We all know banking is in trouble. Low levels of trust, the failure to serve the poor and Small and Medium-sized Enterprises (SMEs), ignoring or worsening sustainable development, and public bailouts maintain the assumption that the industry is too big to fail. It can’t be much fun to introduce yourself as a banker around many dinner tables. Well, very soon this will all be changing in the UK, with a group of us in the west of England joining the vanguard of a set of new challengers to the UK’s banking market. These new regionally focused, mission-led Community Banks are set to disrupt the banking sector and put sustainable development, people and planet, back at the heart of the UK investment sector. We plan to open our doors to customers in 2019.
A new dawn for banking for the people?
The RSA see their support of this regional community banking movement as an important way to deliver on the findings of their Inclusive Growth Commission’s recommendation of regional banks, the RSA core objective of Economic Democracy and the RSA mission as “an enlightenment organisation committed to finding innovative practical solutions to today’s social challenges". RSA are helping build national momentum and a collaborative community across all the teams building these regional banks.
A group of innovators, led by RSA Fellow James Moore, and a team with over 150 years banking experience between them at Barclays, Bank of Nova Scotia, Charity Bank, CAF Bank, Bank of Ireland, Abbey/Santander, TSB, Airdree Savings Bank and RBS have spent the last few years building the concept of ‘community banks in a box’, and have now set up the Community Savings Bank Association (CSBA) to facilitate the development of a network of regional Community Banks. Ours — Avon Mutual — will be one of the first to launch.
Avon Mutual leads the way in building community wealth and mutual trust
Our bank here in Bristol, Bath, Wiltshire and Gloucestershire, called Avon Mutual because the beautiful Avon River runs through the heart of our region, will be taking local savings and using them to create local loans.
We aim to serve the everyday financial needs of ordinary citizens, local community groups, and small and medium sized companies. We will also work closely with Community Development Corporations, Community Development Finance Institutions, local Social Investment Funds, Revolving Loan Funds and others. And we aim to become a key anchor institution in shifting our region’s economy to what I’d call a ‘new economy’ focused on promoting sustainable and equitable prosperity for our region.
We are also working with people like the Tony Greenham, Director of Economics at the RSA and a leading light on the future of finance, who is working with a team launching their own CSBA-inspired bank on our southern border to serve the same role in Somerset, Dorset, Devon and Cornwall. Tony is also Deputy Chair of the Greater London Mutual— the first of 18 planned regional banks to be formed.
We are fortunate that our region has a host of ethical finance experts living and working here as well as great institutions like Bristol and Bath Regional Capital, Bristol Credit Union, Wiltshire Savings and Loans, Bath and Bristol Community Energy and Bristol Pound, which already make up a fantastic ecosystem of community wealth building alternative investment innovations that we plan to add to and support.
We also have great and supportive leaders like Bristol Mayor Marvin Rees, and groups like Happy City, Transition Towns, Bristol Green Capital Partnership, Festival of Ideas, all of which make our region an already buzzing place to live and work as a sustainability practitioner.
At a recent Bristol New Economy Summit I helped organise we had a standing-room-only audience of over 300 people over two days, bearing witness to some of the energy we have in our region for exploring and doing things differently.
What’s the problem we aim to fix?
There are a series of key issues with the current UK banking scene we aim to play a role in improving, these include: trust, banking the ‘unbanked’, and sustainable development.
Firstly, let’s take trust. Trust ought to be key to banking and yet it’s not something that springs to mind when one asks the average customer to describe a key characteristic of banks. According to a recent online survey of 35,000 people by the Reputation Institute, UK trust in banking has only just returned to pre-Northen Rock levels.
Another survey, EY’s 2016 Global Consumer Banking Survey, concludes that “trust is essential in banking”, but that is despite the fact that we are broadly happy with our banks’ ability to carry out basic payments and savings functions, we are much more suspicious of whether they will act in our own interests when it comes to selling financial products. Hardly surprising when the UK’s big four banks misconduct fines and charges since 2011 amount to £66bn.
Secondly is the question of what’s known as ‘the unbanked’, those whose needs just aren’t served by the big banks. Despite years of support for financial initiatives s like credit unions, and the fact that banks now have to provide basic bank accounts to all, the number of people in the UK without a bank account actually increased to 1.7m adults in 2014.
Also part of the ‘unbanked’ are SMEs, which in the UK are shockingly poorly supported by our banks compared to their continental equivalents. Within the SME bracket it’s actually not the ME’s but the S’s, those at the smaller scale of micro (employs fewer than 10 employees) and self-employed businesses who just aren’t served by the banks. If you are a giant corporate or have sales of say £15-25m you won’t have much trouble getting a bank meeting—smaller and you may as well not bother.
The third major issue currently is that, unlike in other European countries, we don’t have any banks who really seem to be interested in helping to create a more sustainable form of prosperity based on regional, decentralised, ethical and sustainable forms of energy, transport, food, farming and housing.
In Germany, Sweden or Denmark, Italy, Spain or France, a host of community and state-owned banks like the Landesbanks, JAK Bank, agricultural co-operative banks, and the Mondragon Caja Laboral, all serve such needs. But, in comparison, the UK is a neoliberal winner-takes-all desert.
Unlike all these countries across Europe where co-op banks are thriving, and places like Canada and the US we don’t have, nor in fact have we ever had, any customer-owned, mission-led, sustainability-orientated and regionally focused banks.
