Money, banking & insurance

Back to the future for banks

Back in the old days, before credit cards, ATMs and online banking had been invented, the bank manager was a pillar of local society. His advice (it was generally his) was sought, not just for financial matters, but also for anything from getting a job to getting married. These days the role of bank manager has been downgraded, largely to pay for the investment that took place in Internet banking in the 1990s, but also as part of the general cost-cutting that took place over that decade. But things could be changing. The big four banks in Australia are all investing in more branches, new interiors, new systems and even new uniforms. They are, if they are to be believed, also investing in the rehabilitation of the local branch manager. This trend is also happening in countries like the US where local banks are being built and rebuilt in increasing numbers. But why? Surely the next generation (Gen Y) is already at home with Internet banking and new mobile phone-based payments systems are likely to appeal even more. The reason is that people still use branches. Up to 80% of bank customers visit a branch every month. Moreover, older generations age (Gen X and especially baby boomers) are seeking out more personal relationships partly because of the sums of money at stake. And don't forget, it's still the older generations that hold the vast majority of wealth so it's well worth doing what they want. Another reason for re-investing in branches is that physical banks are one of the best barriers to market entry. The cost of developing a branch network, either regionally or nationally, is prohibitibly expensive. So perhaps it's the physical branch rather than the bank manager that's really important. After all, bank managers have little authority these days compared to the past. As for trust this has to be won - and bank managers are rarely in one branch long enough these days to earn it.

From frocks to stocks?

What would happen if the world's largest retailer got into banking services? They already have. Wal-Mart has been processing money orders since 2001 and has been cashing pay-cheques since 2004. It also houses local bank branches in many of its stores. In the UK, Asda (a Wal-Mart subsidiary) even sells insurance alongside the carrots and celery. According to Wal-Mart, such financial services fill a customer need, especially for those customers that don't have a bank account, and the company has no interest in becoming a 'real' bank. Of course, the idea of big retail getting into banking has been tried before - Sears Roebuck tried in the 1980s but this ended in tears. Nevertheless, it looks like Wal-Mart might be about to try. The company has recently applied to set up an Industrial Loan Company in Utah. This is a relatively obscure way of avoiding federal restrictions on banking and could herald a big move into financial services.

American Express goes glocal

We've written about the localisation trend a number of times, including the fact that you can now apply for a credit card from Morgan Stanley in the UK that features either an English, Scottish, Irish or Welsh flag design. Here's another, even more localised, example. American Express has just launched a series of credit cards tied to specific American cities. The 'IN' cards are available to people that live in Los Angeles, New York and Chicago and tie card rewards to local services and establishments. Clever, but an even smarter idea would surely be to segment the card by user as well as geography. In LA there are a series of 'tribes' within Gen Y (for example) who can be identified more by what they like than where they live. So why not produce a series of cards for each city targeting specific attitudinal sets (music fans, car nuts, surfers etc) and tie the rewards to the places where each of these group shops?

Biometric ATMs

In Chile, biometric ATMs using fingerprint authentication are being tested by one of the country's big banks. In Columbia, the country's #5 bank, BanCafe, is already using biometrics as a way of enhancing security on its ATM network, while in Japan, Hitachi and Fujitsu are both developing finger vein-scanning systems (which, it is claimed, are more accurate than finger print systems) for banks and building security. So why hasn't the technology made inroads into markets like the US and the UK? One reason is cost. Another is privacy. Moreover, many people (and banks) feel that existing card-and-pin systems are adequate. Despite all this, the technology has made an appearance in the US, but not in financial services. Biometric readers are already in use in airports, train stations and even at the Statue of Liberty. Whether we like it or not, fingerprint ID verification, finger vein-scanning and iris-reading machines will all be with us shortly.

Weird economic indicators - #1

Want a prediction about the global economy? Then look at the price of copper. The price of oil might have got us over a barrel but, according to some, all is well because we're still buying copper.  The price of gold may be an indicator of global fear and uncertainly, but the more humble copper may the best indicator of future growth. Per pound, copper costs less than coffee, but it's used in everything from televisions to telephones. It's also used in building materials and it's therefore a reasonably reliable indicator of global development.