Why I wrote “BankRUPT – Why Banking is Broken. How it can be Transformed”

With the book coming out next week I decided to blog about how I came to write the book, BANKRUPT Why Banking is Broken. How it can be Transformed.

 

The book was a decade in the making.

 

It started when I was traveling in Africa in 2002. I was taking a long needed break from being a technology entrepreneur and was supporting a non-profit working in central Africa.

 

It was my first time visiting a place where the infrastructure was severely lacking; transportation, roads, electricity, water, and health care – nothing worked. Yet even in 2002, many people had cell phones. That is the first time I imaged a world where everyone would have access to mobile phones. And since I had just finished building a technology company, I started to think about what else besides basic communications could be done with all these cell phones.

 

That is when I realized in my lifetime it might be possible for everyone to have access to banking through his or her mobile phone. For people with limited or no access, this would be transformational. For the rest of us, it would just mean more convenience – and potentially lower cost banking.

 

So then in 2005 I went back to technology to build a mobile banking company. I was involved in launching next generation banking solutions in Africa, India, and even in the US. At the same time, I saw how slowly traditional banks were embracing  new models of banking, especially in the US. In fact with the recent financial crisis, things slowed down even more.  Sure we have new mobile interfaces from the banks – but the products are the same behind the scenes. If anything banking got worse with people having underwater mortgages and increased everyday bank fees.

 

During the last 5 years, I saw first hand the struggles within the banks to support innovation.  I have been in countless meetings with bankers all over the world. One thing I have heard over and over again is that when they let their hair down, the universal comment emerges: “We don’t know how to make money from small depositors.” In addition, it was clear there was too much emphasis being put on protecting traditional revenue streams, not enough of disruptive innovation. Even when innovation received initial support, it was frequently bogged down with business constraints and internal organizational struggles.

 

 

So when I retired from my moible banking company in 2011,  I felt unsettled about what was happening with banking, especially in the US. There is a lot of industry hype, but a alarming number of underserved and unhappy consumers.  The big banks have especially lost their commitment to serving everyday people by providing affordable banking services that empower people’s life and work.  In the US the number of Americans opting out of traditional banking is reaching new heights; 106 million Americans are cash preferred.

 

I wrote a book about what I thought needed to happen – especially given the financial crisis. Crisis’ forces change – which is painful, but it can also be good. I want so much to inject a sense of urgency and a big vision for the banks as banks recover from the crisis; a vision of affordable banking for all and a reorientation of the banks to delighting their customers. This is a moment in time similar to the moment when Steve Jobs returned to Apple – a time of crisis that he turned into an effort to build a great foundation for the future.

 

That opportunity is there for the banks. What is at stake is banking for all, global competitiveness in banking, and customer loyalty. For banks to do this, they have to have a culture of Steve Jobs-like innovation within the banking industry. Being about the customer must be in the very fabric of the banks. Banks can follow the example of Steve Jobs, who turned around a failing Apple by relentlessly focusing his company on building great products that customers love, and backing them with unsurpassed customer service. Banks have to be about being great at serving the needs of the consumers and business.

 

The BankRUPT book is appropriate for customers of the banks and for banking industry insiders. The book will demystify the crisis, provide a bigger definition of banking that serves more people, and give new insights and ideas for a path forward. My desire is for the bank employee or executive reader to wake up their latent passion to serve the everyday customers. For the rest of us, it will give us needed insights so we can be better equipped consumers of banking services. For all of us, it will give us some specific ideas on what disruptive innovation is possible.

 

And that is why I wrote the book. I am looking forward to the book release next week – and especially excited about reader comments. I look forward to the dialogue.

 

See the book on Amazon http://amzn.to/HfvGbt

Foreclosures and the lost soul of the American Banks

On January 9, 2009, the Senate Congressional Oversight Panel, which was created to oversee TARP, confirmed the suspicion held by consumers that TARP funds were not “trickling down” to the retail lending market. The panel stated, “In particular, the Panel sees no evidence that the US Treasury has used TARP funds to support the housing market by avoiding preventable foreclosures.” The panel also stated, “Although half the money has not yet been received by the banks, hundreds of billions of dollars have been injected into the marketplace with no demonstrable effects on lending.”

 

Throughout the financial crisis, the recurring theme is that Wall Street saves itself while Main Street is left to wither. There is tremendous popular resentment that the recovery money helped save the big banks, but the banks did not turn around and work very hard to help the average person who was faced with losing their home. Anyone trying to restructure a loan that was underwater experienced this first hand. If they were successful it was not because the banks were helpful, it was because they were able to complete it despite the complexity and push back from the banks. This only made the average American distrust the banks more.

 

Realty Trac, a company that tracks foreclosure activity, announced in January 16, 2012 that more than 5 million Americans were now two months or more behind on their mortgage payments, setting the stage for a record high foreclosure rate this year. One million homes were repossessed by mortgage lenders in 2010, and  2011 is projected to be 1.2 million foreclosures.

 

On April 6, 2012, a federal judge approved the $26 billion settlement deal reached between the nation’s five largest mortgage providers; Bank of America, Citibank,  JPMorgan Chase, Wells Fargo, and Ally Financial (the former GMAC).

 

Banks will compensate some homeowners who were impacted by the robo-signing scandal, in which bank employees signed hundreds of documents a day. The banks committed at least $17 billion toward modifying mortgages for delinquent borrowers. $3.7 billion will go toward refinancing mortgages for borrowers who are current on their payments. This is supposed to help some 750,000 borrowers take advantage of low interest rates. For the people who have already lost their homes to foreclosure, there are payments of $1,500 to $2,000. This is expected to cost the banks $1.5B.

