Value creation in E-busines

The aim of the paper is, therefore, two-fold. First, it uses the concept of business model to critically
explore the problems of the UK retail banking sector through reframing the problem as one of
dysfunctional business models rather than uncompetitive markets. Second, the paper uses this
analysis to provide a contribution to the debate on reform of retail banking. The framing developed
in this paper is different to the official diagnosis of lack of competition: a business model frame is
utilised to look beyond the market for banking products and to explore how investors frame
business decisions and outcomes. Used in a critical way, business model analysis can provide insights
into the problem and suggest remedies. While recognising that all framings are socially constructed,
and that no one framing can be complete, the choice is relevant in making visible the financialisation
of business models across a group of firms. The specific context is that of the UK; however, the
notion of framing public policy problems as micro-economic, as well as the extension of financialised
business models, have salience elsewhere.
Problems in retail banking pre-date the 2007-08 banking crisis and are largely not addressed in the
subsequent official public debate about reform in the UK. This is obvious in the breakdown in the
relationship between banks and their customers. A crude measure of this failure is evidenced by the
British Social Attitudes Survey findings (NatCen 2010), as well as by Which?’s survey noted at the
start of this section. Such findings are seen as significant because it is most unusual for public
attitudes to shift so radically, so quickly. A contributory factor has been the series of mis-selling
scandals; as noted in the quote from Andrew Haldane above, these suggest corporate priorities are
on short term financial returns, not customer interests. For example, the mis-selling of one particular
retail financial product payment protection insurance (PPI)1 was not only large in scale but also
persistent and widespread: between January 2011 and March 2015, more than 20 banks and other
organisations paid out £18.8 billion in compensation and some 13 million consumer complaints had
been made by 2015 (FCA 2015). Even after repeated instances of mis-selling, there is no assurance
that these kinds of practices have ceased (Wilson 2012). The fact that so many mainstream retail
banks are implicated in each of the mis-selling episodes suggests that the causes are not simply
about culture in a particular organisation (though this may indeed be a contributing factor); instead
it suggests that the cause may have something to do with how a group of banks operates.
In seeking to make sense of collective behaviour in a sector or business activity like retail banking,
there is a need for an analytical tool which can explore how different stakeholders may be
beneficiaries – or otherwise – of attempts to create value within business models. UK retail banking
provides a particularly good illustration of the idea of a sectoral business model. This is a mature
market in which key product groups, such as current accounts, savings, loans and mortgages, are
well established with innovation having at best a limited impact on these products. Where
innovation occurs, it is often supplementary to those core products and originates in investment
banking, for example insurance products, or from advances in IT; however, these ‘innovations’ are
quickly adopted across the market to enhance fee-earning opportunities, as illustrated by the PPI
example. While it is mature, it is also of great significance because social participation requires
citizens and organisations to have access to basic retail banking services. In this sense, banking has,
at least in theory, the characteristics of a utility – a service like energy, or water and sewerage, that
all households and businesses require – where it may be hard to assess quality and where some kind
of social or regulatory control is often necessary to prevent abuse of corporate power. On that basis,
the limited attention paid to retail banking business models, particularly in contrast with the
attention focused on investment banking, is striking