The Financial Services Club's Blog

£ $ € ¥ …元/圆: the Rise of Renminbi

We have a continual dialogue about Renminbi (RMB), or Chinese Yuan (CNY) if you prefer. 

What’s the difference? 

Well, Remnimbi is the proper term for the Chinese currency, as is referring to UK currency as the Pound Sterling and the American currency as the Dollar; whilst Yuan is the more colloquial term for Remnimbi, and is more like referring to pounds and dollars as quids or bucks,

FSClub friend Wim Raymaekers, Head of Banking Market at SWIFT, talks about this all the time, probably because so much currency movement is now moving through the SWIFT network.

He’s so wrapped up in this space, he sent me a guest blog post about it so, as it’s a worthwhile space to note, here’s what Wim has to say:

At the end of 2011, the RMB’s share of the global payments market was just 0.29% – dwarfed by that of the €/$ which combine to represent 90% of global volumes, at 43% and 47% of payments respectively – but the RMB did weigh in at #17 in the world’s payments currency league table, and its growth certainly outpaced that of other major currencies including the beleaguered euro.

The battle for supremacy among RMB offshore trading centres is also hotting up.

UK Chancellor George Osborne’s recent deal with Hong Kong, to position London alongside Hong Kong as such a centre, lays bare London’s ambitions in this regard – and the City could be starting from a stronger position than even Mr Osborne realises.

Hong Kong remains the world’s biggest RMB offshore centre, handling 78% of all RMB payments sent and received in December 2011, but the UK is well on its way to becoming the next big RMB offshore trading centre.

In Q4 2011, it already handled 30% of RMB payments (levelling with Singapore) and 46% of RMB FX transactions - not considering China and Hong Kong volumes in both cases.

This business intelligence is being generated by SWIFT to see which financial institutions have growing RMB volumes, where the corridors of activity are, which countries’ RMB businesses are growing, which are diminishing.

Taken as a whole, this data also demonstrates how rapidly the international RMB payments business is growing, and how actively many financial institutions are already participating in it.

Keep track of such information with the SWIFT RMB Tracker, published monthly.

Download the latest SWIFT RMB Tracker, January 2012

What the Facebook IPO means for banks

I haven’t written much about social media lately.  The reason is that it’s now mainstream and dull.  When you're scanning future views, you’re not as bothered about Facebook and Twitter when everyone’s familiar with and using such services.

Facebook's pervasiveness is well illustrated by the Facebook IPO  announcement, which gave a raft of good stats about how the service has matured as it enters its eighth year of existence:

• Facebook has a total of 845 million monthly users and 483 million daily users.
• Of its monthly users, half have used Facebook on their mobile.
• The company has 3,200 employees.
• Facebook is an advertising company. Of its total revenues of $3.7bn in 2011, 85% came from advertising. And that is down from 98% and 95% in the previous two years.
• The company makes $1bn in pure profit.
• Zynga, the games maker behind CityVille and FarmVille, single-handedly accounts for 12% of its revenues.
• The majority of its money comes from the US, but the majority of the users are outside the country, and the majority of its non-US revenues comes from western Europe, Canada, and Australia.
• The company generates 2.7 billion "likes" and 250 million uploaded photos everyday.

Eight years.

$100 billion IPO.

Not bad, Mr. Zuckerberg.

But what Zuckerberg has really done is more important.

It shows in Facebook’s mission statement: “Facebook was built to accomplish a social mission - to make the world more open and connected”.

Job done and, in so doing, it has unleashed the Power of One.

We saw the Power of One rise when MySpace launched the musical careers of folks like Lily Allen, Kate Nash, Sean Kingston and more.

The social network allowed artistes to attract interest without having to find major music moguls or clubs to perform.

The Power of One began in a world where the social aspects of the global network allow anyone to vote on anything, and make it mainstream if enough voters gather.

This is being proven again and again.

Recently, we have seen the Power of One through Tumblr.

In this month’s Wired Magazine, the front page article is all about David Karp who has created a $500 million empire through the blogging platform.

And the opening is all about a young chap called Chris Brown who created a photoblog “We are the 99%” on Tumblr.

The story speaks for itself:

On the evening of August 23, 2011, Chris, a New Yorker who wishes his surname to be withheld, created a Tumblr account. His aim was to raise awareness of the Occupy Wall Street march planned for September 17. The idea was simple: he asked users to submit a photograph of themselves holding a sign explaining their economic circumstances. He called the page We Are The 99 Per Cent, and promptly forgot about it.

Four days later, Chris returned to his flat, after spending time preparing meals for protesters, and checked the We Are The 99 Per Cent tumblelog. When he had left, there had been two photos in the inbox. "I thought, I'll have five or six more submissions," says Chris, now 29. "The inbox was overflowing. I spent that night reading through the submissions. By the time I was done, I had barely dented this thing."

One photo was from Priscilla Grim, a 36-year-old activist working on strategic communications for the Occupy Wall Street movement who has been "protesting one way or another for about 20 years". Grim noticed that, two weeks after submitting her image, the blog hadn't been updated, so she emailed Chris and offered to help to edit the blog: "It struck me that this was the perfect organising tool of today," she says. Together, they started posting the submissions. Some were short: "I served in the US Army. Served 16 months in Iraq. Now I deliver pizza. I am the 99%." Others were longer, from the jobless woman prevented from donating a kidney to her friend because she didn't have health insurance, to the 19-year-old single mother who said she went without food for days to buy formula milk for her four-month-old son. But they all kept the same format, with signs often obscuring the creators' faces. "We posted 100 photos before it went big," says Grim. The New York Times covered the blog. "After that, it went all over the place."

The blog became a meme and the meme went viral. As Wired went to press, 3,000 photos had been posted; the tumblelog receives more than 100 submissions a day. Protestors adopted "We Are The 99 Per Cent" as a slogan, writing it on signs and banners. "We're standing there with thousands of people screaming [the phrase]," Grim says.

Occupy Wall Street and many other social movements would just not exist in the same way without Facebook, Twitter, YouTube and the Power of One.

The real revolution of these networks is that they allow critical mass of new movements to be linked globally within days, as demonstrated by the We are the 99% story.

In banking, we see these changes occurring rapidly too.

Just look at Molly Katchpole, the young lady who posted a petition on change.org to get Bank of America to reverse policy and waive the $5 per month fees they were going to impose if people used their debit cards.

The fee was to recoup losses due to the implementation of the Durbin Agreement, part of the Dodd-Frank regulatory changes in the USA.  This agreement wiped out profits from interchange on debit card transactions and many US banks decided to add a fee therefore, in order to recoup losses (note: Bank of America were not the only bank to do this, just the first to get the headlines).

The move proved so unpopular that Molly’s petition rapidly gained traction, was promoted by change.org and then was picked up by major national media like the New York Times.

When the online petition reached 300,000 votes, Bank of America reversed policy.

It resulted in the program being voted the biggest PR gaffe of 2011 by most marketing magazines and CEO Brian Moynihan admitting that it resulted in a surge of account closures.

Note the speed of this change however, in that Katchpole posted the petition with 100 signatures on 1^st October …

… and garnered 200,000 signatures a week later.

That’s how fast things happen.

It’s a bit like Zynga getting 100 million users of the CityVille game in just ONE MONTH, and is still the most popular game on the internet today with over 10 million daily players.

The Power of One is all illustrated by speed, global connectivity, leverage of the individual voice and the nature of the network.

There are many other examples of how the Power of One is impacting banks – such as the Wikileaks and Anonymous impact on PayPal, Visa and MasterCard via Twitter, and the UK Students who made HSBC reverse policy on fees after a Facebook protest - and they show that banks should be afraid of the Voice of the Customer today.

After all, the connectivity of the Power of One fuelled the Arab Spring through Facebook and Twitter.

Who would have thought that Gadaffi, Mubarak and others would have been deposed due to the fire of Mohammed Bouazizi, a Tunisian market stall holder and his note left on Facebook?

Be at least a little bit afraid.

Josef Ackermann, CEO of Deutsche Bank and head of the Institute of International Finance which represents the world's banks: “we have a social responsibility, because if this inequality increases in income distribution or wealth distribution we may have a social time bomb ticking and no-one wants to have that.”

 

 

 

 

Consumers will pay for better online banking

PwC conducted research with almost 3,000 banking customers from a range of segments across markets to discover their expectations of banking in the digital age.

They selected both emerging and developing markets including China, India, Mexico and the UAE, as well as developed markets like the UK, Canada, France and Poland.

The research revealed that there is a very high correlation between digital engagement and share of wallet for a customer, and that digitally active customers tended to have the largest product holdings.

They also found that if you are the primary financial relationship then this drives increased share of wallet leading to higher revenue generation. 

That’s no shock is it?

What may be a shock are the results of the willingness of customers to pay for new and enhanced digital services.

Whilst banks argue about whether to expand, maintain or shrink their branch footprints, most customers – particularly those under the age of 50 – view mobile and internet channels as their primary bank relationship channel.

The survey then tested the willingness of customers to pay for that channel and found that the majority would be willing to pay from $3 to $15 a month for enhanced digital account services, such as notifications through social media, spending analysis tools, third-party offers and storing documents in a virtual vault.

At a time when banks are finding it difficult to sustain revenue and margin growth, the fact that customers appear prepared to pay for the perceived value of using digital services that offer new value to customers, is significant.

This is particularly important as consumers trust banks to keep their information secure when compared with other providers, and hence are more willing to pay a premium for banks to keep information secure over other industry providers, such as mobile carriers.

All in all, an interesting survey and worth a glance, particularly for those of us who believe banks have an opportunity to gain increased client wallet share by innovating digital channels.

Download The new digital tipping point (2.25MB PDF)

 

10% of lending via P2P?

I joined an interesting webinar yesterday about P2P Lending alongside:

• James Gardner, author of "Innovation and the Future Proof Bank"
• Gijsbert Koren, author of "Crowdfunding - The New Investing"
• Rhydian Lewis, CEO of RateSetter

What was new to me was Rhydian’s take on P2P Lending.

Rhydian is a career investment banker and set up Ratesetter with colleague Peter Behrens of RBS in 2009.

I had assumed it was another Zopa, but Rhydian distinguishes between the two by saying that in Zopa’s model the investor (or saver) chooses the borrowers they want to accept based upon risk profiles.  Ratesetter is just a pure S&L (Savings & Loans) platform, and they pool funds and allocate to borrowers on a purely commercial, rather than social offering.

Here’s the low-down on Ratesetter from their blog of October 7^th:

“RateSetter today celebrates our first full year in business. One year ago today, we launched RateSetter on an unsuspecting world, with the vision of creating great value Savings and Loans products between creditworthy Borrowers and smart Savers.

“In that time, we have reached some terrific landmarks. We have matched just shy of £9m (now £9,800,645 with an average loan size of £3,695), across 2,400 loans, and 65,000 members. We regularly match more than £1m a month, and have helped create over £165,000 in interest for our Savers.”

