Search This Blog

Sunday, 16 November 2014

Could the oncoming end of the brick-and-mortar bank shops eventually become the end for the current bank establishment in The Netherlands?

It is just less than 40 years ago, when almost every small town in The Netherlands had one of more bank offices with a cashier’s function.

When you wanted to save money, you took your piggy-bank or your cash wages, as well as your deposit booklet, to the bank and made a physical deposit, which was quoted in that very booklet. And when you wanted to withdraw money for the weekend, you better be at the bank before four o’clock on Friday: otherwise, having no money meant having no groceries for the weekend. Unless you could use the warranted bank cheques that almost everybody used in those days, of course!

Every bank had a cash desk, where you could order foreign currencies, like Deutschmarks, Pounds Sterling or Belgian and French Francs.  And if you wanted a personal loan or a mortgage, you made an appointment with a stringently looking fellow, who assessed you and made an estimate based on his gutfeeling, whether you could pay back the money or not eventually.

Banks were stately organizations in those days, with a somewhat stuffy appearance, and bankers belonged to the notables of their places of residence: people with prestige, who were in high esteem.

However, since those days five developments would dramatically decrease the importance of the physical bank office for the banking industry:
  • The ‘electronification’ of the salary payments in The Netherlands;
  • The introduction of the Automated Teller Machines (i.e. ATM’s) and automated deposit machines;
  • The introduction of the electronic payment terminals in shops;
  • The introduction of the Euro, which annihilated the demand for foreign currencies;
  • The introduction of internet, as the perfect medium for doing almost all banking business. 

These five developments all made – in their own respect – that bank offices changed from indispensable distribution centres of cash money – in all necessary currencies – and customer service points, which offered a job to many bank employees, into increasingly superfluous and unpopular bank shops.

Especially internet offered a relatively cheap and very reliable way to do almost all banking business from one’s home or office. Why bother to go to a bank office, when you can do almost everything that you want from the comfort of your favorite chair.

Many teenagers nowadays do not realize how the electronification of money flows and the internet totally changed the face of banking in little over fifteen years:
  • They would probably laugh out loud when they would see the very slow, unreliable and interference-sensitive teletext and viditel ‘Telebanking’ solutions, that their peers used in the Eighties and Nineties of last century.
  • And they would surely be astounded, when they would visit a branch of the Russian Sberbank, which looks exactly like a Dutch bank office in the seventies. 

Although the large Dutch banks often seem to pretend that they were taken by surprise by the consequences of the success of internet banking, in reality this has become the epitomy of their long-term strategy to strongly reduce the number of expensive, physical contacts and physical operations in bank offices.

Every closed cash-desk, every removed ATM, every closed bank shop and every reduction in customer-service personnel saved the banks a lot of money: money, which subsequently could be used for the development of new and improved internet services, that would beat the competition.

The unstoppable rising of internet, during especially the last decade, changed the modern Dutch banks from massive, but yet extremely cautious users of Information and Communication Technology (ICT) into front-runners of internet development. In the six years that I worked for ‘my’ large, Dutch bank, this company went through an unbelievable paradigm shift, turning it into an modern and very technology-driven company, which builds and deploys new software twenty-four seven and all year long. And so did the other large banks.

The amount of banking services, available through internet, has soared during this last decade and it will continue to do so in the coming decade, until 90+% of all banking services is available online and physical contact will become a rare exception. Inevitably, this unstoppable development of internet banking led to a strongly diminished number of physical bank visits and consequently, to a strongly diminished number of bank shops. The bank shops that remained open, often lead a lingering existence, with yet too many customers to close down, but too little customers to stay open all day. Many of these bank shops will be closed down after all in the coming years.

Although this development seems favourable for the renowned, large Dutch banks (‘less bank offices mean less personnel expenses, which will lead to more profits eventually’), in reality it hosts a disguised, but nevertheless very palpable hazard for their sheer survival.

The bank offices have always been exclusive and very visible expressions of bank presence. People often bonded with their banks during their childhood, through such offices. At many occasions, their relations with their bank lasted longer than the relations with their loved ones did. Banks were trusted advisors and many decisions were only taken by people, after they received the green light from their account manager at their local bank.

In other words: a bank, which presence you saw in your favorite shopping centre, was a bank that you probably trusted more than any other bank. It was there – at a physical place –  where you could visit it, for advice and help; for instance when financial matters didn’t go as you planned them.

Nowadays, however, banks turn more and more into ‘internet labels’ for many people, as their physical presence is strongly diminishing and people increasingly do their bank operations online. But with the disappearance of the physical bank offices of the renowned Dutch banks, the loyalty of their customers will also disappear. In my humble opinion, this is an inevitable consequence of the current developments. Although I can’t prove it, I think that the ‘internet label value’ of the traditional Dutch banks – like Rabobank, ABN Amro and ING – is not per sé much stronger than the label value of new online banks, like Binck Bank, Alex Vermogensbank, Knab or Leaseplan bank, at this very moment.

To put it even stronger: the disappearance of the physical bank shops, operated by the large Dutch banks in the Dutch towns and cities, could make it easier for renowned and ubiquitously visited internet companies with banking ambitions (i.e. Paypal, Amazon, Google, Apple and Facebook) to conquer the Dutch banking market.

Every professional and globally operating online company, with a good reputation, an elaborated electronic infrastructure and excess cash, could ask for a Dutch banking license in order to offer plain bread-and-butter, retail banking services, like:
  • Savings & loans;
  • Mortgages
  • Credit cards
  • Small and Medium Enterprise loans
  • Insurances
  • Other simple banking services.

One should not forget that many ICT and online services companies, like Apple, Google, LinkedIn and Facebook sit on a huge stockpile of cash, for which they hardly have a purpose nowadays. And although it is not easy to start a bank in The Netherlands or elsewhere, for these companies it is probably a piece of cake:
  • Many of these globally operating online service companies already offered near-bank, financial services in the past and present and have ample experience with a financial infrastructure;
  • Experienced bankers, operational risk managers and ICT-engineers with specialized banking experience can be taken over from the current banks;
  • The popularity, market penetration and marketing infrastructure of these online services companies are often much better developed than those of the current banks;
  • Such companies don’t carry the burden of the 2008 credit crisis and did not lose their trust and reputation during it;
  • The exploitation of their vast ICT infrastructure and internet hosting services has always been their "specialty-of-the-house", at which they are probably much better than many of the current, large banks.

On top of that, a bank could become a stable source of future income and profits, when the original products and services of these online companies get out of fashion, under influence of future competition. It does not matter how these companies earn their money, as long as they do earn it!

And last but not least, the name and reputation of these companies are improving by the day:

People, who use Google, Apple and Facebook every day on their smartphones, iPads and computers are very likely to trust these brands so much eventually, that they even want to outsource their banking affairs to these companies. 
This could be especially true for the current generation of youngsters, that is used to doing EVERYTHING online and does not have their parents’ emotional attachment to the traditional banks. 

And so it would be the irony of fate, when the development which currently seems to make the traditional banks more resilient and profitable, could eventually become the end for the classic banks as-we-know-them.

1 comment:

  1. Interesting Ernst! I think that of the three (Apple, Google, Facebook) Apple by far has the best chance of succeeding because they already own the future wallet (Apple Pay). Facebook has a bad reputation on privacy (would you want them to integrate your cashbook with your timeline?) and Google even more so.