Gordon and his ex-wife do not understand why the bank are keeping them on a high, variable rate, but telling them that they can’t afford a mortgage which would halve their interest rate and monthly payment.

In 1976 I was setting off for university and my first experience of living away from home. The local bank manager in the nearest town sent word, via my father the local postman, that he would like to see me. The manager was a well-known figure in the local community and my parents had been customers of his for many years. Indeed, they had opened my first deposit account at that branch several years before. When I went to visit the manager he went out of his way to ask more about my studies, where I was going, what I was going to do etc. He organised a cheque book for me and discussed what else I might need. His friendliness and interest in me as a person (not just as a customer it seemed) had a major effect, at the time, and resulted in me being loyal to that bank for many years.

Contrast that to the experience of my daughter when she went to university 30 years later in 2006. She into the local branch of the bank at which she had an account. The discussion centred on her apparent need for an overdraft facility. Unfortunately the computer said ‘no’. The adviser informed her that all she could do was to obtain a credit report, at her expense, to see what the problem was. When we did this, I could find no issues on the report. She returned to the bank with this information only to be told, by a different adviser, that there was still nothing she could do. Although it did appear as though my daughter should have been eligible for an overdraft facility, the adviser couldn’t override the system. Not surprisingly, my daughter went to another bank, which did offer her one, and she closed her account at the first bank…a microcosm of how retail banking has changed over 30 years?

“A few years ago, we were invited to transfer our current account to the bank’s private banking service.  We had a good introductory meeting with our designated manager in a branch relatively close to home.  We worked through the package in detail and established that it represented good value for money for our needs.  All good.  The poorer experiences that followed are not unfamiliar. It rapidly became apparent that the private banking service did not extend to the whole banking relationship. 

The first add-on product that our manager introduced to us was a leveraged savings bond.  No objection in principle to protecting the capital and using the interest to leverage investment return, but the structure was so heavily weighted in the bank’s favour that it was almost impossible to see how the bond could deliver the illustrated target returns. Our designated manger changed with unswerving regulatory, preventing any form of longer-term trusted relationship.  Within two or three years, local managers were abandoned, and the relationship was switched a centralised telephone only service.  After another year or so the bank stopped even bothering to tell us who our designated manager was.
 

What really came across to me in these and in other stories is the “moments that matter”.  Purpose involves being there (genuinely there for our customers as individuals) in those moments that matter not just in difficult times, but in good times, and times of change too. 

For each story that shines a positive light it’s easy to find one that highlights why we need to put purpose back at the heart of retail banking.  I hope the work I’m leading with the FCA will play its part in doing this, and I hope you will contribute your thoughts and ideas to this too.