And from May 26^th:

“The Provision Fund (PF) is what makes RateSetter different from any other P2P lender. It is a pot of money that shields Savers from defaults from Borrowers. If a Borrower is late on a payment or defaults altogether, the PF steps in to compensate whoever lent the money. If/when that money is recovered, it returns to the PF.

“The easiest way to understand the PF is as a company. Credit Rates are like revenues, and any late payments or defaults are like costs. RateSetter acts as the management for the PF, managing both revenues and costs. It’s important to note we have no direct financial interest in the performance of the Fund (though naturally we have a substantial indirect interest).

“The reason that the PF exists is because we believe that this is a better way of mitigating the risk for Savers – it drastically reduces the element of “luck” that loans will go bad, that Saver returns will be less than expected. We have a very stringent credit policy, which at the moment declines over 85% of the applications made to it. So it’s important to recognise that the PF makes us no less cautious than if we were lending our own money (which incidentally some of us are).”

So this is a very different offer from social P2P lending, as it removes the social context and makes it pure crowdfunded lending via a third party risk manager.

For example, here’s how Zopa talk about their style of operation:

“Peer-to-peer lending is a smarter, fairer and more human way of doing money. It's like borrowing and lending with your friends and family - except there are thousands of people you can lend and borrow with.

“Both lenders and borrowers get better rates, because peer-to-peer lending is more efficient than the traditional banking model. Banks have massive overheads, with thousands of employees to pay and hundreds of branches to maintain. So they have to take large margins on the money that passes through them.

“There's no smoke and mirrors here. Banks use your money to make even more money for themselves. They lend some of it out, gamble some of it on the price of tin or the Yen depreciating, and invest the rest in any other money-making schemes they can think of.

“Whereas at Zopa, people who have spare money lend it directly to people who want to borrow. There are no banks in the middle, no huge overheads and no unethical investments.”

A key point Zopa make on their website is that “Lenders make lending offers - 'I'd like to lend this much to A-rated borrowers for this long and at this rate'”; and “borrowers size up the rates offered to them, and snap up the ones they like the look of. If they don't like the rates today, they can come back tomorrow to see if things have changed.”

Ratesetter fixes rates and risk, Zopa allows the lenders and borrowers to match as a community structure.  There are also other P2P operations in the UK, such as Funding Circle, Yes Secure and Quakle.  Each is slightly different, e.g. Funding Circle focuses upon SMEs, and there are equally other examples of new models such as CrowdAboutNow in the Netherlands, Smava in Germany, Communitae in Spain and Kickstarter and Prosper in the USA.

Either way, Rhydian made the point that the consumer credit P2P market was purely competing with banks on rates.  He did qualify that service came into it too, and brand and trust, but that the social aspect was meaningless and purely played to some investors who liked the philanthropic returns of such activity.  

He claims P2P lending is nothing new, not innovative and purely an alternative source of funds in the S&L markets.

This is demonstrated by comparison sites like moneysupermarket.com, where the P2P offers appear.

So I went to moneysupermarket to have a look and wasn’t that impressed, as a search for a £7,500 three-year loan resulted in Zopa and Ratesetter coming in at rates 1.4% and 1.8% respectively higher than the equivalent from a mainstream building society and other competing retailers like Sainsbury and Tesco.

It made me question Rhydian's claims as, if it was purely rates, why would Zopa have grown so dramatically in cumulative lending levels:

In 2010, Zopa processed £70 million ($100 million) in enabled lending – about £6 million per month ($10 million) – and hope to increase this to £140 million this year.  Ratesetter is so far under £10 million and growing, but Zopa can claim more brand and trust as they’ve been around longer.  Maybe that’s why their list of active lenders is up from 9,000 in 2008 to 16,000 in 2009 to over 22,000 last year, and an expectation of around 35,000 this year.

I think the figures reflect the community orientation of Zopa – where savers and borrowers connect with each other to set rates and match – versus Ratesetter’s model which is purely to crowdfund and compete with banks on narrower margins.

Rhydian claims that the community aspect of Zopa’s business model is the part that’s unsustainable.  We shall see.

After all, it may be that credit is so tight with the banks that finding a loan is now only available through alternative markets.

Either way Rhydian then went on to say, wearing his other hat of part of the P2P Finance Association, that the average age of funders in P2P networks is 55 years old and borrowers are 39 years old.

The P2P lending market in the UK has sourced over £200 million in funds, with £100 million funded this year.  This is a similar experience to the USA, where Prosper and Lending Club are seeing significant growth in funds managed:

Lending Club issued a total of $24.9 million in loans in September, up 8.3% on a month-over-month basis from its August total of $23.0 million in loans. Lending Club has issued $373,473,595 across 35,918 loans since it launched its service in 2007.

Comparatively, Prosper has now issued a total of $262,342,733 across 43,950 notes as of September 30th, 2011 since launching its service in November 2005. The company issued a total of $7.4 million in loans, up 7.1% on a month-over-month basis from its August total of $6.9 million in loans.

What this tells me is that, in the scheme of things, P2P Lending is now grabbing a good slice of the USA and UK market for consumer and small business lending.  This is demonstrated by the Bank of England’s stats for lending which shows unsecured consumer credit pretty much disappearing off the radar since 2008:

It’s a good time for these guys to be in the market and the prediction of 10% of all unsecured retail lending being in the hands of P2P lenders by 2010, made by Gartner in 2008, may have been precipitate but is not far off the truth of today.

As always, we anticipate the speed of change to be too fast and the impact to be far less than realised.

For more on P2P Lending, follower the twitter stream of P2P Lending News.

 

Postnote: Simon Deane-Johns, a mate of ours, has written a good piece on regulating these markets too, A New Regulatory Model For Retail Finance

 

 

 

 

40% of City workers to lose their jobs

I’ve recently been thinking about headcount cuts.

It’s always hard …

And it's getting harder.

For example, I wrote in August that thousands of bank jobs were being cut, adding up to an expectation of 15,000 City jobs this year.

Each job loss represents a significant loss to the economy, especially those in the City:

“Based upon an average salary of £150,000 and income tax of 50 percent, employer national insurance of 2 percent and employee national insurance of 2 percent, this works out at an average lost tax income per lost City job of £81,000 per year, or a total loss of about £1.3 billion in tax revenue.  To put this into context, financial services workers paid a total of £18 billion income tax for the tax year 2009/10, or 15 percent of the UK total, so this year's redundancies alone could lower the sector's income tax contribution by about 7 percent.”

That doesn’t include all the job losses at Lloyds Banking Group (43,000 or more job losses)  and Royal Bank of Scotland (28,000 generally plus a further 5,000 just announced in the investment bank).

Nor does it even look at the USA figures, where Bank of America recently announced 30,000 job cuts, a similar number to those recently announced by HSBC.

In fact, every bank is cutting … how far could it go?

According to one leading light in the City, Mary Caroline Tillman – shortlisted for Woman of the Year, Head of the Global Financial Practice with headhunter firm Egon Zehnder, and formerly Managing Director and Chief Operating Officer of JP Morgan's European Advisory Business – the losses will rise to around 40% of all City jobs.

In an interview over the weekend with the Independent, Mary said the following:

“The Masters of the Universe are facing a really tough time.  The shake-out is only just beginning after the crash. There is a big consolidation still to come, which means there will be far fewer banks; a 40 per cent cut in jobs will be the 'new normal'. This is because of the tougher regulatory environment.”

A 40% job loss in the City would spell disaster.

For example, the article reckons that there are about 360,000 people working in the City and some 670,000 in New York's securities industry (this does not take into account all the ancillary and related services from accountants and lawyers to bar staff and restaurants).

If 40% disappeared in London, based upon my earlier calculations, which would be 150,000+ job losses.  A loss of around £13-£15 billion a year in tax revenue … or more.

I wonder whether the government really wants this scenario therefore, and the Occupy Wall Street brethren.

Meanwhile, as the industry does go through its transformation from reckless risk to wrestled risk, it was interesting to see the change Mary sees happening in the core investment community of London.

“The restructuring means a different kind of leader is emerging. They are coming from the more functional areas. You can see that, with risk officers such as Robert Le Blanc at Barclays and Marc Moses at HSBC, who are now at the top … Boards want the finance guys, accountants, risk specialists, those with knowledge of IT and compliance.  These are the future Masters of the Universe … and these new bankers are determined to show that banking can be a decent and good business.”

Good.

 

 

 

Bank branches again ...

There’s been quite a lot of coverage recently of the British Bankers Association’s (BBA) report about bank branch closures in the UK.

Based upon the stats, UK banks are closing three branches a week.  That still leaves over 9,000 branches out there, but they are shrinking.

The reasons are many – cost efficiency, movement away from remote locations, operational overheads, etc – but the clear trend is away from branch and towards automation.

That being said, there are still branches out there and, as folks who read this blog regularly will know, a debate about their value always ends up saying that banks will need branches, just not so many.

But the reason for posting this is two-fold.

One is to repeat the BBA’s stats.

The big names – Santander, Barclays, HBOS, Northern Rock, Royal Bank of Scotland and NatWest – had 9,496 high-street outlets between them in 2009 but 187 closed last year, cutting the total to 9,309.

HSBC closed the most, with 58 of its 1,369 branches disappearing last year; the trend has continued this year bringing this down by a further 79 to 1,290 branches today.

Part of the reason for this is that there are 44 million internet banking users registered in the UK, according to the BBA’s stats.  As more and more people are engaged in self-serving online, less and less use branches and hence they are not needed.

That does not quite stack up with the Office for National Statistics (ONS) figures however, which show that around one in four households still does not have internet access:

"In 2010, 30.1 million adults in the UK (60 per cent) accessed the Internet every day or almost every day. This is nearly double the estimate in 2006 of 16.5 million.  The number of adults who had never accessed the Internet in 2010 decreased to 9.2 million, from 10.2 million in 2009. There were 38.3 million adults who were Internet users."

Even worse are the demographics, which imply it’s the young and wealthy that the banks now reach whilst ignoring the old and infirm.

For example, among the over-65s, just one in three use internet banking compared with two thirds of those aged 25 to 44.

This stacks up with my recent analysis of the ING Direct acquisition by Capital One, which shows that ING Direct’s demographics are skewed heavily to the young and wealthy, whilst traditional banks are directed more towards financial inclusion and the elderly.

 

What this means long-term is that some banks will want the old and wealthy, the young and the poor; whilst other banks will want the young and wealthy, the old and the digital.

These aren’t simple demographics however. 

Banks will appeal to different audiences based upon their channel mix, service offer, customer engagement in person and remote.  Some will be heavily branch oriented whilst others remotely focused, but they will each find a niche.

The only change will be that there will be far more niche players, rather than the homogeneous branch based grouping we have today.

 

The Top 20 Banks of the World, 2011: China hits the Big Time

I’ve enjoyed the Banker’s Top 1000 listings for a long time now and, when last year’s listings came out, looked back over the last twenty years to see how things had changed.

