Capital Markets Corporate

February 8, 2019

Our Weekly Newsletter

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Across Instinctif Partners’ Financial Services team, we are always keeping an eye on the key developments taking place across the sector to evaluate their impact on the many businesses we work with. Here we share our picks of the week’s most interesting news, and our expert views.

Bank Hit For Chat Room Market Manipulation

Regulators have hit Standard Chartered with a $40m bill to settle claims of currency market manipulation that reportedly happened in online chat rooms. The reprimand related to online behaviour between 2007 and 2013, where traders “colluded” with each other to devise schemes to defraud other currency investors and artificially move markets to their own ends within chatrooms with names like “Old Gits”. This is the first of several cases that stemmed from evidence garnered within online communities. (From International Investment, 1 January)

Debt Shaming Goes Digital in China

A Chinese Court is using WeChat, the country’s omnipresent social media platform and messaging app, to geo-locate bad debtors. The court, in a statement, said it believed that social pressure could act as an additional deterrent to fines and other penalties to curb re-offending rates. This is the latest in a long line of applications of technology that have been touted by the Chinese state in an attempt to control its people’s behaviour. (From The Financial Times, 3 February)

Plans To Use Public Pensions To Boost UK Biz

The Government has unveiled plans that would see assets within public-sector pension pots used to provide a cash injection to high-growth business sectors. This plan to stimulate the economy will use the windfall generated by the introduction of mandatory auto-enrolment to pump almost £60bn a year into the economy. Critics have attacked the idea, noting that moving assets from blue-chip stocks into smaller regional business exposes pension savers to greater risk. (From SmallBusiness.co.uk, 5 February)

Regulator To Become Guardian Of The Vulnerable

Advisers expect that the Financial Conduct Authority (FCA) will begin formally supervising treatment of the most vulnerable customers to ensure they are receiving sufficient support from financial services firms.  After the much-publicised pension scandals which have resulted in a public awareness raising campaign and a cold-calling ban, the regulator is tightening its focus on measures to support customers who may be exposed by a diverse range of circumstances. (From FT Adviser, 6 February)

Capital Continues To Flow To UK Fintechs

While funding for UK’s young companies dropped last year overall, the nation’s fintechs continued to receive record investment. Recent data found that investment into small business fell from £8.6bn in 2017 to £7bn in 2018, however, fintech and blockchain-based enterprises recorded all-time highs for funding rounds, with blockchain-based businesses reporting a 75% rise in deals from 2017. (From City AM, 5 February)

Bank Accounts Beginning To Come Unstuck

When was the last time you switched current accounts? Statistics suggest it’s unlikely to have been recently – if at all. A 2016 Competition and Market Authority (CMA) investigation, for example, found only 3% of current account customers had moved their account in the previous year, while more than half of customers had been with their bank for more than 10 years.

People have such notoriously ‘sticky’ relationships with their banking provider, they are even said to be more likely to ditch their husband or wife than their bank.

But changes are slowly emerging. Since the introduction of the Current Account Switching Service (CASS) in 2013 – designed to make switching current accounts simpler and faster – over 5.3 million switches have taken place, with almost one million occurring in 2018 alone.

The latest figures show a notable uplift in switches to digital-only or challenger banks: Monzo and Starling won thousands of new customers between July and September 2018, outperforming several big names such as Halifax, Lloyds Bank and Barclays (who all experienced net losses).

But some high-street brands have also benefited from the growing trend, with HSBC and Nationwide securing net gains of 16,430 and 31,773 respectively – demonstrating that the ability to switch is not always prompting a move away from the high street.

Often, customers are only inspired to switch when something goes drastically wrong. This appears to be the case for TSB, which was plagued with IT problems in the early half of 2018 and experienced net losses of over 16,000 customers. But the beleaguered bank argues new customer sign-ups (not captured by the switching data) make up for these figures, with only a minimal proportion actually voting with their feet.

Inertia is still clearly an issue. So if a quick and easy system and attractive switching incentives – ranging from cash gifts and store vouchers to bonus rates – aren’t encouraging people to switch en masse, what will?

Though their market share remains small, the fact relatively new brands like Monzo are outperforming some of their more established peers when it comes to winning switching business speaks volumes.

As the banking sector is challenged by new entrants to constantly innovate and go the extra mile, customers may become more demanding of their provider – and more likely to exercise their right to switch if their service fails to stack up and they can genuinely find better elsewhere.

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