 

$5 billion in fines will be paid to the states and the federal government. Other funds will be paid to legal aid and homeowner advocacy organizations that help individuals facing foreclosure or experiencing servicer abuses.

 

But the beneficiaries are only the borrowers that have mortgages held by the 5 major lenders. Fannie Mae, Freddie Mac, Federal Housing Administration loans are not included in this settlement. Also the principal-reduction provisions apply only to delinquent borrowers is also a sore point for many borrowers. So the people who have been struggling but kept up with their payments despite the situation, will not receive a principle reduction even if their loan is underwater.

 

Banks need to seriously consider supersizing this program. There are so many struggling hardworking Americans that need help. Although the government is forcing this program through a settlement, the banks could do more. Banks have lost so much good will with customers during the crisis. 2011 Gallup survey indicated that only 25% of Americans trust the integrity of bankers. Now the government is forcing them to do the right thing instead of their past practices of robo-signing. Bank CEO’s should be like Steve Jobs when he went back to Apple. Win back the customer’s through doing the right thing. Without customer’s trust, banks will never be great again.

 

Read more about foreclosures and what can be done in BankRUPT – Why Banking is Broken, How it can be Transformed.

 

See this on Amazon http://amzn.to/HfvGbt

What my teacher taught me in grammar school about Banks

When I was in grammar school our teacher gave each student a small envelope, and we were told to save our pennies and put them in the envelope. On the appointed day we were to bring the coin-laden envelope to school so the banker could come get it and take it to the bank.  My teacher explained banking to us. Our money, along with the grown ups money, would help the bank make loans to businesses and families. She told us it was a fair deal: the bank kept our pennies safe, and in exchange they used those pennies to help build the community.

 

I was proud to save my money at the bank and from a very early age trusted that the bank was there to support my life. Fifty years later, the world has changed in many ways, but people still need their local bank to be there to help keep their money safe, save for education, build a future for their families, support their communities, and provide services to small businesses.

 

Yet many people today aren’t sure the bank will support their lives. Today, the Pew Institute reports that a checking account customer may be charged as many as forty-nine different fees.  How can anyone anticipate and understand forty-nine different fees. It is too complex. So even if the fees make sense, it is impossible for the average person to remember all the potential fees.

 

And the mortgage crisis is adding to our frustration with banks. Realty Trac, a company that tracks foreclosure activity, announced in January 16, 2012 that more than 5 million Americans were now two months or more behind on their mortgage payments, setting the stage for a record high foreclosure rate this year. One million homes were repossessed by mortgage lenders in 2010,  and  2011 is projected to be 1.2 million foreclosures.

 

So although there have never been more banks ATMs, mobile applications, and internet banking sites,  people young and old feel disillusioned about their bank. The confidence and support I once felt bringing my envelop full of pennies to class has been replaced by frustration.

 

The bank hides behind pages of fine print. They sell credit cards that charge breathtaking interest rates. They advertise that they are friendly and community-spirited, yet the average person cannot get a mortgage and the small businessperson cannot get a loan.

 

So I decided to write a book about all this (BANKRUPT, Why Banking is Broken. How it can be Transformed).  It is not about creating nostalgia for some imagined golden age. Change is a necessary part of life. But consumers have a right to expect and demand transparency, fairness, and real competition in the banking industry. They have a right to expect that advances in technology that benefit the banks will also benefit the consumer.

 

There is a crisis the banks are facing – the business model that worked fifty years ago does not work now.  Bankers need to reinvent themselves and their industry. They need leadership like that provided by Steve Jobs who went back to Apple when it was close to bankruptcy and insisted that for Apple to be great again they would have to build great products that customers love.

 

Part of the motivation for writing BANKRUPT, is seeing first hand the innovation happening globally around mobile banking. In unexpected places we are seeing banking innovation that could be applicable to our problems. But what the casual observer may not understand is that the change in banking is not just the interface being mobile; everything is changing behind the scenes as well. The banking crisis we are experiencing is an opportunity to look forward to a very different kind of future for banking. We should embrace that opportunity and reinvent banking.

Bring Back George Bailey

In my lifetime the world has improved in many ways, but banking has not. People need banks to be there to help keep their money safe, save for education, build a future for their families, support their communities, and provide services to small businesses. Yet many people believe that banks have lost their way. They have lost something precious: their compassion and dedication to their customers.

The bank hides behind pages of fine print. They sell credit cards that charge breathtaking interest rates. They advertise that they are friendly and community-spirited, yet the average person cannot get a mortgage and the small businessperson cannot get a loan. When tasked with helping American through the mortgage crisis, they worked hard to save themselves but created bureaucratic nightmares for the homeowners struggling to keep their homes.

The nation’s banks are sitting on trillions of dollars in assets and yet they nickel-and-dime the average customer who has a thousand dollars on deposit. It seems that during the Great Recession they figured out how to save themselves, and then how to adapt their business model to increase market share with the richest one percent.

Starting with the home equity crisis of late 2007, the Great Recession has been a long and painful period of high unemployment, loss of middle class wealth, and surging poverty. It may be a challenging market environment for the banking industry, but it is even harder on the people who most need their services. The big banks have especially lost their commitment to serving everyday people by providing affordable banking services that empower people’s life and work.

Banks must change – it is too important. It will not only benefit millions of households in the United States; it will also impact our competitiveness globally. Innovation in banking will help us be more competitive as we operate in a growing global economy.

Bankers need to reconnect with their community. I am an advocate for a different kind of leadership. Leadership like George Bailey from It’s a Wonderful Life. George Bailey lived by the motto “Do the right thing,” even when it meant hard work or required a different way to solve a problem.

As a society, we increasingly bank with a handful of large banks that don’t care about our individual needs. They care about their compensation packages, their careers, and themselves, but they don’t care about their customers. It is a crisis.