This year’s list has now just been published (get a copy by subscribing) and makes for interesting reading, especially as Chinese banks have finally made the big time (doubleclick image to see large version).

All in all, this list when combined with my reflections in 2010 over the last twenty years, makes for a fascinating story of risk bubbles and bursts.

You had the banks from the rising sun rising up the charts in the early 1990s.

Then, as the Asian crisis nuked most of the region, the Japanese banks disappeared and the Anglo-Saxon banks took over.

The principle-led regulatory regime was rife and the Americans and Brits ruled until 2008 when their “debt whore” approach failed.

Now, everyone is bailing out everyone else, with PIGS, TARPS and QE’s by the shedload.

So last year’s list was interesting, in that we finally saw Chinese banks rising up the list and more diversity as the American and British banks stumbled a little.

I have been saying that China’s banks will dominate global banking since 2005, and certainly there is a growing swagger of China’s banks as they watched the failure of the West.

For example, it used to be that Chinese bankers were desperate to learn how the West did banking and would send troops of managers to European and American conferences to learn their ways, as well as hiring the best talent to import into Chinese territories.

Back then, we all scoffed at Asia for their poor risk management of credit leading up to the 1997 crisis, with debt defaults and NPLs everywhere. 

Now the Asians and Chinese may scoff at the West for the same reasons, although there is still risk in the Chinese system as most enterprise is propped up by financing given through the governmental influence over the banking system.

That aside, the fact that China's market capitalisation will rise to $41 trillion by 2030 from $5 trillion today, according to Goldman Sachs, makes it a market that cannot be ignored.  After all, this would make China's stock market the biggest in the world, as American market capitalisation rises to $34 trillion from $14 trillion over that time.   

This is one of the reasons why this year's Banker list is important as, for the first time, THREE of the TOP TEN banks of the world are Chinese.  Last year, there was just one.

This year, four of the top twenty banks of the world are Chinese, when there were none just a few years ago in 2004’s list.

So, no matter the risks, China’s banks have finally risen to the top ... but at what risk?

The original Asian crisis was created by a higher than expected percentage of Non-Performing Loans (NPLs) and Moody’s has recently downgraded China’s banks on the basis that “8 to 12 percent of all the loans made by Chinese banks could go unpaid.  Moody's had earlier estimated only 5 to 8 percent of the loans would be classified as ‘non-performing’.”

If China has a financial crisis, then we really will all be up the swanee ...

 

 

 

Are payments infrastructures fit for purpose?

During the spring, we reached out and asked readers and FSClub members to provide their views, via an online survey, of the world's largest payments infrastructures and whether they are fit for the purpose they are being used for today.

Last night, we released the results of the research at a dinner hosted by survey sponsor, Cognizant, and with a panel discussion of the report's findings with:

• Chris Dunne, Strategy Director, Vocalink;
• Gilbert Lichter, Secretary General, the Euro Banking Association (EBA);
• Arun Aggarwal, Managing Director, SWIFT UK;
• José Beltrán, Director for SEPA at STET; and
• Tony Virdi, Head of Financial Services Division EMEA, Cognizant.

If you would like a copy of the report (3MB PDF) then email our administration and they will send you a copy.

Some of the report's headlines include:

•  96% of retail banks cite the internet and 82% cite mobile technologies as having most important impact on payments infrastructures

• 63% expect significant or major changes to payments infrastructures in complying with regulatory change

• 49% expect Fedwire to face regulatory challenge 

• 40% will be using two to three key payments infrastructures in ten years’ time, compared to the nine used today

• 19% expect VocaLink will be most impacted by developments in mobile payments 

• 27% expect SWIFT and Eurogiro (24%) to be most impacted by Internet developments

 

The key messages from the report are:

• There will be consolidation as well as increased competition. The process of consolidation will be slowed by certain national and domestic interests, with the largest countries of the world – the BRICs and America – protecting their national infrastructures

• There will be fewer payments infrastructures in ten years than there are today and increased competition from both existing and new payment providers

• European Clearing houses for retail payments – such as Equens, VocaLink and STET – will be locked in a competitive battle

• Asian and other clearing services will also be consolidating and some panregional or potentially global players are likely to emerge

• Common standards will drive the process towards renovation and consolidation, as XML and ISO20022 work hand-in-hand to make interoperability easier

• Whilst payments infrastructures were viewed on the whole as being ‘fit for purpose’, Fedwire, Eurogiro and CHIPs scored highest in the ‘out of date’ category

• SWIFT, VocaLink, Equens and EBA are viewed as innovative, although banks and non banks views varied in this regard SWIFT and the EBA have very strong support for the long-term from their banking community advocates, and are likely to remain central to payments for the foreseeable future as standard setters and low-cost processors

• Payments processors need to be on top of rapid developments in mobile, internet and cloud computing to continue to be fit for future purpose. In Retail, changes will be driven by changing customer behaviours relative to social media and the way we pay, with mobile contactless and online payment systems driving real-time connectivity

• As the number of providers and the pace of technology increases there will be greater need for payment risk forecasting, monitoring and the real-time tracking of payments processing by the customer 

If you would like a copy of the report (3MB PDF) then email our administration and they will send you a copy.

A mass of social media and web 2.0 stats

I like numbers and haven't posted any for a while.

So I was pleased to find a bunch of useful social stats while crawling the net the other day.  

These stats starkly put into context why social networking and social media is important.

It's important in all walks of life, especially finance which is so integral to commerce and to society.  

So here's a few numbers to keep you thinking today:

• Time on social networks represents 16% of all the time people spend on the internet, or one out of every six minutes, compared to one out of twelve minutes in 2007.

• Spending on social network advertising is around $6 billion this year, according to research firm eMarketer. 

• Mobile advertising is growing fast thanks to smartphones, and will reach $3.3 billion this year but grow to $20.6 billion by 2015, according to Gartner.

• There are 150 million blogs on the internet with 1.6 million posts generated daily.

• Tumblr, a blogging site, deals with over one billion page views a week and 10 million posts per day, an increase of 8 million daily posts compared to March 2010.   

• 60,000 websites are added to the Internet every day.

• YouTube users upload 35 hours of video every minute, or two million uploads a day.

• Facebook handles 1.5 billion updates daily from 600 million active users, with 73% of all American internet users on there.

• Zynga, the gaming firm on Facebook, garnered 100 million users on Cityville in just 6 weeks and generated $7 billion globally in commerce last year, according to InStat research. 

• Twitter handles 155 million tweets daily, compared with 50 million a day a year ago.

• Flickr has five million images uploaded daily, or 60 pictures a second.

• Consumer subscriptions for premium levels of online service, such as additional storage for personal photo collections and similar new “cloud” services, are likely to reach $6 billion by 2016 according to Forrester Research.

And if you didn't think this was Internet Bubble 2.0, here's a few other stats:

LinkedIn

Founder Reid Hoffman, the serial investor.

What is it? The site that takes the 'social' out of social networking – a place for professionals and businesses to interact. LinkedIn is the first pure social networking site to go public, hence the astronomical price-tag.

Value: $11bn; Turnover in 2010: $243m

Groupon

Founder Andrew Mason – bargain hunter with an interest in politics.

What is it? The source of money-off vouchers for every product and service you care to think of. It has grown quickly and already has a big international presence. IPO announcement is thought to be imminent.

Projected value: $15bn. Turned down $6bn bid from Google this year; Turnover in 2010: $760m

Zynga

Founder Mark Pincus the entrepreneur who turned us all into farmers.

What is it? The producer of games such as Farmville for social networking sites including Facebook. A float could be announced as soon as November.

Projected value: $10bn; Turnover in 2010: $850m (estimated)

Facebook

Founder Mark Zuckerberg – the college dropout who wants us to share.

What is it? Not the original social networking site or necessarily even the best, but Facebook has ruthlessly bulldozed its way to world domination. When Goldman Sachs sought investors for a $500m fund raising for the company earlier this year, it was inundated. During that exercise, Facebook said it would float next year.

Projected value: $50bn; Turnover in 2010: $2bn (estimated)

Twitter

Founder Jack Dorsey– the software architect and innovator.

What is it? A chance to share your thoughts with the world in 140 characters or less – as 200 million users already do. A fund-raising last year valued Twitter at $3.7bn, but since then both Google and Facebook have been linked with a bid for the company, sending its value soaring. If no offer materialises, an IPO is likely next year.

Projected value: up to $10bn; Turnover in 2010: $45m (estimated)

Yelp

Founder Jeremy Stoppelman, Russel Simmons – software engineers and friends turned business partners.

What is it? A social networking site that allows users to search for and review local businesses and services. Yelp's co-founder Jeremy Stoppelman announced in late April that the company would go public, but did not say when. Google and Yahoo are both said to have made offers of around $500m.

Projected value: $500m; Turnover in 2010: $50m (estimated)

Pandora

Founder Joe Kennedy.

What is it? Similar to Spotify, it's an online music service that allows you to create personalised internet radio service and find new music based on your old and current favorites.

Value: $4bn; Turnover in 2010: $119m

Yooku

Founder Victor Koo, former President of Chinese Internet portal Sohu.

What is it? A Chinese version of YouTube.  Youku's video library includes many full length, popular films and TV episodes from the West which other popular sites, such as Youtube, cannot display because of copyright restrictions.  These laws either do not exist in China or are poorly enforced, enabling Youku to broadcast copyrighted content without license.

Value: $7bn; Turnover in 2010: $60m

Renren

Started in December 2005 by University of Delaware graduate Wang Xing with Tsinghua University graduates Wang Huiwen, Lai Binqiang and Tang Yang.

What is it? A Chinese version of Facebook.  In Feb 2011, Renren made a pre-IPO announcement that it had 160 million registered users. Then in April 2011, it had to modify that statement to "a total of 31 million active monthly users." 

Value: $9bn; Turnover in 2010: $76m

 

Sources: “Why Women Rule The Internet”, Techcrunch, March 2011; “How Much Daily Content Is Published To Twitter, Facebook, Flickr?” Scribbal, April 2011; “Investors beware: is the new dotcom bubble going to burst?”, The Independent, May 2011; “Facebook, Twitter, LinkedIn, Tumblr Grab Record Visitor Numbers”, Scribbal, June 2011; “Technology: the internet bubble”, Financial Times, June 2011

 

Extremely Vital Statistics

I found a mixed bag of themes this week as I’m scooping up numbers.

First, some interesting numbers include the fact that Google has 750 people working in their Payments Division, having just hired PayPal veteran Osama Bedier to lead it.

This is at the same time as PayPal hire Blackhawk Network founder Don Kingsborough, to go after the retail store network and take on Visa and MasterCard.

And just as Facebook  announce they are opening a Payments Unit too.

Change is afoot.

