Ten years after the Irish banks ran out of money, threatening national bankruptcy and a massive bank run that would have wiped out the savings of the broad middle here, what is the future of banking as we know it in Ireland?
The date 2008 is thought of by many in Ireland as the year everything ended. Yet if you look at technology, 2008 is actually the year everything started.
It was the year the global economy began to accelerate, even if it felt in Ireland as though we were hurtling backwards. Due to massive technological change, largely driven by the smartphone bringing the internet into our pockets, many industries – music, journalism, travel and most obviously retail – have been revolutionised. Now it is banking’s turn.
Change is often a generational thing, as one generation abandons the norms of the previous one, tearing up the old rule book and striking out. Internationally, the generation born between the late 1980s and mid 1990s are known as the millennials.
In Ireland, because our financial crash was more severe than almost any other country, it may be more accurate to call this generation “Crash Kids” – those who came of age in our great credit/housing/banking collapse. Their economic and financial experience has been much more traumatic than, for example, Germans of the same age.
In the years ahead, this generational cohort will dictate the way the economy evolves. In Ireland now, much of the focus has been on their attitudes towards housing because they are the ones now caught in the brace of ridiculously high rents and out-of-reach property prices.
But banking is in their sights and, emotionally, the one industry they are likely to seek “revenge” on will be the banking industry. After all, it is the industry that did more than any other to undermine their economic prospects.
Risk
Internationally, the attitude of this generation towards banking should make the boards of big banks everywhere break out in a rash.
A survey in 2013 by Viacom asked 10,000 American millennials about various industries and commercial brands they dealt with every day. It identified banking as an industry at the highest risk of disruption.
More than half of millennials didn’t think their bank offered anything different from other banks. Seven out of 10 would rather go to the dentist than listen to what banks are saying! Over one third were open to switching banks in the next 90 days.
There is a huge willingness to move away from banking, seen as elitist, out of date, fee-gouging and frankly not the sort of brand many young people want to be associated with
The big four banks – JP Morgan & Chase, Bank of America, Citigroup, Wells Fargo – ranked among the least loved brands of those surveyed. Seven in 10 believed the way we access our money would be very different in five years, while 68 per cent felt that the way we access our money would undergo a similar transformation.
In fact, one in three believed that banks would become redundant and that they wouldn’t need one at all. Almost half of the respondents reckoned that the traditional banking system will be overhauled by tech start-ups. This enthusiasm for all things tech was evident, with 73 per cent indicating that they would be more excited about financial services offered by Google, Amazon, Apple, PayPal, or Square than from their own nationwide bank.
If this is the attitude of American millennials to banks, imagine that of Irish Crash Kids, who have seen their parents wallow in negative equity, while foreign banks and funds snapped up all the local property bargains?
Remember the backlash against the AIB campaign about the older couple who had paid off their mortgage? Your brand is about what you do, not what you say.
A 2016 survey by YouGov in the UK showed that millennials were more likely to try favour “challenger” banks than traditional ones, and had different priorities from older customers. They like banks they can contact at any time, in whatever way is most convenient for them, and are willing consider a large number of providers.
A similar report by Accenture in 2015 found that almost one in five millennials switched their primary bank within the previous year. That compared to just 10 per cent of customers aged 35-54, and 3 per cent of people 55 and older.
It's not just traditional banking that has a rocky relationship with millennials. High-end private banking divisions are fretting too. Credit Suisse and others have removed the term "private banking" from their websites and promotional material in favour of "'wealth management", as their clients and future clients have become more socially conscious. (Frankly, I think "wealth management" sounds worse.)
HSBC Private Banking has also observed a stark difference in the priorities between generations. Nearly a quarter (24 per cent) of 20-somethings cited "having positive effect in the community" as their priority, compared with just 13 per cent of their 50-something peers. Furthermore, 45 per cent of the 50s group listed "increasing personal wealth" as a goal, compared with just 38 per cent of their younger counterparts.
So there is a huge willingness to move away from banking, seen as elitist, out of date, fee-gouging and frankly not the sort of brand many young people want to be associated with.
The alternative
But what’s the alternative? The alternative already exists: the hundreds of new payment apps using blockchain technology to clear all transactions. This is the new world.
Innovation normally happens in rich countries and then spreads to poorer ones. But in banking, innovation is going the other way. China, India and Africa are far ahead in their use of mobile payment apps. This is because they didn’t have banking infrastructure and so people have leaped over the West in terms of adopting new apps, using their phones as their bank.
Once you don’t have to use a bank for day-to-day commercial transactions, once you don’t have to use a bank to clear all your bills, and if a bank isn’t paying interest on your deposits, what is the point of it?
The so-called digital wallet – all your financial needs transacted from your phone – is going to take over from the regular bank. It is only a matter of time.
Ten years after the banking calamity that nearly destroyed the future for an entire generation who came of age during that tumultuous era, wouldn’t it be a form of societal vengeance if that generation called time on the banking industry?