Wednesday, July 12, 2017

"Hallucinating Banks Believe They Are Technology Start-Ups"

From naked capitalism:
Thanks and hat-tip to reader Maura G (aka ReaderofTeaLeaves) for making us aware of this latest piece of finance industry nonsense. It comes from bank pom-pom wavers and general all round flim-flam merchant Tearsheet. While it is always entertaining and comic relief to include these kinds of industry echo-chamber delusions in our daily roundup of links, this one on bank technology caught my eye. It warrants unpacking in a little more detail.

The original Tearsheet story is here and the topic is how banks, according to the article, are getting “creative”, “innovative” and “design-led” in both new products and also how they work, culturally, in their internal operations and management. But in the process, this inadvertently highlights several industry issues. It’s even more revealing when financial services rha-rha’ing shows how the banks are not only bad actors, but are so delusional in their group-think and surrounded by paid shills who can’t or won’t provide a challenge to the skewed logic.

Starting with a (mercifully) brief quote from the Tearsheet piece:

Despite all the hype around transformative technologies or the fact that consumers aren’t actually using any “fintech”, the dinosaurs of the financial world are changing from the inside out, putting the customer experience before their business — and design thinking is at the forefront of that.

It’s optimistic, but also just a new way (for banks) of doing business. They’ve realized they no longer dictate how they do business and what they produce; their customers do. In a digital world filled with choice, banks’ customers need choice, empathy and ease of use designed into every interaction they have with the bank and they need to deliver on that quickly, before their competitors, which now include retailers and other non-banks.

The first paragraph states what may be obvious to those outside the finance industry bubble. Namely that users of financial services mostly do not want or need so-called innovative financial products or any new ways of using finance in their lives. Rather, they want banks to provide simple, easy-to-understand basic financial products that work. According to the copious data available from the Consumer Financial Protection Bureau which I’ve analysed, retail bank customers’ top five sources of complaint are:
  1. Fees.
  2. Poor customer service.
  3. Unpaid checks or other bounced payments.
  4. “Gotcha’s” hidden in product Terms and Conditions small print.
  5. Bank errors (which were either not corrected, took a lot of effort to get corrected or the corrections caused other knock-on issues).
I’ve worked in finance for nearly 30 years. The very first list I ever saw for complaints looked exactly the same as this.

And this begs an obvious question: if customers complain about how banks let them down, why are the banks not concentrating on what customers are telling them is wrong with the products and services the banks provide already – rather than spending time and money on creating new supposedly innovative ones? The answer is, of course, that it generates profits for the banks to do things which customers find annoying (high fees, obscure product features and even bank errors which cause the customer to lose and the bank to win). Or else it costs money, such as to train staff and then retain that knowledge in their workforces or to have sufficient numbers of staff available in the first place, to fix the problem.

Customers, even if we are supposed to be “In a digital world filled with choice” don’t need “choice, empathy and ease of use designed into every interaction they have with the bank“. We want to not be ripped off and for the banks to act competently in our dealings with them.

It is too much of a stretch to expect that the banks, unprompted or without being cajoled by regulators, will address structural issues around their business culture, executive conduct and outlandish profitability ratio expectations. However, we should expect continued wailing and gnashing of teeth from the banks about “innovation” and the need to be “competitive” in “the marketplace”. The latter is a complete and immediately disprovable canard though, because the top 5 banks control nearly half of the market.

So why, then, do the banks keep going, broken-record like, with their claims about the need to innovate?

For one thing, which may not be obvious to those outside the industry, working in finance is usually incredibly boring, frustrating, tedious and slow. While the outsized pay can and does attract intelligent and talented people, some of whom are quite creative, it is just about the worst place for those sorts of people to work. Systems and operations are convoluted and difficult to change because of their complexity. Banks are large bureaucracies with fiefdoms, turf wars, massive egos and driven by the need – in the cause of maximising shareholder value, the alter upon which many business have to sacrifice themselves – to implement the lowest cost solutions....