As one panellist at the conference I'm at this week said, during a discussion of new competitors: “We reached a digital inflexion point in film a decade ago and Kodak did not follow it. Five years later, they made no more film. The business model had fundamentally changed. Banking is at a similar inflexion point today.”

This followed a keynote presentation from Deutsche Bank who alluded to banking being like the music industry.

Music was profitable until the internet killed the radio star by giving it away for free.

Napster became huge during the early 2000’s until two things happened.

First, the legislative battlefield began to close down the illegal distribution of music; and second, Apple launched iTunes to go with the iPod.

In 2004, digital music represented just $20 million of the $25 billion revenues of the industry, as most digital music was being distributed for free.

Since then, music industry revenues have declined by 30% but, luckily, Apple launched iTunes in 2003 and, in 2010, the ten billionth tune was downloaded.

The change in the business model had occurred, from physical stores and CDs to online downloads and Amazon.

Similarly, thanks to iTunes, the business model had proven that you could move from illegal downloading to most people feeling comfortable paying 99 cents for a song to have it legally.

This is why, by 2009, digital music represented $4.5 billion revenues, or 27% of the global music industry revenue flows.

It is also why the songs now cost $1.29 per tune, up from 99 cents.

The business model has changed; the inflexion point has been reached; the world has moved on.

Will this happen in banking?

That’s the question and the answer is:

YES IT WILL!!!!

Google illustrates this with the growth in their payments business which is not a payments business.

Google are growing their Payments Division primarily from their focus upon the advertising profit pool, rather than necessarily making profits from payments per se.

The business model has changed.

And it’s changing fast.

For example, Techcrunch published one article last week that stunned me with its opening lines:

• Facebook has over 600 million users;
• Twitter had 25 billion tweets last year;
• Tumblr has a billion page views a week; and
• Zynga reached 100 million users on Cityville in just six weeks.

Critical mass can be reached in days, and businesses can be wiped out overnight.

Just ask Tower Records.

Meanwhile, as we see this growth in social networking – Facebook gets 30 billion pieces of new content every month! – much of it is being driven by women, who represent £13 trillion in consumer spending and, by 2025, will control 60% of the UK’s private wealth according to Odgers.

If Comscore says women are the majority of users of social networking sites and spend 30% more time on these sites than men; with mobile social network usage being 55% female, according to Nielsen; then I’d take a close look at this as a bank.

And I'd take a close look FAST.

Banking on Angry Birds

Ever since I got my iPhone, I’ve been hopelessly devoted to Angry Birds, along with about 75 million other people.

75 million!

That’s 75 million playing a game on their smartphone.

That’s more than the whole population of Britain all playing Angry Birds.

Wow!

How did that happen and what’s it got to do with banking?

Well, the story is covered in depth by Wired Magazine this month, and it’s fascinating stuff.

The whole history of Rovio, which means “bonfire” in Finnish, is fascinating.

Rovio is the Finnish company that created Angry Birds and redefined the gaming industry.

And it’s relevance to banking is that every day 200 million minutes – or 16 years per hour – is spent playing the mobile game. It is the number one best seller on iTunes in 68 countries, as well as the best-selling paid app of all time.

In total the brand has taken over $70 million in revenues for a game that cost just $150,000 to develop.

And it starts at a cost of just 59 pence ($0.90) to download.

That’s the relevance to banking.

Money.

Little bits of money that, combined, make millions and billions of dollars.

There are millions of sub-$1 downloads taking place worldwide every second now.

So that old idea of paying $0.50 to read a page of a newspaper was the fallacy of a decade ago when we talked about micropayments.

That's Rupert Murdoch's dream, but it's a lame one if you ask me.

Paying $0.50 for a game that entertains for weeks ... that's real value.

And the stats column along the bottom of the Wired article gives me the ammunition I’m looking for as to why gaming and apps are a key area for future revenues sources:

• For the initial outlay of $150,000 to develop Angry Birds, Rovio has seen 40 million downloads on the iPhone, iPod Touch and Android;
• The average iPhone user spends $4.37 per month in the App Store (Gigacom);
• $2.11 billion will be traded in virtual goods this year in the USA alone (Inside Virtual Goods);
• There will be 970 million app users (Research2Guidance) and 1.82 billion smartphones worldwide by 2013 (Gartner);
• Mobile gaming will be worth about $4.5 billion in 2013 (Electronic Arts), whilst the app economy is estimated to be worth about $30 billion by 2015 (Juniper Research);
• 59% of smartphone owners have downloaded at least one app in the last month (Nielsen);
• 26% of apps downloaded in 2010 on all operating systems were played just once (Localytics); and
• Apple takes 30% of all app revenues and downloads from iTunes.

The article talks extensively about the Rovio business model, how they started, their errors and opportunities, lessons and learning’s.

It talks about Angry Birds being more than a game now, with soft toys and YouTube and other reach.

It talks about the fact that Angry Birds popped up in an ad for Rio, a new movie, during the Superbowl this year.  

That's serious stuff, as each advert during the Superbowl costs $3 million for 30 seconds.

So finally, if you’re thinking this is irrelevant, take note of this quote from Rovio’s CEO Mikael Hed:

“We’re building an integrated entertainment franchise where merchandising, games, movies, TV, cartoons and comics all come together. Like Disney 2.0.”

That's why I'm banking on Angry Birds ... or rather, I'm banking on apps to be exact.

 

The True Story of Debt in the UK

Want to know the true story of debt in the UK?  Well, here's a few stats and facts:

Just to emphasise a few of these numbers:

• Total personal debt in the UK is running at £1.45 trillion (that's £1,454,000,000,000) 
• Individuals owe more in personal debt than the country's annual output
• As a country we owe more in personal debt than we produce in economic output as a whole.
• The average UK household debt is £57,706 
• The average UK adult on a debt management plan (e.g. seriously in schtuk) owes £29,875  
• The average UK adult on a debt management plan has unsecured debts of £17,857, with 19% owing more than £30,000
• The average household pays over £2,582 in interest every year
• 46% of personal debt is on Credit Cards
• 372 people a day are declared insolvent or bankrupt, or one person every four minutes
• There are 7.9 million cash withdrawals every day, with a value of £530 million
• £2.73 is saved by the average person every day

 

 

Thanks to Money, Debt and Credit for this infographic and stats information on the true story of UK debt.

Why mobile is critical to the future bank

It’s the GSMA Mobile World Congress (MWC) in Barcelona this week. It’s a big deal as the mobile operators and manufacturers announce their major news items for the year, such as Microsoft acquiring Nokia.

That’s why Steve Ballmer is down there doing a keynote today along with Dick Costolo, CEO of Twitter. There’s Eric Schmidt, Executive Chairman of Google (he was CEO until the other day, when Larry Page took that role back) and over 100 other speakers.

In fact, to show what a big deal it is, you only need to consider that there will be 50,000 attendees from over 200 countries with 1,300 exhibitors. That’s like the Hanover Fair in ascendancy.

So what’s going to be hot there this week?

Well, apart from Duffy as a performer at the Awards Celeb, there’s already a few interesting announcements such as:

GSMA Announces That Global HSPA Mobile Broadband Connections Have Surpassed 400 Million - Newswire

The GSMA today announced that HSPA Mobile Broadband connections have increased by 100 percent year-on-year, passing 400 million globally, according to figures from Wireless Intelligence. There are now more than 17 million HSPA connections being added each month around the world, compared to nearly 9 million a month in the same period last year. LTE, the next-generation Mobile Broadband technology, is also set to experience rapid growth over the next few years, rising from 4.2 million connections in 24 countries by the end of this year, to almost 300 million connections in 55 countries by 2015.

Phone Operators Propose Requirements for Embedded Wireless SIM – Bloomberg

A group of phone operators has drawn up the requirements for a standard embedded Subscriber Information Module, or SIM, card to be used in mobile devices, the GSM Association said in a statement today. The proposed standard would cover a SIM card that could be sealed in devices, including machinery that isn’t mobile.

Push to end content providers’ ‘free lunch’ – Financial Times

Mobile phone operators are stepping up their campaign to charge internet content providers such as Google that are unleashing an explosion of data traffic on telecoms groups’ networks.

I also picked up a couple of interesting previews for MWC from BA and Cisco.

BA’s Business Life Magazine has a preview, which starts with the words:

Mobile marketing was, for a very long time, the next big thing. At the end of each year, marketing gurus would confidently predict that the next year would be all about the mobile. But 2002 passed, as did 2003, 2004, 2005, 2006, 2007 and 2008, and nothing much happened. There was the occasional SMS campaign but little to justify all the hype. This may explain why, when mobile marketing finally did take off in 2009, many people missed it. According to the Interactive Advertising Bureau, in 2009 mobile ad spend grew by 32 per cent to £37.6m, and then there were all the mobile websites, the SMS campaigns, the mobile coupons, the mobile games and, of course, the apps.

The article then mentions a few interesting facts, such as:

• According to Euromonitor, 34 per cent of smartphone users access the mobile internet to search for travel information, 29 per cent check reservations and 25 per cent book rooms with their devices.
• Visitors to Nissan’s internet site remain for an average of four minutes but stay on the mobile site for an average of 12 minutes.
• The iPhone app from VW allows users to race a Golf GTI and resulted in 175 cars being sold to players of the app. That's $4 million in revenue.
• Marks & Spencer (a UK retailer) launched its mobile website in May 2010 and, by the end of the year, it has attracted over 1 million visitors and taken more than 13,000 orders, two of which were for sofas.
• Debenhams (another UK retailer) app was downloaded 75,000 times in its first week, and went to top spot in the lifestyle app charts with sales that more than paid for the development cost of the app.

There are loads of other interesting stats in the magazine as well, such as:

• Mobile networks now cover approximately 90 per cent of the world's population
• Worldwide sales of smartphones are growing by almost 100% a year according to Gartner
• In 2014, there will be 1.6 billion smartphone users, and mobile internet usage will overtake ‘desktop’, and the market for mobile coupons will be worth $6.5 billion
• Investment bank Morgan Stanley has predicted that by 2015 more people will connect to the internet via mobile devices than via desktop PCs
• Mobile operator Vodafone says 30% of its European customers already use their mobile devices regularly to access the Internet.
• 80% of high street retailers have made no effort to target shoppers through their smartphones
• There are other 400,000 apps at the Apple App Store
• 82% of us keep the mobile on while they’re on holiday
• 51% of consumers user their mobile for in-store research
• 62% of UK consumers leave their mobile phones switched on while they are asleep
• 25% of UK consumers have internet-enabled phones
• 3% of smartphone users admit to checking Facebook whilst in meetings at work

In a similar vein, there are interesting stats tracking the future of mobile in the Cisco report (get a copy over here).

Titled: “Visual Networking Index (VNI) Global Mobile Data Traffic Forecast for 2010 to 2015” – who came up with that scintillating title? – Cisco have worked out that global mobile data traffic increased 159% during 2010.  That means that “global mobile data traffic in 2010 was three times the size of all global Internet traffic (fixed and mobile) in the year 2000.”

