It’s time we bank customers started talking to each other in the queue

Matthew Parris

13 March 2010

Matthew Parris offers Another Voice

I’ve been interested in informal banking ever since, frustrated in a long Lloyds bank queue in the West End, I persuaded some American tourists queuing with me to exchange their dollars for my pounds at the rate of interest marked on the notice board. No customer is an island, as John Donne did not quite remark.

But today, when it comes to depositing funds and borrowing funds, our financial institutions are acting as though we customers were indeed islands. It’s time we started talking to each other in the queue.

Banks and building societies assume that they alone can make the link between those with money and those in need of money, taking their cut. But if they are too averse to risk, and take too big a cut, they should beware. The customer is capable — if the inducement grows — of learning new habits of unmediated financial intercourse.

The temptations to cut out the middle man have never been stronger. If you were an individual in search of a loan today, and you knew anyone with money who trusted you, why would you go to a bank? And if you were an individual in search of a reasonable return on your savings, and you knew somebody you trusted who needed a loan, why would you go to a bank?

Two preconditions now exist — and look like persisting — for the very considerable expansion of the informal lending-and-borrowing sector of the economy: for borrowers and depositors, that is, willing to bypass the go-between of the banking industry and deal with each other directly. First, those in search of personal or small-business capital are finding it difficult to borrow except at rates of interest wildly in excess of the minimum lending rate set by the Bank of England. Second, those in search of a home for their savings that will even maintain (let alone enhance) their real-terms value are hard-put to find it.

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David Bouvier

March 17th, 2010 12:30pm Report this comment

While I agree with your broad point about the potential for disintermediation you seem to have completely missed the point of insurance

"Insurance relies on its customers’ failure to trust statistical reasoning."

It is true that the insurer needs to ensure that they charge slightly more than the expected payouts, but I as a customer am not indifferent between the chance of my homing burning down (say, 1:1000 chance of loss of £500k and 999:1000 chance of no loss at all) and a certainty of paying £550 for insurance (vs. expected loss of £500).

Most people choose to pay the £50 extra to pass on the risk to the insurer.

I know that statistically, my expected costs are higher, but the upset of losing the house is more than proportional to the pain of paying the insurance bill.

My statistically expected costs are reduced by not insuring, but my statistically expected contentment is higher if I insure.

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