When Lehman Brothers Investment Bank collapsed in September 2008, it triggered a series of events around the world which resulted in the failure of the global banking system over a relatively short period of time – and a €45.7 billion bill for Irish taxpayers to pay to bail out our banks.
Despite the massive transformation of the Irish banking landscape that followed, one fundamental has stayed the same: banks ultimately make decisions in the interests of their shareholders – with customers and local communities playing second fiddle. The creation of shareholder value in the shortest possible timeframe has been the key goal of banks for decades.
Banks will of course argue that they serve the interests of their customers well. The evidence, however, suggests otherwise. Recent years have seen a spate of bank branch closures and the withdrawal, or curtailment, by banks of a number of essential services – so they can focus on more profitable activities and branches.
Banks are increasingly pushing their customers towards online banking and self-service facilities – and thereby losing the personal touch so many people crave
Branch closures have left certain segments of society – including the elderly, poor and those living in rural areas – with difficulty accessing even the most basic financial services. The ability to walk to your local bank has become a distant memory for many. Poor public transport has made it difficult for some to travel to their nearest bank. Something as simple as lodging a bank draft could involve a one-hour return car journey for some.
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Even where a local branch has not closed, the curtailment or withdrawal of key services in that branch can make it difficult for a customer to complete even the simplest of banking tasks. The under-resourcing of bank support phone lines hasn’t helped either – with recent research from the Central Bank finding bank customers are left waiting up to two hours for phone support.
While AIB and Bank of Ireland have hooked up with An Post to allow customers to access everyday banking services in the country’s post offices, this doesn’t fill the gap which the closure of local banks leaves.
Banks are increasingly pushing their customers towards online banking and self-service facilities – and thereby losing the personal touch so many people crave. Even those who are comfortable with digital banking would like to have the option for face-to-face banking when they need it. Recent research by the Credit Union Development Association (CUDA) found that most people in Ireland would opt to deal with someone in person for common banking transactions such as opening a current account, or taking out a car loan or mortgage. The public clearly want both digital and face-to-face banking services in their communities.
Another worrying aspect of the Irish banking landscape is that consumers have much less choice for their daily banking needs now than they did before the banking crisis of 2008
Credit unions for their part are introducing a wide range of digital services to meet consumer demand – but with a clear understanding of the importance of retaining face-to-face interaction for those who want it.
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Another worrying aspect of the Irish banking landscape is that consumers have much less choice for their daily banking needs now than they did before the banking crisis of 2008. Institutions such as Bank of Scotland, Halifax, Irish Nationwide, Rabobank, Danske Bank and Post Bank disappeared from our high streets – with Ulster Bank and KBC Bank soon to follow suit. This has led to reduced competition and reduced consumer choice – which, in turn, has pushed up banking costs for consumers. Innovation in the banking sector is often only driven now by new entrants seeking market share with loss leader offerings – but it is unclear how sustainable this is, especially in a downturn.
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The Government is set to reveal the recommendations of its review of the banking sector. Let’s hope this review is not a lost opportunity to finally put the interests of customers and communities to the forefront and to ensure a community’s ability to access banking services doesn’t come down to how profitable or not that banking service is.
Simply allowing providers of banking services to decide who should have services and who shouldn’t isn’t viable and is unlikely to deliver for communities
A joint effort between Government, State agencies, banks, credit unions, An Post and other providers of banking services is the only way forward. All of these entities must come together and agree who will provide cash services and other, sometimes loss-making, banking services in each community. Joined up thinking is crucial here.
For example, when Bank of Ireland got the green light from the consumer and competition watchdog, the Competition and Consumer Protection Commission (CCPC), to take over billions of euro of loans from departing KBC, one of the conditions of that deal was that it would support – to the tune of €1 billion – non-bank lenders operating in the Irish mortgage market. The CCPC wanted to ensure non-bank lenders could continue to grow and emerge as competitors in the banking sector.
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The risk equalisation scheme in place for the country’s health insurance system is another case in point. Risk equalisation requires health insurers with younger customers to compensate those with older ones. It underpins the principle of community rating – where all customers, regardless of their age or health status, are charged the same price for a health insurance policy (as long as they take their insurance out for the first time before they reach the age of 35).
Such pioneering and long-term thinking is badly needed now in Irish banking. Simply allowing providers of banking services to decide who should have services and who shouldn’t isn’t viable and is unlikely to deliver for communities. The Government needs to put a policy in place which ensures that financial services are available to everyone in society. Otherwise, the same problems will be repeated in the sector again in decades to come.
Kevin Johnson is chief executive of CUDA