Wow!

Looking ahead to 2015, the survey predicts that:

• more than 5.6 billion personal devices will be connected to mobile networks, and there will also be 1.5 billion machine-to-machine nodes,
• video will represent 66 % of all mobile data traffic, increasing 35-fold from 2010 to 2015, showing the highest growth rate of any mobile data application,
• mobile traffic from tablet devices will grow 205-fold from 2010 to 2015, the highest growth rate of any device category tracked,
• the volume of mobile data traffic will reach 6.3 billion gigabytes (or 6.3 exabytes if you prefer) per month, representing the equivalent of 19 billion DVDs and 75 times the amount of global Internet Protocol traffic (fixed and mobile) generated in the year 2000,
• more than 7.1 billion connected mobile devices (excluding Wi-Fi connections) representing nearly one mobile connected device for each member of the world's population based on the United Nations' population estimate for 2015.

That’s why mobile is so important as it is now more important for banks than the internet which, according to some banks, is more important than call centres, branches and ATMs.

Looking ahead, another BA Business Life article follows up with a few futuristic predictions about:

• the rise of HD and 3D phones coming soon;
• dictation and translation of calls, texts, mobile sites and emails in real-time;
• motion phones that recognise where your eyes or head moves and tracks your environment as required;
• perceptive phones that recognise what you’re doing and use push and pull technologies to fit with your needs and desires (!);
• analysis phones that monitor your heart rate, blood flow, blood sugar levels and more and alert as necessary; and
• haptic phones that use touch technologies such that a kiss from your partner on their phone screen can be relayed as data to your phone, so you actually feel a kiss if you put your lips onto your phone screen (must be Valentine’s Day!).

The article finishes by looking at how mobile could be used to turn systems on and off at home or in offices, and states that: “while the rise of the smartphone is clearly the biggest story in the mobile industry today, the rise of the connected car, the smart meter and the smart building could well be the biggest ‘mobile’ story of the next decade.”

True, very true ... now then, is mobile financial services important?

You betcha!

 

 

Barclays: Banks Behaving Badly

I got a note today regarding the fact that the Head of Barclays Global Retail Division, Antony Jenkins, appeared on BBC Radio’s Today program this morning saying that the level of consumer complaints to banks in general, and to Barclays specifically, is “not acceptable”. The Financial Ombudsman Service said it received and upheld more complaints about Barclays than about any other bank last year, and Mr. Jenkins said Barclays are committed to reducing the numbers of complaints.

On the same day Eric Daniels, Chief Executive of Lloyds Banking Group, is quoted in today's Daily Wail as saying that the bank is “punching below its weight given our market shares” with regard to complaints.  

As a result, it prompted me to revisit the FSA’s and the Financial Ombudsman’s figures. In so doing, I stumbled across some interesting anomalies.

First, the FSA’s complaints report. Here’s the key highlights for the first half of 2010 (H1-2010): 

First, the figures for 2009 were excessive because banks had been waiting to process many overcharging complaints whilst a court decision was being taken. This decision was taken in November 2009, and resulted in a mass backlog of complaints being registered and processed. As a result of that anomaly, complaints about banking in H1-2010 decreased by 50% to 999,196; complaints about current accounts decreased by 63% to 599,249; and complaints about ‘terms and disputed sums or charges’ decreased by 63% to 575,348.

The number of complaints about payment protection insurance increased by 53% to 265,949.

The number of complaints relating to ‘advising selling and arranging’ increased by 22% to 364,891. 281,994 of these complaints were about general insurance and pure protection, and many of these were related to payment protection insurance.

The number of complaints relating to ‘general administration /customer service’ was the lowest since the second half of 2006 at 596,606.

The number of closed complaints increased by 76% to 2,819,678, as many of the bank charge complaints were reported as closed. The number of closed banking complaints increased by 126% to 2,166,304, with 84% closed within 8 weeks.

Total redress paid in 2010 H1 increased by 43% to £406 million. The largest amount of redress by product was for general insurance and pure protection which increased by 92% to £276 million. This may reflect the large number of complaints relating to payment protection insurance.

As can be seen, many of the complaints concern payment protection insurance. Eric Daniels says that he is not surprised they have risen astronomically because “more column inches have been given to [the issue] than the impending Royal Wedding”.

I can see where he’s coming from on this, as I was recently talking to one of Lloyds retail heads, who told me that the astronomical rise in PPI (Payments Protection Insurance) was a real processing headache, especially as “one in four PPI complaints are from people who don’t even have an account with the bank”!

Ludicrous.

Now then, going back to that comment about Lloyds “punching below its weight”. Among the major banks, the list of banking complaints noted by the FSA has Lloyds at the top of the list, which received 288,717 complaints in the first six months of 2010, closely followed by Barclays with 259,266 and Santander with 244,978.

So if Lloyds has the most complaints, how can it be “punching below its weight”. Oh yes, there was the other part of that comment: “given our market shares”.

There were 288,717 complaints against Lloyds Banking Group, more than any other institution, but this represents less than 1% - about 0.96% - of its 30 million customer base.

Compare this with Barclays who had 250,667 complaints, representing approximately 1.19% of its 21 million UK customers.

Second worst was government-backed Royal Bank of Scotland, as roughly 1.07% (166,172) of its 15.5 million UK customers made a complaint, although these figures do include its insurance subsidiaries, Churchill and Direct Line.

Santander was next up with approximately 1.02% (256,823) of its 25 million UK customers registering an official protest in that period, whilst HSBC performed best of the major banks with just 0.5% (81,271) of its 16 million customers making a complaint.

Interestingly, the proportion of complaints dealt with within eight weeks are also an indicator as to how well these banks are working, with Lloyds securing a completion rate of 97% for customers within eight weeks; Barclays dealt with 91% of cases within the period; whilst Santander closed only 46% of complaints within eight weeks.

This looks bad for Santander, but you then need to look at the Financial Ombudsman’s figures too.

The Ombudsman upheld a whopping 61% of complaints about Barclays, which was the worst performer. 50% of complaints were upheld against Royal Bank of Scotland and 45% against Lloyds TSB, compared to an industry average of 44%. It only supported a fifth of consumers against Santander, the best performing bank in this category despite the high numbers of complaints it attracts and the slow processing of them.

With regard to total complaints, and bearing in mind that Barclays had the most upheld, these figures are also of note:

Firm                      Number of new banking complaints recorded

Barclays Bank                          4,797

Lloyds TSB Bank                      4,051

Bank of Scotland                     3,876

Santander                               3,214

HSBC Bank                              1,718

NatWest Bank                         1,617

MBNA Bank                             1,184

Capital One Bank                       819

Clydesdale FS                            701

Royal Bank of Scotland               618

Nationwide BS                          594

Egg                                          594

Citi                                          528

Alliance & Leicester                  430

Clydesdale Bank                        419

Only 5% of customers rejected by their bank take their gripe to the Ombudsman, despite a better than average chance of success.

What that means, is that Barclays with 21 million accountholders had around 100,000 serious customer disputes, of which almost 5,000 went to the Ombudsman and 3,000 were upheld.  Lloyds with 30 million customers had more like 80,000 disputes, with 4,000 going to the Ombudsman and 1,800 upheld.

So Barclays have double the number of disputes passed in the customer's favour over Lloyds with a third less customer base.

That's quite telling.

A good example of the sort of bad behaviour can be found in this blog: Barclays: not a great home for my savings.  Their video is worth a viewing if you want to know the alleged misdemeanour:

In a world of social media, Jane's story (for it is hers) spreads fast, so it's not just the Ombudsman and the FSA that banks should fear these days ... but also the customer.

All in all, this little bit of analysis provided an interesting landscape of issues and performance by our banks in dealing with them.

Finally, given the headline: “Lloyds gets the most complaints” the above shows that, digging beneath the surface, this is entirely misleading.

Mr. Jenkins of Barclays gets it more right when he says that the level of consumer complaints to banks in general, and to Barclays specifically, is “not acceptable”.

Agreed.

 

The biggest banks by assets

Here is the City has done a nice job of crunching some data to come up with a list of the biggest banks in the world by assets under management as at 31st October 2010.

1. BNP Paribas $3.12 trillion in assets (+34.47%)*
2. HSBC $2.74 trillion (+12.46%)
3. Barclays $2.71 trillion (+37.03%)
4. Royal Bank of Scotland $2.707 trillion (+56.44%)
5. Bank of America $2.706 trillion (+54.06%)
6. Deutsche Bank $2.69 trillion (-0.65%)
7. Credit Agricole Group $2.66 trillion (N/A)
8. Mitsubishi UFJ $2.65 trillion (+6.26%)
9. JPMorgan $2.30 trillion (+38.13%)
10. Citigroup $2.21 trillion (-12.75%)
11. Mizuho Financial $1.99 trillion (-3.91%)
12. Lloyds Banking Group $1.75 trillion (+191.18%)
13. Banco Santander $1.70 trillion (+37.76%)
14. Bank of China $1.63 trillion (+66.03%)
15. Societe Generale $1.58 trillion (+1.01%)

Source - Bloomberg data

* percentage change in assets held since June 2007

Interesting list, and different to the Banker’s Top Bank list from June 2010, which uses Tier 1 Capital as the measure:

1. Bank of America
2. JP Morgan Chase
3. Citigroup
4. Royal Bank of Scotland
5. HSBC

 

Mobile Money: the Samee and Dave Show

Another great evening at the FSClub last week with the Samee and Dave show.

OK, it’s not a double-act although I’m trying hard to make them into one, with Samee the straight guy and Dave the fungi obviously.

Samee Zafar and David Birch are both great speakers about payments and, in particular, mobile payments. As a result, we invited them to repeat a presentation recently made at the Financial Services Club Ireland to our London audience last week, and we had a record turnout.

The evening began with some great charts and stats from Samee about the state of the market.

We had the usual stuff about 1.5 billion internet users but 5 billion mobile folks, although this slide was a particularly interesting one:

Most people think China Mobile is the #1 service provider of mobile telecommunications worldwide but it’s not. The biggest provider is Skype!

Samee went on to talk about the types, methods and structures of payments in the mobile world, which proved to be fascinating.

Dave developed on his themes, and presented one slide that was incredibly insightful statistically speaking. There are:

• 5 billion active mobile phone subscribers out there
• 4.1 billion actively used mobile telephones
• 4 billion text message users, increasing at 19% per annum
• 2.2 billion bank accounts in use
• 1.6 billion television sets
• 1.4 billion email users, increasing at 7% per annum
• 1.25 landlines at its peak, as there are now 1.15 billion and falling
• 1.2 PCs of any kind

According to Dave's research, half of all phones In the developing world are 3G and a third are smartphones whilst, in the emerging world, only 4% of all phones are 3G and 8% are smart.  Meanwhile, 1 in 10 phones are never used for voice calls, and data now represents a quarter of all mobile revenues.

Fascinating stuff.

