Reflections on the Past, Present & Future of the Banking Sector (Part 1)
At first sight, taxi drivers and bankers do not seem to have a lot in common. Everyone knows that bankers make the world go round in much the same way as gravity keeps our planet revolving around the sun. It takes years of academic study at top universities and the odd Nobel Prize to develop sub-prime products, invent ways of keeping debt off the balance sheet of companies and countries, sell products to clients they do not want (and sometimes do not even know thay have bought!) and invent complex fiduciary structures to protect the assets of wealthy private clients from the prying eyes of tax collectors. Taxi drivers, on the other hand, need no university background, little training and serve only to get from point A to point B.
Yet when I had the privilege of working in London in the 1980s, many of the most impressive people I met were not the renowned City bankers, barristers or accountants but rather the cab drivers. With a click of a finger, they would arrive seemingly out of nowhere and be able to take you to the most obscure address without any guidance either from me or a map. Furthermore, they would do it in the most efficient way taking a multitude of back streets to avoid the traffic and get you to your destination on time in spite of London being one of the largest and most complicated cities in the world. The London cab is totally uncomfortable but has become a cult because of its uniqueness and its history. The drivers are usually locals, often Cockneys from the East End, who are difficult to understand even for me and who must be a nightmare for foreign tourists. Yet they enjoy telling their clients stories about growing up next to the Kray twins (Ronnie was completely mad but Reggie was a “good bloke”) as they point out the Houses of Parliament on your left and tell you what they think about British politics now. In other words, the journey from A to B was not a “trip” but an “experience”.
At the same time I used to travel regularly to Paris where I would usually enjoy the comfort of a Mercedes on the journey from the airport to my hotel. In spite of the luxury of the car though and the less expensive price compared to London, I would have to endure the complaints of the taxi driver about how unhappy his life was, how difficult it was to maintain a wife, three children and a mistress on a taxi driver’s salary. And the journey would always take at least five minutes extra as the driver was obliged to take out his map to look up the address (please bear in mind that I am a babyboomer so this was before the arrival of the GPS). On my occasional trips to New York during this period, I had the pleasure of discovering the yellow cab and quickly realised that to qualify as a driver it was necessary to own a vehicle that was at least twenty years old and with no hint of shock absorbers. But above all it was essential to be a newly arrived immigrant unable to speak a word of English and with a limited understanding of the apparently simple grid plan of the city. In other words these taxi journeys were also “experiences” but not in the positive sense of the word.
So let us examine the impact of technology on the world of the taxi driver and try to anticipate the potential lessons for the banking sector. The first Internet revolution, which can roughly be dated as 1995 to 2000, had little impact on the taxi driver. Indeed conventional wisdom was that the computer programmer in Bangalore and online tailor in Hong Kong would have no impact on local services. They might offer much less expensive solutions for developing an application or buying a made-to-measure suit, but they would not be coming round on a Saturday night to take you down to the local pub! Taxi drivers continued to sleep easily at night. Indeed one of the by-products of this first revolution was the inexpensive availability of GPS which made life easier for many drivers. The notable exceptions are London, where the cab drivers are so much more efficient than any non-military GPS system, and the US where GPS seems to have gone the same way as shock absorbers.
More recently, however, technology has been less kind to our taxi driver friends. Perhaps the pivotal moment was the creation of Uber in 2009. Over a period of just a few years a “disruptive” platform set up with just $200.000 of seed money has completely transformed their world. In some countries this change has been accepted as inevitable, in others it has been declared illegal and in most it has created strikes, sometimes violent, between the two communities. Whatever the attitude, no taxi driver is indifferent to the impact of this change now and most sleep less well at night. I believe that there are four ways a taxi driver can react to what is undoubtedly a paradigm shift and I also believe that these reactions are highly relevant to the banking sector.
The first reaction can be to carry on as before. To wait two hours at the airport for a client and to roam the streets of the city center in the hope of picking up a passenger. The taxi drivers who choose this option will not survive. The second way is for licensed cab drivers to create their own technological platform to rival Uber and the increasing number of similar companies. With good marketing and strong technology, this could be a viable alternative as some people would certainly prefer to pay a premium to have a qualified driver. Indeed this is already happening. Thirdly there is the “if you can’t beat them join them” option whereby a licensed driver joins the “enemy” and becomes a driver for Uber or one of their competitors. But in my opinion the second and third options will assure survival for longer than the first but are doomed to failure in the medium term. Because they miss the point. The objective of Uber is to offer the most competitive price possible and to diversify into other sectors such as public service transport. Given that their most significant cost is the driver, they are committed to offering a driverless solution as quickly as possible. And this objective, which appears counter-intuitive to us babyboomers (who wants to risk their life in a driverless car?!), is shared by several technology companies who are much more powerful than Uber.
So how can taxi drivers survive in a world of driverless cars? My answer, the fourth and only long-term option, is through the “human dimension”. At a very superficial level, we can take the example of the London cab driver and the GPS. As we all know, the GPS is not always very efficient and we can sometimes end up driving round in ever widening circles because we are quite simply being given wrong or out-of-date information. And have you noticed how irritating the artificial voice of the GPS becomes at the time and how we often want to strangle the person even when we know that this is not possible? That does not happen with our good old Cockney cab driver as he weaves his way down the back streets of London in perfect harmony with his vehicle and the history of the city. The satellite navigation system of Her Majesty’s Royal Air Force might be able to outmanoeuvre him or her but they are more than a match for most car navigation systems (just as Gary Kasparov might get defeated by Deep Blue but will always win against a “normal” computer, for the time being at least).
But more importantly, taxi drivers must make the ride an “experience” and a human encounter. They must treat their passengers as “clients”, ensure that their vehicle is clean and comfortable, engage in conversation, develop a relationship, point out places of interest on the route and make the time spent during the journey as enjoyable as possible. They should also exchange business cards or contact details and build up their own client database so they can develop regular business and so that the clients will have the reflex to call them automatically when they need someone to drive them to the airport, shopping center or local pub. I firmly believe in this human dimension and in the fact that the development of a strong personal relationship based on quality and service will always beat a pure technological choice. Many people would rather pay a premium to have their driver of choice rather than one imposed by Uber or a similar platform. And maybe I’m just an old-fashioned babyboomer, but I am even more convinced that being driven to the airport by a driverless car will certainly be an experience the first time but will not replace the human interreaction upon which our civilization is based.
In Part 2 I will be looking at similarities with the banking sector and how the latter can disappear, survive or thrive in this new technological environment.