Australian digital bank banks Xinja literally threw in the towel in December last year after essentially admitting that in the current environment its business model just didn’t work. This was a rather extraordinary admission by a start up digital bank. After all the objective in starting a business at its most basic is to make money and the failure to achieve this seemingly quintessential requirement seems to be a rather too common similarity in this sector. The Global Data analyst that wrote about this made a somewhat unflattering parallel with start up Monzo claiming that the similarities in business models, high deposit rates and a focus on peripheral fee earning services were no substitute for a solid interest differential. Monzo has been very successful at attracting clients to the liability side of the balance sheet but not so successful at deploying them as interest earning assets. This is of course mainly due to the ubiquitous problem caused by central banks across the globe of QE and interest rates approaching or even below zero. This is a problem that will have to be addressed at some point but right now it seems to be the only answer to an unsolvable conundrum. Central Bankers and the regulatory cohort have broken the global banking system and concentrated the worlds assets in the hands of very few beneficiaries.
As if you needed more evidence that the world banking systems has some very intractable problems along comes TSB with a huge loss to hammer home the point. TSB is of course not a minnow but nevertheless only small by comparison with the big players and is wholly owned by Spanish giant Sabadell but it ascribes quite a lot of the losses to government interventions relating to COVID and near zero interest rates. ( see above) As far as Sabadell is concerned I would imagine that it has problems of its own due to the impact of COVID on the Spanish economy and a dysfunctional and overvalued currency to deal with. On a related subject I see that JPMorgan is moving ahead with its digital venture. I must say it is brave of them as nobody else seems to be able to make any money and that includes the real success stories Starling, Revolut etc. Perhaps JPM have another kind of motivation, enlarging sterling deposits perhaps. As I have mentioned before the US somehow seems reluctant to fully espouse technology at retail level quickly. Even telephone technology took some kind to get up to speed.
I sometimes wonder if the UK is going back to the world as we knew it in the 1970’s with the government interfering in every single aspect of our lives to everybody’s disadvantage. In the 1970’s even buying a television required a massive deposit as the government tried to rule the life of every citizen. Of course Buy now pay later is a form of consumer credit and is currently not regulated. Apparently there has been a surge of activity during the past twelve months and the FCA wants BNPL lenders to adapt ability to pay checks as somehow or other this activity will turn into a surge of bad debts among particularly younger people. However I can’t help thinking that these schemes at least stimulate the economy and there are real commercial transactions taking place. The FCA might be better off looking at the huge expansion of on line gaming which has no such underlying advantages and just leads people into unsustainable gambling habits. In case the FCA hasn’t noticed retail interest rates are already way to high and further regulatory costs will only increase that finance cost which will have a negative impact on retail which the buying public will bear.
Howard Tolman is a well-known banker, technologist and entrepreneur in London,
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