Samee Zafar is a Director in Edgar Dunn's London office and David Birch is a Director of Consult Hyperion, the IT management consultancy that specialises in electronic transactions.

Full slide details and more are available to Club members at www.fsclub.net

Oh, and Dave just twittered a link to this interview with Tomi Ahonen, formerly with Nokia and author of nine books on mobile trends, saying that mobile is the $5 trillion gorilla that will absorb many industries (including banking).

Worth a view if you have 15 minutes ...

 

If you like the Finanser, check out the books of the blog: the new Complete Banker Series

Britain's Best Bank 2010: HSBC

OK, so it's not scientific, but I've been looking at the UK's banks from four dimensions this week:

• Customers
• Employees
• Investors
• Regulators

To the best of my databank's knowledge, the attributes and reviews are pretty accurate and have turned up some surprising results.  For example, who would have thought that the UK's most stable bank would be the Royal Bank of Scotland?  Mind you, I suppose it is government owned and therefore it should be pretty stable.

So here's the final result:

 

Yep, HSBC wins overall for all but one aspect: it's Tier I Capital Ratio.

Barclays do well generally, but their customer service needs focus.

RBS and Lloyds ... well, it's nice to know you can only get better.

Santander, Co-operative, Nationwide ... mixed results, and they're not included here as they don't register on all dimensions ... but at least the analysis given tells me that they're all doing some things right.

Mind you, I actually started this analysis because of Santander doing some things wrong, with their Partenon project stumbling and rubbish results in all of the customer satisfaction surveys.

So how come their pre-tax profit rose 10% and sales grew 6% in the first half of 2010?

Because they're the only bank that's lending ...

Santander UK claimed that it increased lending to small and medium-sized businesses by 20 per cent and wrote one in five mortgages to UK households, based on its gross lending market share of 19 per cent. Gross mortgage lending was £12.3bn in the first six months of this year, which is ahead of last year’s first half results of 14 per cent.

Source: FT Advisor

Britain's Best and Worst Banks for Regulators

This week is dedicated to assessing the UK's best and worst banks from four dimensions:

• Customers
• Employees
• Investors
• Regulators

Having looked at the banks from the customers’ perspective on Monday, employees on Tuesday and investors on Wednesday, today it’s the turn of the regulator.

Now the regulators have been in a frenzy of self-analysis and navel-gazing ever since this crisis began, trying to work out their role in the world and how to avoid another crisis.

They’ve not done badly ... after all, since Lehmans collapsed and we had that horrible week of banks announcing implosion in September 2008, there’s only been 264 bank failures in the USA to date (see end of blog entry). There’s been about the same number in Europe but, unlike the USA, we don’t create websites that broadcast every bank failure.

So there’s been around 500 bank failures since 2008.

How to avoid another one.

Easy.

The regulator says that they’ll use the Bank for International Settlements (BIS) Tier 1 Capital Ratio’s to avoid further bank failures and financial crisis.

So let’s look at the BIS Tier I Capital Ratio measures for a second.

Tier I Capital Ratio measures a bank’s balance sheet strength, and shows the ratio of a bank's equity capital and disclosed reserves as a percentage of its risk-weighted assets. The higher the ratio, the more capital it is holding to enable it to absorb losses.

Effectively it’s the amount of money the bank keeps in its vaults. A 10% Tier I Capital Ratio, for example, means that the bank is holding $1 for every $10 it has in customer deposits. If there’s a run on the bank, that’s what causes the problem, because the other $9 is out there working the markets and earning interest.

The reason why it’s referred to as Tier I Capital is because it is that liquid – it’s like cash in the bank – versus Tier II Capital which tends to be more illiquid, such as land owned and balance sheet movements from undisclosed reserves or provisions for future losses.

Now, the BIS under Basel II says that a bank must have at least 4% of its total exposures – risk-weighted assets – held in Tier I Capital, and 4% in Tier II, creating a total of a minimum 8% in reserve to cover any unexpected downturn and losses.

In other words, it’s basically a minimum 8% needed in capital to cover all of a bank’s risks.

This is what went wrong in the financial crisis, as the risks were much greater and faster to impact a bank’s balance sheet than expected. For example, Northern Rock had a 7.7% Tier 1 Capital Ratio in 2007 – that’s double the minimum amount required – and yet it failed in August of that year due to liquidity risks, and its’ 2008 Tier 1 Capital Ratio was declared at 2.9% as a result.

This is why the regulators are struggling, as a run on the bank can soon eat away at all of that liquid capital and leave the bank desolate.

But of course, a bank run rarely happens and so it’s OK to think that Tier I Capital doesn’t need to be overly onerous, but just about right.

But what is ‘just about right’?

According to the BIS review of regulations, about 6% for Tier I Capital, of which the core has been doubled from 2% to 4%. Oh yes, that’s another nuance, ‘core Tier I’ versus ‘Tier I’.

This is slightly more confusing, but there are actually two sorts of Tier I Capital Ratio’s – core Tier I and Tier I. The main difference is that banks don’t like to keep cash in the vaults, and so they’ve worked out ways to use exchange controls and other Special Purpose Vehicles (SPVs) – read ‘derivatives’ – to make sure cash can still be liquid, but working the markets to gain interest.

These are viewed as ‘innovative’ Tier I Capital measures as it's not really cash in the bank, and such instruments are limited to 15% of Tier I Capital.

So there you go. I know it’s confusing, but you basically have Core Tier I Capital – read this as cash in the bank; Tier 1 Capital – cash and liquid assets; and Tier II Capital – less liquid assets.

Finally, according to Reuters, banks will need a minimum of 4% Core Tier I, and overall “Tier 1 capital of 6 to 8 percent and 8 to 10 percent of combined core Tier 1 and the countercyclical buffer”. The countercyclical buffer is this idea that came from Spain where reserving in the good times will cover the bad. Therefore, a bank must keep an extra 2% of reserves during profitable years which they can dip into in unprofitable years.

OK.

So how do our banks shape up if we use these measures?

According to the above, as times are now profitable, the banks should have a minimum 10% Tier I Capital as they should be building that countercyclical buffer.

OK, here's a useful chart from the British Banker's Association (double click image to see larger version):

 

Source: BBA’s latest banking facts and figures 

Narrowing this down to the main headline news of Tier I Capital Ratios, here’s the information we really need to look at:

Hmmm ... HBOS had a higher Tier I Capital Ratio than Lloyds TSB in 2008; Alliance & Leicester and Bradford & Bingley were well above the BIS requirements; RBS is particularly well capitalised; and Northern Rock appeared to have no issue in 2007, as mentioned.

And yet, these are all the failed banks of Britain!

This Tier I Capital Ratio measure ain't that good is it?

And what does it tell us about the EU stress tests? Oh dear ...

FDIC list of US banking failures since Lehmans crashed (September 15th 2008):

