Are Banks really too big to fail?

Last week the team at Gemic published a very interesting white paper entitled: "We don’t need more credit. We need credit to be more." which referenced some of their recent work with so-called Millennials in the US and Europe. As we know from the likes of a "Occupy Wall Street" movement, this generation is opposed to many current exploitative shareholder value maximisation practices of "Casino Capitalism" - see also here for a very good project run by Claro Partners & Anthemis called "Always in Beta" that explores the future of banking from this emerging customer perspective. A key growth mechanism in the banking game is the role of credit - mostly supplied for instant gratification in the form of a credit card. It seems the tide is turning with younger consumers seeing the credit card as the embodiment of everything that is wrong with banking at the moment. Banks are not seen as partners that want to enable financial freedom and fitness but would rather stick to the "debt drug addict" model - give me just enough of a credit fix to survive without dying of an overdose so I can pay my monthly fees.

Debt is seen as a big dark hole that needs to be avoided at all cost - which is where the story gets interesting from an African perspective. In our extensive work with financial inclusion on the continent we also see this fear of debt informing the often negative perception of traditional banks. What is interesting to note is that these are people that often have very little or no exposure to traditional financial services - so they respond purely from a common sense perspective to the banking value proposition. The other parallel is that banks are not that important in people's lives anymore - we don't wake up every morning and think of our bank. They are a necessary component to participate in everyday economic activities - effectively a commoditised, low value transactional role that can also be fulfilled by any other institution like mobile phone companies as in the case of MPESA or chat services like WeChat that are growing fast. From a customers perspective it's quite simple - either banks keep your money safe to invest or they lend you money - but banks have made their business artificially complex beyond these core functions. This has opened the door for non-traditional competitors like WeChat mentioned above or N26 - and hopefully soon Bettr in South Africa that are simplifying our financial lives by transparency. Also see this post that explores the value of simplicity as a crucial success factor for banks in future in more detail.

The other vulnerability for banks will come from another key driver of financial services needs  that is informed by wanting to save for long-term goals instead of the instant joy of bad debt that most banks ride on. This opens up the door for insurance companies that also want to play a more relevant everyday role in people's lives and are more credible in driving prudent, responsible behaviour based on financial planning. Some of them are getting banking licenses  and will give banks a further run for their money and build some tools for financial savvy that make people ever more immune to the debt story.

But the real financial services innovation - in both the developed and emerging markets - will come from creating alternative institutions that are less exploitative and more equitable in their make-up. Africa could lead the way in this development given that the likes of crowdfunding, peer-to-peer lending, Coop Banking were invented here. This will be powered by alternative credit scoring models, branchless service delivery and new business models, so we invite the millennials of the world to come to Africa and co-create the Bank of the Future with us.