How Banks Are In the World's Future
Christine Lagarde : [Source: http://www.flickr.com/photos/christinelagarde/4325212919/sizes/z/]
Christine Lagarde's inspirational address at the World Economic Forum pointed to some cold, hard facts about the year ahead: First, every country - whether developed or frontier market - must work to ensure that reforms stemming from the Global Economic Crisis take root.
Second, a strong and lasting economic recovery occur leveraging factors from a number of fronts: fiscal, structural, and financial. I think a very important player in the global economic comeback is the financial services institution.
To be sure, regulators and policy-makers from every country have worked very hard during the past five years to prevent, as Lagarde termed it, the Great Depression Part II. But it's the role of banks, and particularly the consumer-oriented commercial banks, that are vital to creating an atmosphere that encourages people of all socio-economic levels to save for retirement, invest for their families, and borrow funds to buy homes and build businesses. A statesman once said that the business of his country "is business." I see what he means. When people of all stripes are saving and spending with banks as their user-friendly intermediaries, the entire economy benefits from their actions.
We used to look at financial services as a rarified sector. Banks were special stewards of the communities they served. The local banker knew the people in his town not unlike the local storeowner. Banks lent money with the assumption that a lot of the economic activity those funds created aided the local population. As mom-and-pop stores gave way to impersonal retail chain stores, so, too, did community banks become parts of large national and international chains. Sometimes certain financial products that were offering to a community didn't quite fit the consumers there, but it didn't really matter: The economies of scale achieved by enormous banking chains justified the one-size-fits-all approach.
Yet retail chains and banks both discovered that to succeed in a new era they must get to know their consumers again. The partners we work with are keen on understanding how their customers bank and what kinds of services they will require - often before they even need them. The world has been buzzing about Amazon.com's latest efforts to create customer profiles that help the company anticipate what those people will order in the next few weeks. By shipping products before they're even ordered, the retailer thinks it can cut down even further on delivery times. Smart banks essentially are doing this. If they know a customer has opened a checking account for a small business, they connect the dots to the extent where they offer that person a small business loan and begin to discuss wealth management and tax preparation services. The customer is often quite impressed if she begins to develop the perception that the bank is responsive to her needs and expectations.
To that end, a bank also has to get to know itself. That's why it's important that financial services institutions begin to be as responsive to themselves as they are to their customers. What I mean is that they need to develop robust stress tests and asset-quality reviews so that they can restore their long-term viability and health.
Another thing buzzing about is Lagarde's mention of how low-income countries have become a bright spot for the rest of the world's financial system. The frontier and emerging markets are creating a whole new banking system. They have been amazingly adept at fashioning communications and marketing tools with new consumers through their penchant for mobile telephony. Even if these customers don't have Internet connections, they can still perform a wide array of banking functions over their mobiles. Did you know that Africa is posting a rise in annual output of 5 percent? That's more promising than some of the most developed regions!
Consider what the prime minister of Japan, the world's third-largest economy, told Davos participants today: that Japan is breaking free from chronic deflation and getting back on track with fiscal consolidation. Prime Minister Shinzo Abe said in a special address that Japan is engineering a dramatic turnaround. The country is posting positive expansion in the first three quarters of 2013 all the way from negative GDP growth in 2012. They couldn't have done it without the inclusion of everyone who uses banks to realize their dreams. When financial services institutions respond deftly to consumer's needs, they create an atmosphere in which all things become possible.
Banks serve such an important role not only in the world economy, but our individual communities. They help create job growth and encourage people to lift themselves out of poverty.