1. August 13, 2010 Palos Bank and Trust Company
2. August 6, 2010 Ravenswood Bank
3. July 30, 2010 Bayside Savings Bank
4. July 30, 2010 Northwest Bank & Trust
5. July 30, 2010 LibertyBank
6. July 30, 2010 The Cowlitz Bank
7. July 30, 2010 Coastal Community Bank
8. July 23, 2010 Williamsburg First National Bank
9. July 23, 2010 Sterling Bank
10. July 23, 2010 Crescent Bank and Trust Company
11. July 23, 2010 Thunder Bank
12. July 23, 2010 SouthwestUSA Bank
13. July 23, 2010 Community Security Bank
14. July 23, 2010 Home Valley Bank
15. July 16, 2010 Metro Bank of Dade County
16. July 16, 2010 Woodlands Bank
17. July 16, 2010 First National Bank of the South
18. July 16, 2010 Olde Cypress Community Bank
19. July 16, 2010 Turnberry Bank
20. July 16, 2010 Mainstreet Savings Bank, FSB
21. July 9, 2010 Bay National Bank
22. July 9, 2010 Home National Bank
23. July 9, 2010 USA Bank
24. July 9, 2010 Ideal Federal Savings Bank
25. June 25, 2010 Peninsula Bank
26. June 25, 2010 High Desert State Bank
27. June 25, 2010 First National Bank
28. June 18, 2010 Nevada Security Bank
29. June 11, 2010 Washington First International Bank
30. June 4, 2010 Arcola Homestead Savings Bank
31. June 4, 2010 First National Bank
32. June 4, 2010 TierOne Bank
33. May 28, 2010 Granite Community Bank, NA
34. May 28, 2010 Bank of Florida - Southwest
35. May 28, 2010 Bank of Florida - Southeast
36. May 28, 2010 Bank of Florida - Tampa
37. May 28, 2010 Sun West Bank
38. May 21, 2010 Pinehurst Bank
39. May 14, 2010 New Liberty Bank
40. May 14, 2010 Midwest Bank and Trust Company
41. May 14, 2010 Satilla Community Bank
42. May 14, 2010 Southwest Community Bank
43. May 7, 2010 The Bank of Bonifay
44. May 7, 2010 Towne Bank of Arizona
45. May 7, 2010 Access Bank
46. May 7, 2010 1st Pacific Bank of California
47. April 30, 2010 Eurobank
48. April 30, 2010 Frontier Bank
49. April 30, 2010 BC National Banks
50. April 30, 2010 Champion Bank
51. April 30, 2010 CF Bancorp
52. April 30, 2010 Westernbank Puerto Rico
53. April 30, 2010 R-G Premier Bank of Puerto Rico
54. April 23, 2010 Broadway Bank
55. April 23, 2010 New Century Bank
56. April 23, 2010 Peotone Bank and Trust Company
57. April 23, 2010 Wheatland Bank
58. April 23, 2010 Lincoln Park Savings Bank
59. April 23, 2010 Citizens Bank and Trust Company of Chicago
60. April 23, 2010 Amcore Bank, National Association
61. April 16, 2010 AmericanFirst Bank
62. April 16, 2010 First Federal Bank of North Florida
63. April 16, 2010 Lakeside Community Bank
64. April 16, 2010 City Bank
65. April 16, 2010 Tamalpais Bank
66. April 16, 2010 Innovative Bank
67. April 16, 2010 Butler Bank
68. April 16, 2010 Riverside National Bank of Florida
69. April 9, 2010 Beach First National Bank
70. March 26, 2010 Desert Hills Bank
71. March 26, 2010 Unity National Bank
72. March 26, 2010 Key West Bank
73. March 26, 2010 McIntosh Commercial Bank
74. March 19, 2010 Appalachian Community Bank
75. March 19, 2010 Advanta Bank Corp.
76. March 19, 2010 Century Security Bank
77. March 19, 2010 American National Bank
78. March 19, 2010 State Bank of Aurora
79. March 19, 2010 First Lowndes Bank
80. March 19, 2010 Bank of Hiawassee
81. March 12, 2010 Old Southern Bank
82. March 12, 2010 The Park Avenue Bank
83. March 12, 2010 Statewide Bank
84. March 11, 2010 LibertyPointe Bank
85. March 5, 2010 Bank of Illinois
86. March 5, 2010 Sun American Bank
87. March 5, 2010 Centennial Bank
88. March 5, 2010 Waterfield Bank
89. February 26, 2010 Carson River Community Bank
90. February 26, 2010 Rainier Pacific Bank
91. February 19, 2010 La Jolla Bank, FSB
92. February 19, 2010 George Washington Savings Bank
93. February 19, 2010 The La Coste National Bank
94. February 19, 2010 Marco Community Bank
95. February 5, 2010 1st American State Bank of Minnesota
96. January 29, 2010 First National Bank of Georgia
97. January 29, 2010 Community Bank and Trust
98. January 29, 2010 Marshall Bank, N.A.
99. January 29, 2010 American Marine Bank
100. January 29, 2010 First Regional Bank
101. January 29, 2010 Florida Community Bank
102. January 22, 2010 Bank of Leeton
103. January 22, 2010 Premier American Bank
104. January 22, 2010 Charter Bank
105. January 22, 2010 Evergreen Bank
106. January 22, 2010 Columbia River Bank
107. January 15, 2010 Town Community Bank & Trust
108. January 15, 2010 St. Stephen State Bank
109. January 15, 2010 Barnes Banking Company
110. January 8, 2010 Horizon Bank
111. December 18, 2009 Independent Bankers' Bank
112. December 18, 2009 New South Federal Savings Bank
113. December 18, 2009 Citizens State Bank
114. December 18, 2009 Peoples First Community Bank
115. December 18, 2009 RockBridge Commercial Bank
116. December 18, 2009 First Federal Bank of California, F.S.B.
117. December 18, 2009 Imperial Capital Bank
118. December 11, 2009 Valley Capital Bank, N.A.
119. December 11, 2009 SolutionsBank
120. December 11, 2009 Republic Federal Bank, N.A.
121. December 4, 2009 Benchmark Bank
122. December 4, 2009 The Buckhead Community Bank
123. December 4, 2009 First Security National Bank
124. December 4, 2009 AmTrust Bank
125. December 4, 2009 The Tattnall Bank
126. December 4, 2009 Greater Atlantic Bank
127. November 20, 2009 Commerce Bank of Southwest Florida
128. November 13, 2009 Century Bank, F.S.B.
129. November 13, 2009 Orion Bank
130. November 13, 2009 Pacific Coast National Bank
131. November 6, 2009 Gateway Bank of St. Louis
132. November 6, 2009 United Commercial Bank
133. November 6, 2009 United Security Bank
134. November 6, 2009 Prosperan Bank
135. November 6, 2009 Home Federal Savings Bank
136. October 30, 2009 Park National Bank
137. October 30, 2009 California National Bank
138. October 30, 2009 Community Bank of Lemont
139. October 30, 2009 Bank USA, N.A.
140. October 30, 2009 San Diego National Bank
141. October 30, 2009 Pacific National Bank
142. October 30, 2009 Citizens National Bank
143. October 30, 2009 Madisonville State Bank
144. October 30, 2009 North Houston Bank
145. October 23, 2009 Partners Bank
146. October 23, 2009 First DuPage Bank
147. October 23, 2009 Riverview Community Bank
148. October 23, 2009 Bank of Elmwood
149. October 23, 2009 Flagship National Bank
150. October 23, 2009 Hillcrest Bank Florida
151. October 23, 2009 American United Bank
152. October 16, 2009 San Joaquin Bank
153. October 2, 2009 Jennings State Bank
154. October 2, 2009 Southern Colorado National Bank
155. October 2, 2009 Warren Bank
156. September 25, 2009 Georgian Bank
157. September 18, 2009 Irwin Union Bank, F.S.B.
158. September 18, 2009 Irwin Union Bank and Trust Company
159. September 11, 2009 Brickwell Community Bank
160. September 11, 2009 Corus Bank, N.A.
161. September 11, 2009 Venture Bank
162. September 4, 2009 First Bank of Kansas City
163. September 4, 2009 InBank
164. September 4, 2009 Platinum Community Bank
165. September 4, 2009 Vantus Bank
166. September 4, 2009 First State Bank
167. August 28, 2009 Bradford Bank
168. August 28, 2009 Mainstreet Bank
169. August 28, 2009 Affinity Bank
170. August 21, 2009 CapitalSouth Bank
171. August 21, 2009 First Coweta Bank
172. August 21, 2009 ebank
173. August 21, 2009 Guaranty Bank
174. August 14, 2009 Colonial Bank
175. August 14, 2009 Dwelling House Savings and Loan Association
176. August 14, 2009 Community Bank of Nevada
177. August 14, 2009 Community Bank of Arizona
178. August 14, 2009 Union Bank, National Association
179. August 7, 2009 Community National Bank of Sarasota County
180. August 7, 2009 Community First Bank
181. August 7, 2009 First State Bank
182. July 31, 2009 Peoples Community Bank
183. July 31, 2009 First State Bank of Altus
184. July 31, 2009 Mutual Bank
185. July 31, 2009 Integrity Bank
186. July 31, 2009 First BankAmericano
187. July 24, 2009 Security Bank of Jones County
188. July 24, 2009 Security Bank of Houston County
189. July 24, 2009 Security Bank of Bibb County
190. July 24, 2009 Security Bank of North Metro
191. July 24, 2009 Security Bank of North Fulton
192. July 24, 2009 Security Bank of Gwinnett County
193. July 24, 2009 Waterford Village Bank
194. July 17, 2009 BankFirst
195. July 17, 2009 Temecula Valley Bank
196. July 17, 2009 Vineyard Bank
197. July 17, 2009 First Piedmont Bank
198. July 10, 2009 Bank of Wyoming
199. July 2, 2009 Elizabeth State Bank
200. July 2, 2009 First State Bank of Winchester
201. July 2, 2009 John Warner Bank
202. July 2, 2009 Rock River Bank
203. July 2, 2009 First National Bank of Danville
204. July 2, 2009 Millennium State Bank of Texas
205. July 2, 2009 Founders Bank
206. June 26, 2009 Neighborhood Community Bank
207. June 26, 2009 Community Bank of West Georgia
208. June 26, 2009 MetroPacific Bank
209. June 26, 2009 Horizon Bank
210. June 26, 2009 Mirae Bank
211. June 19, 2009 Southern Community Bank
212. June 19, 2009 First National Bank of Anthony
213. June 19, 2009 Cooperative Bank
214. June 5, 2009 Bank of Lincolnwood
215. May 22, 2009 Citizens National Bank
216. May 22, 2009 Strategic Capital Bank
217. May 21, 2009 BankUnited, FSB
218. May 8, 2009 Westsound Bank
219. May 1, 2009 Silverton Bank, NA
220. May 1, 2009 Citizens Community Bank
221. May 1, 2009 America West Bank
222. April 24, 2009 Michigan Heritage Bank
223. April 24, 2009 American Southern Bank
224. April 24, 2009 First Bank of Beverly Hills
225. April 24, 2009 First Bank of Idaho
226. April 17, 2009 American Sterling Bank
227. April 17, 2009 Great Basin Bank of Nevada
228. April 10, 2009 Cape Fear Bank
229. April 10, 2009 New Frontier Bank
230. March 27, 2009 Omni National Bank
231. March 20, 2009 Colorado National Bank
232. March 20, 2009 TeamBank, NA
233. March 20, 2009 FirstCity Bank
234. March 6, 2009 Freedom Bank of Georgia
235. February 27, 2009 Security Savings Bank
236. February 27, 2009 Heritage Community Bank
237. February 20, 2009 Silver Falls Bank
238. February 13, 2009 Corn Belt Bank & Trust Co.
239. February 13, 2009 Riverside Bank of the Gulf Coast
240. February 13, 2009 Sherman County Bank
241. February 13, 2009 Pinnacle Bank of Oregon
242. February 6, 2009 Alliance Bank
243. February 6, 2009 County Bank
244. February 6, 2009 FirstBank Financial Services
245. January 30, 2009 Suburban FSB
246. January 30, 2009 Ocala National Bank
247. January 30, 2009 MagnetBank
248. January 23, 2009 1st Centennial Bank
249. January 16, 2009 National Bank of Commerce
250. January 16, 2009 Bank of Clark County
251. December 12, 2008 Haven Trust Bank
252. December 12, 2008 Sanderson State Bank
253. December 5, 2008 First Georgia Community Bank
254. November 21, 2008 Community Bank
255. November 21, 2008 Downey Savings & Loan
256. November 21, 2008 PFF Bank & Trust
257. November 7, 2008 Franklin Bank, SSB
258. November 7, 2008 Security Pacific Bank
259. October 31, 2008 Freedom Bank
260. October 24, 2008 Alpha Bank & Trust
261. October 10, 2008 Main Street Bank
262. October 10, 2008 Meridian Bank
263. September 25, 2008 Washington Mutual Bank
264. September 19, 2008 Ameribank

Britain's Best and Worst Banks for Investors

This week is dedicated to assessing the UK's best and worst banks from four dimensions:

• Customers
• Employees
• Investors
• Regulators

Having looked at the banks from the customers’ perspective on Monday and employees on Tuesday, today it’s the turn of the investment community’s view.

Now then, you could say that this one’s easy: Barclays and HSBC are a Hold, Santander’s a Buy, and RBS and Lloyds are a Sell until the UK government get off their case.

It is true that the last two years has meant that the crisis has distorted the picture, and would obviously place Lloyds and RBS in a position of weakness.

Alternatively, you could say that investing in these banks over the past few months would have given you stellar returns compared to Barclays and HSBC, as a small spike in their share price can represent ten- twenty- thirty- percent or more returns on short cycle investment schemes.

But it’s not so much the share price I want to hone in upon, but the overall assets and profitability of the banks.

Therefore, we will look at share price at the end of this blog entry, but start with looking at data courtesy of the Banker Magazine’s database.

You may remember this is the dbase that helped me to blog about the Top 20 global banks 1994-2010, and I would recommend you to subscribe to it, if you’re not already.

Anyways, it’s really hard to make a useful comparison of the banks here, as they have changed dramatically over the last decade, for different reasons.

For example, HSBC has been troubled by Household in the States, but have grown through the Asian powerhouse effect; Barclays has seen BarCap dominate the roost, even more so with the recent integration of the Lehman Brothers USA operations; Lloyds has been a steady rock, until the HBOS takeover; RBS saw a big upside after the NatWest merger but then messed up badly with ABN AMRO acquisition; whilst Santander has seen cost-income rise and fall, as they absorb the acquisitions of Abbey and, more recently, Alliance & Leicester and Bradford & Bingley.

So the picture isn’t clear-cut at all, but here’s a snapshot of assets and capital for comparative purposes (doubleclick chart below to enlarge).

Note that RBS has seen the biggest increase in Assets and Capital – not surprising as they incorporated NatWest’s and ABN AMRO’s $’s – but it’s also worth noting that the 2008 figures would have been far more distorting, so taking year’s at random isn’t necessarily the most useful thing to do.

