Aug 28, 2014 5 min read

Five Finance Things N° 1

Handelsbanken; Cross-subsidy; Regulatory capture; The origins of Venmo; Goldman Sachs.

Responsive Banking at Handelsbanken

Case study alert: pushing autonomy close-to-customer is good for everyone. The FT article linked below and quoted above highlights the growth of Handelsbanken, a Swedish bank, in the UK.

Handelsbanken is different in many ways. It has developed a model that provides a blueprint for other banks emerging from the financial crisis and seeking ways to regain customers’ trust and profitable growth.

Its first point of difference is that it has embraced the Swedish “church-spire principle” – meaning each branch manager is given total autonomy to decide how to deal with clients in the vicinity. Most of these managers, such as Anthony Fogden in St Albans, are bankers with decades of experience in a local area. Unlike other UK lenders – where decisions are handed down from head office to branch managers whom customers rarely see – Handelsbanken allows its bosses to decide on loans and interest rates.

There are no call centres. Customers in St Albans are given Mr Fogden’s mobile phone number and call it when they have questions – even at weekends. The bank does not advertise in the UK – relying on word of mouth to win clients – and has no national offers. The terms of all products are tailored to suit each customer. Anders Bouvin, UK chief executive, says his role is not to tell Mr Fogden what to do but “to support him by providing the infrastructure he needs”.

Cross-Subsidy

That raises the uncomfortable question of cross-subsidy. Borrowing from banks, especially if unplanned, can be very expensive – and the fees levied on overdrafts help raise the money needed to subsidise “free” banking for the majority. Those who enjoy free banking tend to be the better off, while those who pay large overdraft charges tend to be those who are struggling financially….Cross-subsidy is rife in financial services as it is in other walks of life. Banks can offer “introductory bonuses” on savings accounts because they pay derisory interest on many other accounts. Some borrowers can get low-cost fixed-rate mortgages because others are effectively trapped on more expensive standard variable rates.

Cross-subsidy will be eliminated by the unbundling of banks. And we’ll all be richer for it.

Also, after the click, there’s a good read on Wonga, a less-unscrupulous payday loan service.

Regulatory Capture

Regulatory capture is a form of political corruption that occurs when a regulatory agency, created to act in the public interest, instead advances the commercial or special concerns of interest groups that dominate the industry or sector it is charged with regulating. Regulatory capture is a form of government failure; it creates an opening for firms to behave in ways injurious to the public (e.g., producing negative externalities). The agencies are called ‘captured agencies’.

For future reference.

Origins of Venmo

One of the weekends we were getting together to work on this idea, Iqram was visiting me in NYC and left his wallet in Philly. I covered him for the whole weekend, and he ended up writing me a check to pay me back. It was annoying for him to have to find a checkbook to do this, and annoying for me to have to go to the bank if I wanted to cash it (I never did). We thought, “Why are we still doing this? We do everything else with our phones. We should definitely be using PayPal to pay each other back. But we don’t, and none of our friends do.”

Lots of good in this, but of particular note for any clients reading this: there’s a really clear description of user need/user story in the quote above, and a clear demonstration of “Experience Value.” Alex and I have been playing with this idea for a little bit – that there are billions of dollars of value that hang in a very nuanced, very hard-to-describe balance: WhatsApp is not that different than Facebook Messenger, and Venmo is not that different from PayPal, yet in both cases the former is worth something more to users than the latter. That’s Experience Value.

Goldman Sachs' CEO on Responsive Operating Systems

“I think of the culture as the operating system,” says Blankfein, likening it to a computer system on which software programs are added and updated. “Our culture is what allowed us to reprogram ourselves [after the Great Recession]. The operating system was intact.”

This article about how awesome it is to work at Goldman is an amazing resource, and goes to show that not all Operating Systems need to be the same – there are *values* that are irreducible (openness vs. closedness, for example) and *expressions* that change per culture.

Further, proof that companies with Responsive Operating Systems are not necessarily easy places to work, but are great places to work.