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Challenging the Banking System

The banking industry has changed little since the financial crisis and whilst we see new challengers emerging, what we need is truly ethical alternatives. Bevis Watts, Managing Director of Triodos Bank UK, reflects on the need for a fundamental rethink of what role banks play in society.

A bank is a simple institution. Its basic function is to take people’s extra money and divert it to others who need money to do something productive. This flow of money creates activity in the real economy that generates an income for the bank as the intermediary, which is then distributed to the original savers or investors, or retained by the bank.

Various complexities surround this core activity, but these by-products—from commercial transactions to derivatives—simply wouldn’t exist apart from this back-and-forth movement of capital.

“The reality is that the system is still not working for the majority of people and it will take other new players to really initiate reform”

Bevis Watts, Triodos Bank UK MD

But embedded in this simple flow of money is a moral issue: how should that saver’s extra money be used, and is it in their interests? By and large, banks have chosen to lend that money to the person or organisation that will maximise the bank’s profits. This is the guiding principle of the current financial industry in the UK, but one that we at Triodos Bank think is ripe for disruption.

Financial Technology, or FinTech, has certainly had a role to play in making the word ‘disruption’ part of common parlance in finance. The move towards big data, artificial intelligence and open APIs has created possibilities that were simply unthinkable even just a year ago. There are also many new apps that can potentially change the very interface with our banks.  Some of these innovations offer real added value to us as consumers and it’s exciting to think of what advances might be just around the corner.

Such technological advances have allowed a plethora of new players to develop new products and services, and the better customer and user experiences that these developments offer certainly have the potential to take market share away from the incumbents. We must make sure it’s not the equivalent of redecorating the office: it might look and feel a bit better but it’s still the same old system that prioritises profits over everything else.

The reality is that the system is still not working for the majority of people and it will take other new players to really initiate reform. Current customer satisfaction rates with the high-street banks continue to be low, and a wave of scandals have revealed a banking culture that is primarily self-serving, hence the rise in ‘challenger’ banks.

“What if, rather than profit-seeking, a bank’s mission was to direct the flow of money towards people and projects that would make our world a better place?”

Bevis Watts, Triodos Bank UK MD

In this context, it becomes clear that consumers are restless. For example, a recent consumer survey commissioned by Triodos showed that six out of ten respondents (61%) want to know where their bank lends their money, but three quarters (75%) of people are unaware of where it actually ends up.

We think that banking needs more than a facelift, it needs a fundamental revision, a version 2.0. What if, rather than profit-seeking, a bank’s mission was to direct the flow of money towards people and projects that would make our world a better place? What if the recipients of finance were the ones who would generate economic activity that benefitted the common good, and not just the good of the bank or its shareholders?

This is the type of change that we are bringing to the banking system, and what we think is the truly disruptive element of our mission. That’s why we call ourselves a challenging bank: we’re not just challenging the established players for market share, we’re fundamentally challenging the way banking is done.

Triodos Bank enewsletter

One of the ways that we are challenging day-to-day banking practice is by publishing where all of our funds entrusted are being used. This is core to our ethical commitment to transparency and ensures that our depositors know exactly who and what is benefiting from their money. It means that someone can clearly see that Triodos actively supports things like an independent food market in Brighton, and an arts centre for the elderly in London, and renewable energy in Scotland. In a financial world of profit maximisation, choosing to direct capital to social and environmental outcomes is truly disruptive. It’s exactly what we need if we are going to create a more equitable, fairer society.

In my view, the current financial system absolutely does need to be challenged, and I’m hopeful that the cracks that are starting to appear in the current system will turn into fissures. Many FinTech, and challenger banks are helpful as a phenomenon because they are chipping away at the unthinking loyalty that many in the UK have to the established banks. Yet we need to ask: why do these challengers actually exist and who is benefiting from their business model? Are they financially, socially and environmentally sustainable? And most importantly: where does savers’ money go and does it benefit that saver’s non-financial interests in the long term? It’s only when we challenge the industry with these questions that we create something truly disruptive.

This article originally appeared in Ethical Consumer.

Find out more about the Triodos Current Account, everyday banking with values.

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V Lloyd-Thomas 2 months ago

Its a step in the right direction, a better solution would be a paradigm emanating from the few who control all the wealth of the world, to show and live by compassion and equality for all species, not just humans

Margaret Clarke 3 weeks ago

Urgently needed!

John Southern 3 weeks ago

I am glad that a banking institution is saying things need to change. If someone like me says it I am dismissed as a pie-in-the-sky liberal.

Chris Rolls 3 weeks ago

The real challenge is to convince billions of aspiring people in Asia and China that they cannot duplicate the same wasteful lifestyle that we have in the West.

Susan Dennis 3 weeks ago

It’s a great idea. To borrow from a Bank you need capital. Is this true?

Clive Buckland-Bork 3 weeks ago

Yes, how savers’ money is used is an issue, but more fundamental is the big banks’ ability to legally create money on a computer screen as loans, with no requirement for them to have an equal amount in reserves or money coming in from savers.
And the banks will for the most part only create this money for borrowers who can secure their loan against property. Hence the property mortgage bubbles, and the banks’ woeful record on lending to small business as a whole, let alone green/eco/social-care business.

Governments around the world have had their hands tied with regards putting money directly into the economy, and instead seem to have to go down the Quantitative Easing route (due to hidden pressures from the banking industry?) – and again QE gives the major banks the power to make the decisions as to whether the QE money will ‘trickle down’ into the real economy, and which projects or businesses will be supported.

Triodos’ model of responsible and ethical lending is a significant step forward, but the fundamental banking reforms need to go far deeper if the legacy of Fractional Reserve Banking and the control exerted by a few hundred banking directors around the world is to be taken back into the hands of ethically and ecologically sound governments. But Triodos’ model of the interface with the public appears to be a good one.

I’m hoping that Triodos are already aware of the work of http://www.positivemoney.org who have been working with cross-party parliamentary committees for a few years now, and who have thankfully done much to re-write the economics textbooks in our universities. Where prior to 2010 thinking was largely dominated by false information that shrouded in mystery the true role and level of control of the major banks.
The well-informed people at Positive Money can deliver this information far better than me, and I would love to see an article involving the Positive Money team here on the Triodos website about the deeper aspects of banking reform.

Reply to Clive Buckland-Bork
Serena Inskip 3 weeks ago

Yes I do HOPE Triodos knows about Positive Money! People need to work together. Their work in education resources is essential. It is nothing less than criminal to misinform students about banking. And I can only live in hope that emerging economies will be enlightened enough to create banks which work for common good! Mind sets are always hard to change. Keep on teaching the children I say.

Reply to Clive Buckland-Bork
Helen Kinsey 2 weeks ago

Thank you for writing this. It echoes my thoughts. Please Triodos, could you do an article on positive money ?

brian O’Donnell 3 weeks ago

The thought ‘why didn’t this happen years ago. springs to mind.