Just to illustrate that point particularly, the cost-income ratio shows that Lloyds have been best at managing their house ... but Santander would beat them hands-down over the last five-year window, after they acquired Abbey and Sovereign, consolidated platforms and stripped out cost and waste. Maybe that’s why Santander aren’t popular with customers, but they’re definitely popular with shareholders.

Santander’s UK share price: 

 

Royal Bank of Scotland:

Lloyds:

Barclays:

HSBC:

The net:net is that from an investment view, HSBC offered the most stability; Barclays a massive bang for the buck in Q1 2009 and now tracking along nicely; Santander is a bit of a merry-go-round; whilst RBS and Lloyds are more like a roller-coaster.

Nevertheless, as a roller-coaster, you might find far better risk-return rewards right now than taking the low risk option.

Interesting times ahead, especially as the government will one day return these banks to the private sector.

I’ll watch this space for sure.

NOTE

Itzi asks the question: If I invested GBP 5000 into each of these banks shares five or ten years ago, how much money (inclusive of dividends distributed) would I have now?

My answer: it's not as simple as that, as are you looking at £5,000 invested in 2005 or 2010?  In 2005, HSBC would be #1, Barclays #2, Lloyds #3 and RBS #4.  However, if you invest £5,000 in RBS and Lloyds today, I reckon you'll get a greater return than you would from HSBC and Barclays, as these banks will be floated back into private sector just before the next election, and within five years.  When they are privatised, the 70p and 46p share prices of Lloyds and RBS respectively will be more like £4:00 and £3:00 ... a much better return.  If you want to know more, get The Banker Magazine in September, as this is their front page story.

Britain's Best and Worst Banks for Employees

This week is dedicated to assessing the UK's best and worst banks from four dimensions:

• Customers
• Employees
• Investors
• Regulators

Having looked at the banks from the customers’ perspective yesterday, this second part looks at the views of employees.

This view is actually darned hard to find out.

Although there are 400,000 staff working for banks in Britain, it’s very hard to discover any quantitative views of their employers in the public domain.

You can find subjective references, such as these two opposing views from ‘supposed’ HSBC staff:

“At HSBC employees have one credo, if there's anything wrong going on, keep your mouth shut, you never noticed it. A couple of months ago a guy detected major flaws in HSBC systems. Instead of checking it out immediately, managers did not bother for two months. Reason: managers wanted the credit as it would result in promotions. The guy eventually left in disgust as action was taken against him indirectly on other grounds for not disclosing exact details.”

Compared with:

“I read the above review, slightly in shock. All the stories, all the tales, but I wonder how much of it is drama and fiction from previous employees looking for a bit of attention. I work in one of HSBC's UK based customer contact centres, where I 'sell' loans and other lending products to customers from all different backgrounds ... I would highly recommend HSBC over any other UK based banks, especially Barclays.”

Equally, you can find plenty in social networks such as Facebook and Twitter, but nothing of much use.

For example, Facebook has this group for Barclays Bank employees, with over 2,000 members. It describes itself as: “for all those who struggle with the daily grind of working for Barlcays Bank!!”, and cannot even spell the banks name properly. It’s open to everyone, which is why there are so many members, and the posts are generally turgid:

“Please join to CFA UK Society on FACEBOOK if you`re a member or planning to take CFA exam. Exiting offers will be released soon for those who are interested in Banking and Finance career. Thank You”

or whiners about poor customer service.

The discussion threads prove more interesting. For example, the discussions: “Things you most hate about your job” has a bit more kudos:

From Jenny Campbell: “The fact that you have to be a 'B' player (internal grading system) in order to get any kind of career advancement -even when non barclays folk can clearly apply for the role (eg non experienced Trainee Mortgage Advisor).....nice!”

Gets a reply from Ashley Penny: “I think the B/C argument will never go away but really you have to see the purpose behind it. If someone is rated as 'C' they are just doing an average job, which is what they are paid to do. Yes you then have outside recruitment, but that's bringing in some new talent which has to be an option for every business and I feel that closing off promotion (and bonuses!) to C players is only a good thing. Certainly people that I have worked with have responded well to this by raising their game, which is the whole idea. If someone is just doing an average job, should we pay them a bonus? and give them opportunities for career advancement when they arent going the extra mile in their current role? It drives people to do better, rather than knowing they can just coast along and still get a bonus/payrise/move on.”

Followed by Rob Barbour: “In theory the topgrading thing is excellent, but in practice personal & departmental politics come into it. Even in Group Centre HR, which in theory should have been driving best practice for the whole group, people's ratings were basically a reflection of who the directors liked the most, and who had worked the stupidest hours. And even then, you had B5s working their a***s off til 1-2 AM regularly for no overtime, and still receiving a C rating. F***ing disgraceful.”

That sounds more near the mark of true employee transparently communicating ... until you realise these postings are over a year old and nothing much new is out there.

Of course, for a more professional view of the world, we should look to LinkedIn anyway. This was proven by our social media survey earlier this year – LinkedIn is for professionals – and so I delve a little around there.

Unfortunately, it’s also a mish-mash of groups that are semi-active but not much insight.

For example, the Royal Bank of Scotland Group has almost 4,000 members but zero discussion or postings. The ABN AMRO Group has more activity, but it’s all based around Eva Martin, an Accountant at Kerry Brothers Ltd, posting stuff about auditing and accounts.

This is lame guys!

When social networking first started, I could find out lots more about the naked truth direct from bank staff views.

What this really means is that banks have locked down their employees from leaking too much online, by making it clear that if you blab in a social network you lose your job.

Good.

That’s the way it should be isn’t it?

But then there are other things you can do.

For example, LinkedIn can track staff movements and tenure, and they can point out where the Bear Stearns and Lehman staff ended up for example:

So I did a bit of analysis of the UK High Street Banks via LinkedIn, particularly who had left whom for where and a rough calculation of attrition rates. Please bear in mind that this is totally unscientific, inaccurate and probably completely wrong, but here’s what I got:

Line colours: dark blue (RBS); light blue (Barclays); black (Lloyds); red (HSBC); and the thicker the lines, the more folks moving in each direction.

This shows that the main corridors of staff are movers from Lloyds to RBS and Barclays, and from Barclays and HSBC to RBS. I should say that the chart above may be inaccurate, but it does purely look at retail banking movements in the UK for these institutions and appears to be about right to me.

Another source of great input on this is The Vault.

The Vault is for professionals who provide views on their firms.

Their rankings of who’s happy with which banks are ususally pretty robust, so here are their rankings (based upon selecting the main UK high street bank names only):

#1 HSBC (#8 in Europe)
#2 Barclays (#11 in Europe)
#3 Lloyds (#24 in Europe)
#4 Royal Bank of Scotland (#27 in Europe)

According to the Vault, HSBC is committed to a good work/life balance with a "collegiate" culture; it is good for “worldwide opportunities, good for consumer banking” and is “still strong” as the bank that is “most unscathed by credit crunch” which means it “has survived well” and has moved from “previously third tier” to “arguably second tier now”. However, the bank apparently “lacks direction” and is too bureaucratic for individuals to make a real difference.

Barclays is a “meritocracy” with “a relatively flat management structure,” “a good mix of people from different backgrounds” and a spirit of “trying to reach goals and putting all the efforts in to get there.” Employees describe their peers as “open, fair and keen to share,” and from the start, hires “are given responsibility, and it really is up to you how quickly you progress.” In terms of making a good impression, “efficiency matters more than quantity” of work, and those who do well find it’s possible to carve out a niche “if you take the initiative and form your role”.

Lloyds is a bit of a contradiction, with several people feeling its lost its way since the HBOS takeover. They describe it as “a very, very English bank” (with an American CEO!) that can be “slow to adapt to change” due to its “silo-ed and political” structure. On the other hand, some staff think it is a “progressive, intellectually challenging and entrepreneurial culture that embraces change,” with hours that are fairly flexible. Whilst one trader works a 60- to 70-hour week, another worker spends less than 40 hours a week in the office and is happy to reveal that “there is no pressure to work long hours.” With “six weeks’ paid holiday,” private health care and a gym membership discount, it sounds pretty good to me (as a retirement home).

Royal Bank of Scotland has less commentary but is “friendly and open” where “everyone on the team puts in the hours”, but “it isn’t uncommon to put in 60-hour weeks.”

It’s all interesting stuff but there’s another factor here.

All these websites tend to focus upon professionals, management and office workers.

What is the teller’s – or customer service advisor, if you prefer – view?

Hmmm ... using Google most of what comes up is that bank teller’s are all thieves, but that’s just a one-off, not the mainstream.

Instead it's better to look at Working Mums where you maybe start to find the real truth about UK retail bank workers.

Why?

Because when you go into a branch, have you ever noticed that all the tellers are female?

Usually the one male in a branch is the manager.

That’s no problem, after all it’s well known that Britain is a nation of misogynists. In fact, you could argue that banks are doing women a favour by offering such work at low pay (typically, a branch teller gets about £12,500 a year, well below the average annual salary of £23,450), and if you look at this cahrt from Working Mums:

You can see why there’s another angle at play here.

This is because banks offer a highly accommodating work structure for many. For example, looking at the Royal Bank of Scotland, their “promotion of diversity has been recognised throughout the financial industry and beyond”, with a range of awards:

• Gold Standard Award from Opportunity Now (2008-2009)
• Gold Standard Award from Employers’ Forum on Disability (2008)
• Gold Standard Award in the Race for Opportunity benchmarking and first place ranking within the Financial Services sector (2009)
• Shortlisted in three award categories for the Women in Banking & Finance Awards for Achievement (2009)
• Placed in the Stonewall Top 100 Employers Workplace Equality Index for Lesbian, Gay and Bisexual people (2009)
• Placed in The Times Top 50 Where Women Want to Work (2010)
• Placed in the Stonewall Top 100 Employers Workplace Equality Index for Lesbian, Gay and Bisexual people (2010)

All very impressive.

But then I look at the Times Best 100 Companies to work for in Britain, and none of the High Street Banks make the lists. In fact, the largest financial firms that make the list are quite surprising:

#2, Goldman Sachs (must be the bonuses);
#11, down from #3, AMEX (strong management);
#14, down from #8, Morgan Stanley (great leadership); and
#21, Zurich (low stress and good benefits)

So what does this tell us about employee satisfaction in Britain’s High Street Banks?

I guess that staff are happy at a bank that accommodates their lifestyle of low stress, low ambition and low pay with high flexibility, whilst three-quarters of management are getting on up the chain of the bank’s slow staircase of promotion whilst a quarter are on a churn between the four main players.

Sounds like any other industry really.

And if you want to join a bank or understand their culture, my net:net comes from the Vault:

Barclays: meritocracy

HSBC: collegiate

Lloyds: English

Royal Bank of Scotland: friendly