EPISODE 1 TRANSCRIPT
Purpose-led banking: what does the industry stand for?
Ashok Vaswani, Chief Executive Officer, Consumer Banking and Payments, Barclays
Juliette, thank you so much. I am so delighted to be here. My name is Ashok Vaswani. I work with Barclays and really, really nice to be here with you guys every year, and this year in particular.
I thought I would concentrate my opening comments in the space of purposeful banking. Why is purpose important in banking? Why it is even more relevant in this day and age, under the particular circumstances. And what does it mean for different customer segments? Of course, what we have done about this and how we are thinking about this. And hopefully that forms the basis of a very interesting conversation and later a good Q and A session.
So I have been convinced about purpose for a long, long period of time; right? I really believe that every single company, not just a bank, every single company must cater to a societal purpose. And the reason I say this is not because this is a good thing to do or this is a CSR kind of activity.
I really believe that every single company, not just a bank, every single company must cater to a societal purpose.
I would submit that this is a business model, an essential tool of a business model. Now, why do I say that? The reason I say that is primarily because if you think about it, what is society? At the end of the day, what is society? And one definition of society is: it really is customers plus prospects. And if society is equal to customers plus prospects, then doing things right by your customers or doing things right by prospects, so that they become your customers, has to be the right thing to do; right?
And so understanding, truly understanding what are the pain points of society, i.e. customers and prospects, and in operating those pain points into your business model, into the way you kind of think, into the various products and services that you deliver, becomes so critical.
Also, this has no correlation to the way you charge, the amount of money you make and stuff like that. We all know of many, many companies which truly solve a pain point for us and if they truly solve a pain point for us, we are willing to pay and we know that we are actually paying quite a healthy amount, but yet because they are solving that pain point for us, it works for us.
You know, let’s take Apple for example. I know everybody quotes Apple but let me quote Apple in a particular context. What Apple fundamentally does is it makes the use of technology extremely intuitive, and because it is so intuitive, in fact so intuitive that none of the Apple products even come with a training manual; and nobody can accuse Apple of being cheap, right? But because they make the technology so intuitive, we are willing to pay for it.
Think about Netflix. They provide you entertainment right into your door, and you are willing to pay for it. You are willing to pay for a subscription, even if you are not using enough movies on Netflix on an ongoing basis.
So I could go on. Amazon Prime. You are willing to pay that fee every single month. You may or you may not use Amazon as much every single month.
So if you are solving a pain point for a customer, the customer is willing to pay for that particular pain point; and if you are solving, really understanding your customer and your prospects well, you are looking for a societal problem and therefore I come back to the fact that establishing a purpose and getting your purpose in line with a societal problem will only help your business model.
If that is true, then the natural question comes: what is a societal problem that your particular company, and in our case obviously Barclays Bank, is really trying to solve? And we had various activities around that purpose for a while. But during the Covid crisis, during this entire pandemic, that has come into very, very sharp perspective.
What is a societal problem that your particular company is really trying to solve?
So let’s first try and understand: what are our customer segments doing, what are they going through and what can we do to understand their pain points, so that we can meet their needs?
So if you think about the pandemic and you think about it at the kind of broadest levels, what has happened during the various lockdowns, let’s say lockdown 1, lockdown 2 and lockdown 3, economic activity has decreased quite significantly. You will have read in the press that the GDP of the UK declined by about 10% in 2020, and you had to go back many, many, many years to actually find a comparative decline in GDP; so a very significant hit on GDP. In fact, during lockdown 1, economic activity fell much more and consumer spending went down for that period up to 45%. Lockdown 2 was a little better, when consumer spending was down like 25% and we are still measuring what the impact is in lockdown 3.
That in itself tells you how the whole country had started gearing up, had worked in those six months to ensure that the impact of the lockdowns, and the impact of any future lockdowns, was far lower than previous lockdowns and I will come back to that point, because it is a very, very important kind of point.
So significant reduction in economic activity:
- GDP down 10% for the year.
- Lockdown 1, 45% consumer spending down.
- Lockdown 2, 25% consumer spending down.
- Lockdown 3, still being measured.
So how are our companies thinking about this and what is the impact on the various customer segments? For the sake of simplicity, let’s just put the customer segments into three categories: large corporates, SMEs and then consumers.
If you think about large corporates, what large corporates have had to do is actually pivot a lot of stuff online. They were better suited at doing this, because a lot of them had already started on that particular journey, so it wasn’t starting from a fresh sheet of paper. But they had to actually pivot all their activities from physical to online, whether they were consumer facing or whether they were business to business, how do you pivot everything online? In pivoting everything online, they had to worry about things like obviously logistics, how do you kind of really gear up your logistics? But most importantly, they had to think about things like payments. They had to think about things like: how do you actually provide financing at the point of sale and how do you start doing these things at scale? So many, many large corporates then decided: hey, look, it’s possible that we are not going to come back into these mega retail stores and stuff like that, and across the board we have seen a large number of corporates actually saying that: we are going to shut down our on street, high street kind of presence, whether that be companies who have unfortunately gone out of business or companies that are saying: we don’t need this kind of physical presence, we are going to cut it down and think about our business model quite differently.
But from a banking perspective, what has become very clear is that these companies have had to become, to some extent, financial services companies:
- Being able to accept payments at a completely different level, at a much more granular level.
- They have had to plug into the payment system
- They have had to be able to give financing at the point of sale.
