Retail Banking is broken
Why and what can we do?
This graphic (HT Harold Jarche) tells us most of what we need to know to answer these questions. In the last 100 years we have lived through 2 paradigms for how society and an economy works. We are living in the transition to the third paradigm right now. Understanding these transitions will enable us to navigate to the next paradigm.
Each paradigm has unspoken but real rules. This post will expose the rules.
A new context
Transactional retail banking is very new. It is rooted in the regulatory changes of the 1980’s, the apogee of the industrial way of life. A time when most people had a pay cheque and a job. A time when investment banking and retail have been combined into a business based on the balance sheet.
But now fewer and fewer of us have a pay cheque or a job. A banking system based on simple job based algorithms will not work in a free agent society. (More on why here) Retail banking, as a vast vertically integrated, machine process and balance sheet based organization will be less and less able to serve the needs of the economy that is emerging.
The new economy will be made up of many ultra small businesses organized in powerful networks. ( See this link for more on this point) The “banks” that will thrive in this new context will mirror their customer base. They will operate using the classic rules of eternal banking but with a twist.
They will have to learn how to apply these rules in the new network context. (See more on this idea – here)This will enable them to keep their costs low, their ROI high and will enable them to align to those they serve.
So let’s now look at the old eternal rules for banking and sense how the old may apply to the new. Then we will close by adding the full network context. We will see why Credit Unions have such an advantage.