With the unprecedented technological developments and innovations, the soundness of the banking system is also affected as new regulations are put in place. In this article, the author elaborates on how the model of Ryanair banking can make banks truly stable and adaptive to the new low-cost service providers, which retail customers demand.
Following the global financial crises and the multi-billion bank bailouts by tax payers, the financial service industry has been trying to find a justification for its own existence; seeking an answer to the question “what is the function of a modern Bank in a liberal market society?” The very low interest lifeline, which banks have enjoyed for a decade at the cost of the cash savings from the ordinary person, makes this question as valid today as it was 10 years ago.
Share prices of most banks in Europe remain sluggish and barely impacted by the strong stock market performance over the last years.
The sad truth is that few if any of the large European banks have generated value for their customers or investors during the past decade. There have been no major technological advances made by large banks for retail or institutional customers. The indirect state subsidies in the form of low interest rates remain in place for the foreseeable future. Share prices of most banks in Europe remain sluggish and barely impacted by the strong stock market performance over the last years.
The one thing that has and is changing the industry is a never-ending wave of new regulations thought up by politicians under pressure to somehow change the industry. Yet instead of improving banking, these regulations increase the administrative burden leading to two detrimental developments. Firstly, it forces banks to misallocate internal resources away from value creating changes to their business model and instead forces them to invest in strict and dull adherence to regulations.
The end customer hence is swamped with an endless amount of new data requests to comply with anti-money laundering, know-your-client rules, et.al. without any benefit for him or improvement to his services. To the contrary, the end customer is totally frustrated with receiving mountains of booklets on new banking regulations, which are binned as quickly as the mail is opened. He is even angered with providing endless additional information about his private life and data at a time when identity theft and its damage are on the rise.