It is therefore no surprise that financing at the point of sale or “buy now pay later” as it is well known, has kind of skyrocketed during this pandemic period. So that’s as far as corporates are concerned.
What is happening to the SME community? In fact, the SME community has frankly taken the brunt of this whole pandemic. If you think about the SMEs, they were less geared up to doing things online. In fact, their selling point was: we are the local neighbourhood pastry shop, co‑op place, pizza place, haircutting salon, gym, you name the kind of trading. And therefore, for them to have gone online has been much more difficult.
The SME community has frankly taken the brunt of this whole pandemic.
So in fact, when we talk about lockdown 1 and we talk about a 45% reduction, we see that large corporates were far lower, that’s like 35, and SMEs were like 53; right? So SMEs have taken the brunt.
But what is very interesting is that the SMEs quickly realised that they had to go online for their survival. They have also realised that going online all by themselves was going to be very, very difficult, so how could we hop on to the bandwagon of last mile providers and if we can jump on to the bandwagon of these last mile providers, we will be able to continue to trade and do business. And that’s why you have seen things like Amazon Marketplace, Deliveroo, Just Eat, really, really take off. Now, these last mile providers have suddenly found value, have suddenly found a niche which allows them to charge a very healthy margin for the services that they provide, i.e. to deliver in the last mile.
So the SME impact from minus 53 into the second lockdown was far muted, at about 35, 36; right? So you can see the mutation kind of coming along. It also, like I said when I first talked about the statistics, it also tells you the level of digitisation that has happened through the economy in just a very, very short period of time. From March to December, only nine months, the impact of the consumer spending has kind of reduced from lockdown 1 to lockdown 2 and that really is, largely speaking, a function of the level of digitisation that has happened in the underlying economy.
So what has happened to our third constituent, which is the consumer? The consumer frankly has behaved, as always, extremely rationally during this pandemic. And what the consumer has done, and this is my phrase, not necessarily all‑encompassing, but the consumer has effectively created a cocoon. So the home has become the consumer’s cocoon and the consumer is being very sensible about what he allows into the cocoon or what she allows to leave the cocoon or how she interacts with anything outside of the cocoon, and how she helps her family to think about interacting with anything outside of the cocoon.
The consumer has effectively created a cocoon.
That’s why it’s not at all surprising that things like Amazon, Deliveroo, Netflix, mobile banking, have all suddenly kind of taken off, because they are being allowed into the cocoon, because coming into the cocoon, they do not create any risks for her and for her family; right?
Simultaneously, while she and her family are interacting with the outside world, for the first time ever, we did not see a massive run as far as cash is concerned. For the first time ever, cash usage actually has come down quite dramatically and people have not taken to hoarding cash. It was helpful that the industry got together and moved the contactless limit up from £30 to £45 and we have seen the level of transactions that are contactless go up dramatically, so as to avoid the use of touching pin pads and POS machines, ATMs and things like that. And that is why you have seen contactless kind of things surge. Nearly up to 75%, 78% of all transactions are now done contactless.
In this context, if the customer is telling you that they don’t like touching pin pads or ATM pads or POS machines, why would they want to touch things like receipts? And therefore, digitisation of receipts became a natural thing to do. And if you could take that digital receipt and park it into mobile banking, that became a real win‑win from a customer point of view.
And why stop only at receipts? Why not do the same thing with loyalty, so you have digital loyalty where you don’t actually need to carry the card and don’t need to plug it into another machine. It all happens quite automatically.
So the large corporates are largely becoming, to some extent, some level of a financial services company. The SME quickly getting on to the marketplace and saying: what do I need to jump on to? Which last mile provider do I depend on to deliver and to continue maintaining my business? And finally the customer creating a cocoon and saying: I will be very, very careful as to what I allow into the cocoon versus what I allow or my behaviour outside of the cocoon.
So that naturally leads to the question, then: what is it that we can do and what is our societal purpose? And our societal purpose is to keep the economy going under such difficult circumstances. And therefore helping corporates became really, really important:
- Helping corporates building that online capability.
- Avoiding things which actually cuts across all three.
- Avoiding things like fraud and scams.
- Making sure that people are educated as to what it means when you make one payment choice versus another.
Doing things like enhancing contactless, creating new products like digital receipts and digital loyalty, and giving customers that ultimate reliance that they, sitting in their homes, on their phones, can conduct most of the business they need to conduct, became examples, strong examples of how we could deliver purpose across these three customer segments, whether it be corporate, whether it be SME or whether it be consumer.
Over and above that, of course, we have to play a role in broader society and I am extremely proud that Barclays Bank put together such a significant £100 million community aid package to support other charities that were helping people who were in more difficulty than others. And we have supported a number of charities in this kind of regard. And it is really pleasing to see that a big bank is bringing its purpose to life.
So let me conclude where I started. Purpose is essential, and purpose is not about CSR. Purpose is about really going above and beyond, to understanding the needs of your customer and delivering upon those needs to the best of your ability. There is no more important time for getting focused on purpose than there is now. We may be seeing light at the end of the tunnel. We are seeing light at the end of the tunnel, as far as the pandemic is concerned. The economic consequences of this pandemic are still to be borne out. And this is a time where all of us, all of us have to step up to do more to really help our economy, our country, our citizens step up and really get ahead and thrive and prosper again.
Purpose is essential, and purpose is not about CSR.
Thank you so much for listening to me. I really am looking forward to the Q and A session. I hope you found this interesting.
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