high street banks: LANZen’s five laws of financial motion

By in banking, general, management, products, strategy, uncategorized on Monday, 18 October 2010

First off, my apologies go to Sir Isaac Newton for ripping off his long-running science series. But by only having three laws, I think he may have missed some more, crucial ones.

The Fourth Law of Financial Motion

“For every commercial process, there is a ridiculous and disproportionate cost.”

And nowhere does this ring more true than in the dingy, dusty world of High Street banking. Nowhere is quod erat demonstrandum more absolute. Except of course, the Public Sector.

But its banking I want to concentrate on here. And specifically, opening bank accounts. Because this is truly, eye poppingly, unreal.

The sheer amount of bureaucracy, paper pushing and inquisitorial process could not have been conceived by one person, just doing what’s necessary to acquire a new customer. Clearly not. No, to do things this badly demands a committee.

Before all those bankers leap to the defence of process, let me say one name. Metro Bank.

The exception that proves the rule

I don’t want to concentrate on Metro bank here, I want to talk about the old High Street. Metro gets a mention because they alone understand the Fourth Law and have avoided it. Metro can open a bank account in 15 minutes.

So Metro’s overheads will be lower and each new customer more profitable for less effort. Eureka – we’ve discovered the Fifth Law of Financial Motion.

The Fifth Law of Financial Motion

“Profit is directly proportional to the energy needed move objects from one state to another”

In other words, doing things more quickly makes you more money because you spend less.

You see, every person who touches something in banking – and indeed anywhere else, incurs a cost. And costs subtract from profits.

A real world example

I’ve already shown one side of the equation where a bank without heavy process can open a bank account virtually instantly.

But what about the others, they’re been around a while, they must be better at this, surely?

You could be forgiven for thinking so, but the facts belie that impression. Let me show you.

The Co-operative Bank

I’m in the process of moving my business account from NatWest to the Co-operative Bank. Surely that can’t be so difficult, just a few regular payments and control by on-line banking.

Personal accounts have mortgages, regular bills, pension and insurance payments, etc. How long could opening a business account possibly take?

I hope you’re sitting down. Opening a Co-operative Bank Business Account takes 3 weeks.

Unbelievably, I was using the Co-operative Bank’s “Easy to Apply” service!

The process involves two distinct mind-numbingly long operations before my application can even embark on its 3-week epic odyssey.

Firstly, a phone enquiry begins a long conversation with an agent – she was very pleasant, but barraged me with questions from the financial to whether or not I dealt with bio-chemicals, was part of the arms-trade and then an endless list of ethically-related topics.

An hour later, I was told to expect an email containing some more forms for the next stage. This arrived an hour later and contained a response form to score her on the first part of the process, but nothing more.

I filled this in, emailed this back and queried why I hadn’t received anything to sign. Apparently, that would come in the post, a few days later.

Four days later, my application arrived from a different section of the bank. All ten pages. Guess what, all the same questions again!

Waiting on the Process Police

It’s two weeks in. I’m worrying if I’ve missed something from that horrendous application. Have I triggered another interrogation from the process police, Will my account ever open, will I ever get paid, pay any bills, will I have lost the will to live?

You see, there’s one other factor stalking such processes. And this is another profit blocker. Ladies and gentlemen, I present the 6th Law.

The Sixth Law of Financial Motion

“Profit derived from a process is inversely proportional to its potential to be screwed up.”

In other words, ask too many questions, insist on too big a form and it will get screwed up. Someone will incur costs – banking costs – fixing it.

This KISS law – “keep it simple, stupid” has already been learned elsewhere but has yet to be discovered by our High Street banks. Until it does, we all lose. This brings us to the next law and the primary reason for high costs in banking.

The Seventh Law of Financial Motion

“The value of data is directly proportional to its re-use”

A little obscure perhaps?

Not at all. Its an essential concept. One again lost on our banks. Its meaning is very simple. Just remember. If you already have the information, don’t ask for it again.

That means, if you check on a business’s registered number, for example, you don’t need to ask for the address or name of the directors. Its all there for you. Why ask again?

It just makes you look like inefficient idiots. And you aren’t are you?

One final thing for now. Hopefully, you’ll have realised that there is money to be made by streamlining old, archaic and idiotic processes. But there is one last law to consider if you change everything so its fast and efficient…

The Eighth Law of Financial Motion

“Profit is dependent on constantly improving performance”

This means once you improve your processes, your competitors will improve theirs also. Customers will discover little inertia when changing banks. In other words, don’t screw up!

4 thoughts on “high street banks: LANZen’s five laws of financial motion

  1. 1

    Having read Bank 2.0 by Brett King I am starting to understand why my own bank is so hopeless.

    I have always thought that a retail bank system encapsulates a fairly simple process.

    After 15 years with one bank only now do they tell me that they do not know who I am?

    It took me six months to open an online savings account with RBS and I already had an online account.

    A paradigm shift seems to be occurring and so many of these banks seem very much asleep, many of their systems appear to be stovepipes cobbled together with string.

    Btw. A banking system seems a walk in the park, compared to a tax system with nearly 2000 fields on one single form or 70+ benefit systems that need to interwork.

  2. 2

    Exactly, Stephen!

    You’ve got it in one. Just what I was talking about. Its not about wholesale re-invention, its about re-use of existing information.

    Your bank should have been able to simply update your record to reflect the new account in seconds.

    In programming terms, everything is just about objects (you or I) and that object’s properties (details – name, address, accounts, etc.). All OOP programming. Dead simple!

  3. 3

    Hello, this is a really fascinating web blog and ive loved reading several of the articles and posts contained upon the site, sustain the great work and hope to read a lot more exciting articles in the time to come.

  4. 4

    Thank you – I’m glad you’re enjoying the site and that my English humour isn’t too confusing!