This post is by Howard Tolman, posted in my name due to a tech snafu.
Why this matters: This is yet another example of financial commentators strongly advising the government that companies that cannot support themselves and are only still in business because of ultra low interest rates should be allowed to wither on the vine and not gobble up precious resources that should be used for more productive and profitable start ups. It is of course also common sense. It is governments the world over that have created this crazy situation of zero or sub zero interest rates by the dubious device of Quantitative Easing or money creation. They are of course hooked on this particular drug and don’t know how to manage the come down. Nobody knows how this is going to end in the long run. Yet this is a situation that the Alt Lenders, The digital new kids on the block are going to have to have to manage if they want to take advantage of the still emerging world of central bank stimulus packages during and after post covid. In this environment credit and credit science applications are being built and tweaked by very clever people indeed but the only problem is that the assumptions being used are pure hypothesis. We have never been here before and we cannot therefore rely on historical information to be the guiding light. However in the long run I can see only good things coming out of more stringent data capture and analysis including psychological profiling. At the moment we are in the middle of a very steep learning curve in what is an unprecedented business cycle which has not yet gone through the full cycle. A few bumps can be expected on the way.
Why this matters: I cannot speak for continental Europe but in the UK what happens across the pond has an unerring habit of suddenly catching on here. In the banking business Europe is however somewhat more technologically advanced that our American cousins. This is why I found it interesting to look at the content of an article from the Payments website which organized a panel discussion on lessons being learned from the COVID pandemic stateside. The was general agreement that in the early stages of the pandemic most credit unions found it very hard to provide the cash that their clients wanted to withdraw but only a few weeks later those same clients were returning and paying the cash back in. Another example of the fact that contactless card transactions were accelerating in their usage a trend which has also been seen in spades in Europe as the use of cash was just another vector by which the virus could be spread. This together with the, also related tendency for clients to save in uncertain times was also driving the use of debit rather than credit cards. In addition credit union clients are doing exactly what we Europeans are doing and switching to online shopping. As far as cards are concerned Ease of Use is absolutely paramount. Interestingly immediacy is also very important with an emphasis on what the client wants right now rather than vague aspirations of what the future might hold. This of course could be partly to do with the other non Covid problems such as riots and wildfires which they have been dealing with lately but there is also a recognition that building successful incentive packages can also be a compelling offering. Credit Unions like other more traditional banking methods are also facing competition from digital lenders and are therefore upping their game.
Why this matters: It is rumoured that the two largest banks in Switzerland UBS and Credit Suisse might just be on the cards. Although it would be the biggest bank merger since the 2008-9 financial crisis it would not ruffle the feathers of the leading American players as in the words of one American Bank leader stopped worrying about these two institutions years ago. But nevertheless it would still be a big deal in Europe and could fire the starting pistol to a whole series of European bank consolidations. The head of UBS at an event in Zurich in late 2019 stated that “ the question for Swiss and European banks was no longer too big to fail but “ too small to survive”. That the CEO of a bank that manages several trillion $ of assets should even consider making a statement like this is extraordinary. A merger of the two largest Swiss banks would be very bad for competition, innovation, and another step along the road to the elimination of the whole middle market of European banks. A one way trend where everything just gets bigger is not necessarily such a good thing. Consider the British Health Service. Competition exists in the Alt lending and digital banking markets but it is disappearing further up the food chain who can just sit and wait for the minnows to fight to the death and then pick up the remains at bargain basement prices.
Howard Tolman is a well-known banker, technologist and entrepreneur in London,
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