Yes, we have building societies, those that haven't demutualised and sold out to the big four banks, but building societies are not banks. They have to put 75% of their assets into UK residential mortgages and they don't serve businesses.
And the failing Co-operative bank is not in fact a co-operative at all and never was, having been owned by a retailing group which in turn was owned by its customers. The Co-op Group was set up like that because, despite decades of evidence from other countries that co-operative banks work and indeed play a key role in stability and sustainability, UK law was so complex and ambiguous that no-one has ever tried to set one up.
The big mainstream banks have a monopoly and a free-ride to do as they please. Or they did until now. This has all changed since 2014’s Co-operative and Community Benefit Society Act has now clarified that co-operatives can now legally trade as banks.
Our solution and vision
Fintech innovation is of course nothing new and challenger banks and apps, with new blockchain investment solutions pop-up on almost a weekly basis.
But what we plan to do in our region, what is also happening in London with Greater London Mutual, the South West of England, and other regions soon, is we think, going to be revolutionary for the UK.
In our bank every member gets a vote to influence how we will operate. We want to help herald in a new economic democracy that can help shift our economy to something new. With a series of local branches and customer service and relationship-banking at our heart, we aim to know our customers and their needs intimately so we can support them and also lower risk to the bank allowing us to be more successful and return more wealth to our community and members.
CSBA, supported by the RSA, is helping to set up a UK-wide network of independent, customer-owned, regional banks that support local communities and businesses. CSBA has made it easier, simpler, less risky, quicker and cheaper for each region to set up its own bank and has organised legal, constitutional, governance, financial and business planning blueprints which the regional banks like ours can base their business on. Lower fees with financial and legal advisors as well as key equipment suppliers have been negotiated and numerous conversations with the regulators have made the process of getting a banking license faster.
The London region’s bank will be the first in this series to launch, with ours in the west and another in the South West of England soon behind. Here in the west we hope to have raised our £20m initial capital and to have a banking staff recruited and a banking license within three years—hopefully sooner. Within a few years we aim to have a loan book approaching £500m and to be supporting the transformation of our region and its communities.
We will work closely with, and hopefully partly trade in, our local currency, Bristol Pound, and make sure we are at the cutting edge of the latest app-based interfaces and blockchain breakthroughs partnering with Blockchain Alliance for Good. And we aim to work in federation with our partner Community Banks across the UK acting as a fire starter and incubator for coverage for every UK community and citizen.
I also have a vision for this being just the start of a regional experiment to shift the economy to what could be called a ‘social economy’ In my work as a Research Fellow with the Washington DC Democracy Collaborative’s Next System Project I’ve seen how socialised forms of banking having been the lynchpin to the development of ‘new economy’ systems already emerging in places like Emilia Romagna, where the social economy equates to 50% of the economy, and the $40bn strong Quebec Social Economy.
Our development plans
With a series of 9 manned local branches, cutting edge IT and automated ATMsand video-conferencing in 18 unmanned satellite branches and customer service and relationship-banking at our heart, we aim to know our customers and their needs intimately so we can support them and also lower risk to the bank, allowing us to be more successful and return more wealth to our community and members.
We will provide services to approaching 1000 SME businesses and social businesses in year 1, rising to over 14,000 in year 5, creating and supporting thousands of jobs. We hope to build to 85,000 retail and 18,000 business members by year 10.
We model to have advanced £6.4 million in prudent and affordable loans to individuals and businesses in year 1, rising to £218.2 million in year 5, building jobs and opportunity within the region.
The social impact of these activities is also enhanced by the fact that these loans are spent into the real and productive economy, creating a local impact multiplier that delivers a further 76% of value to the local economy. All of this will be measured working with best-in-class advisory services and reported regularly to members and society.
Our momentum is growing fast and we have a fantastic board and advisory group coming together and support from our local authorities, Mayors, business communities, investors, entrepreneurs, NGOs and community groups.
We are working with leading stakeholder banks around the world, such as Vancity, to develop our ethical and environmental policies and ensure our governance and stakeholder processes are best in class.
We are running a series of regional engagement events in Bristol, Bath, Swindon, Gloucester and Salisbury organised by the RSA and with local hosts such as Business West, St Johns Foundation and a number of LEPs.
We are now raising our initial investment in three rounds of £200,000, £500,000 and £20m. Investor members can expect a competitive return in the knowledge that they are also supporting this exciting new movement and bringing about real change in people’s lives and sustainability.
Please do get in touch if you would like to get involved, support or invest in Avon Mutual.
The RSA is supporting CSBA re-build regional banking across the UK. If you have the skills and experience required to help set up a regional bank in your area, or would like to know more about the RSA's partnership with CSBA please contact RSA Deputy Head of Engagement, Mark Hall, at Mark.Hall@rsa.org.uk
The author of this article, Jules Peck, lives on the Avon river in Wiltshire and is Founding Director of Avon Mutual, Founder of theReal Economy Lab, a Research Fellow on the future of the economy at the Democracy Collaborative's Next System Project, a Board member of New Economics Foundation, an Advisor to The B Team,a Director of Bristol-based Happy City and a Fellow of the RSA. He can be emailed on firstname.lastname@example.org
An earlier edition of this article was first published in Stir to Action Magazine in October 2017.