Banking and financial technology

From London comes the news that Barclays has been charged with fraud on foot of a 2008 capital raising from Qatar that allowed the bank to avoid a government bailout at the height of the global financial crisis. Four former executives, including then-chief executive John Varley, are also being charged. The deals with Qatar were the fruits, it is alleged, of a conspiracy to commit fraud and the provision of unlawful financial assistance: a $3 billion loan facility made available to Qatar through side-deals made during the emergency £7.3bn cash calls. According to the BBC, the five-year investigation by the Serious Fraud Office means that “former top executives at Barclays will be the first senior managers to face criminal charges over their activities during the financial crisis nearly a decade ago”.

There will be one less independent challenger bank in Britain, following yesterday’s decision by the board of Shawbrook Bank to recommend that remaining shareholders accept the final offer of private equity firm Marlin Bidco (owned by RBS spin-off Pollen Street and BC Partners). This signalled the reversal of an earlier rejection, with the bank having held that the original offer undervalued the challenger, which specialises in lending to small businesses struggling to find lending through traditional channels. City AM writes that “the takeover coincided oddly with news released by Shawbrook yesterday that it plans to double its workforce over the next four years, taking on the services of recruitment outsourcer Cielo”.

This day last week we noted the filing of an application by SoFi (Social Finance) for an industrial bank charter in the American state of Utah with a view to setting up SoFi Bank. SoFi, which originally specialised in unsecured student refinancing, also launched a wealth management product last month. In keeping with its fintech origins, the bank will be online-only, lacking deposit-taking ATMs or branches. However accounts will come with a credit card and FDIC insurance. Now the Independent Community Bankers of America are voicing their opposition to this incursion, arguing that the tech firm is using a “loophole” to avoid the full regulatory burdens of operating a bank: a lawyer for the group told the Financial Times that “we want these fintech companies to be subject to the same kind of regulations as banks are.”

Such skirmishes are all part of the larger entanglement of banking and fintech that is currently underway on both sides of the Atlantic — and playing out in very different ways. As your correspondent writes in this month’s edition of Lafferty Global Intelligence, “retail banking as it is largely practiced in 2017 is like the compact disc era in music: digitalism on the terms dictated by the incumbent. This can only last so long. The long-term resolution of the banking plus fintech equation will mean to the banking industry much as Spotify and Napster meant to the music industry: consumer expectation and savvy will zoom upwards. The result will be that, when it comes to the mass market, intuitive and powerful platforms will be a basic requirement.”