Hybrid connection

Ian Rand, CEO of Business Banking at Barclays, delivered the keynote speech at the UK Business Banking Forum 2018, looking at the challenges and opportunities in his industry. Rand sees a “sweet spot”, blending relationship and digital banking models, as the best way to support companies in a future where “SMEs are becoming more diverse, and so are the types of banking services they’re being offered.”

"On the one hand,” said Ian Rand, “we have the local, physical relationship banking model of big banks, emphasising the training and experience of their relationship managers. On the other, we have the digital banking model where emerging fintechs claim to offer everything a business needs through an app. I suggest that neither approach is enough on its own.”

The UK Business Banking Forum 2018, organised by financial services expert RFi Group, drew speakers and delegates from legacy banks, challenger banks and fintechs. Rand sought to explain to the audience “what great relationship banking looks like, what great digital banking looks like and – most importantly – why I think the only sustainable model delivers both.”

Taking the relationship banking model (“a specialist banker, sitting in an office we call a branch, acting as a partner for clients”), Rand used the drama around the collapse of Carillion to illustrate its benefits to businesses, saying: “Nothing beats having a relationship manager who knows their clients and is able to pick up the phone immediately and say: ‘We’re here for you, let us know how we can help.’”

Bankers, said Rand, can become a part of their clients’ extended management team: “It can be expensive, complex, and hard to control when you are relying on the quality of thousands of human – not machine – interactions each day, but relationship banks believe this is a price worth paying for having a true, personal relationship with clients.”

He went on to list the potential advantages of digital banking: the ability to be available 24/7; the availability and speed of digital-only products; and the possibility of focusing solely on specific types of clients. However, he also pointed to some challenges around digital-only models: acquiring customers, scaling, and “something that’s starting to concern me: how digital-only lending providers deal with their clients when they get into difficulties.”

Specialist support

He continued: “At Barclays, we look to have long-term relationships with our clients, across multiple products. We support clients through specialist Business Support teams, helping them to continue to trade if they get into trouble. But we have started to see some of our clients who also have loans from a digital-only lender have very different experiences.

These arise partly because digital providers could see these businesses as single-product, one-time borrowers, not long-term clients. So, they don’t see the need to compromise and negotiate. But there is also a more practical reason: a digital-only model doesn’t bring with it the operational capability to negotiate and compromise.

“If you are a digital-only provider, where is your workout team? Your relationship support team? Your negotiators? Your on-the-ground team who can validate the ability of the business to trade through challenges? They don’t exist.

“One of the challenges of the relationship model is that there is complexity based on human interactions, but that complexity is what gives us the ability to work with each client case by case and support businesses in distress. Frankly, for the good of SMEs across our economy, I think digital lenders have to address head-on how they treat businesses in that situation.”

New opportunities

The hybrid future model Rand sees will grow out of “the two biggest changes happening in our industry: the leverage of big data, and open banking regulation”. The huge increase in the quantity and quality of data is, Rand says, landing with relationship teams. “Within 48 hours of Carillion going bust, we had equipped relationship directors with the details of clients who looked most at risk, based on analysis of their cash flows and trading partners. Some of those clients were wowed when we called them.

“In every interaction, we take a relationship with a client, overlay it with data, and use that to get what we and the client are seeking to achieve. The quality, and quantity, of that data is – as we all know – increasing exponentially, and finally banks are starting to unlock the years of data stored in those much-maligned ‘legacy systems’, using it to really transform some of our client experiences.”

“In general,” Rand said, “we can now help clients understand their performance against their peers, or provide them with insights about their customers that help them run their businesses more efficiently, or identify new opportunities to grow.”

It has long been suspected that the data revolution would provide an opportunity for fintechs and start-up banks, as they gain access to big banks’ data. But Rand sees the opportunity falling to Barclays, already benefitting from scale, to “offer products to clients where we historically could not”.

Understanding business

Rand said: “In Barclays Business Banking, we call this ‘relationship-based, and digitally driven’ - taking the advantages of each model, and using them to support each other.” Customers who open their accounts online or use Barclays’ SmartBusiness Dashboard also benefit from in-branch advice. “People who’ve applied for and accessed instant loans online also come to our branches – often with a printout of the final screen – because they want to talk about their business.

A £15k loan to a plumber is not just a £15k loan. It could be the start of a larger business, or it could be a cash-flow crisis. Either way, they know that they benefit from talking to someone who understands their situation. Someone who talks to people in similar situations every day. And someone who may be able to help in other ways, because they understand products and services the business owner isn’t even aware of.”

He continued: “Part of our job is ensuring that our customers are actively informed about how we can help. So, our plumber with the broken van could be googling for ‘cheap business emergency loans’, and come up with a product from a fintech – but is it the right one?

Did they know they could have had a cheaper asset finance loan, or more flexible borrowing via an overdraft? And who will inform them and help them decide? Our clients have learned to trust that we can help them in other ways than providing products. And this becomes even more important as a company grows.”

In conclusion, Rand said that Barclays first set itself the goal of finding a balanced “relationship” and “digital” model over five years ago: “The temptation now when offering services for smaller businesses is to focus only on the digital experience, but that’s not enough.

They still benefit from a personal relationship – although the right digital offering can also be transformational. If you don’t combine both, you can have some success – locally, or specific to one sector or product – for a while, but I’m not convinced it is a scalable and sustainable model for SMEs and, by extension, the country’s economy. Relationship-based and digitally-driven is the sweet spot.”