Transaction Banking by D Sign
Blog by Professor Michael Mainelli
Another football World Cup reminds us of the good, the bad, the ugly, and the beautiful game, prompting a great question – “what makes a beautiful transaction product?” Aesthetics is a branch of philosophy dealing with the nature of art, beauty, and the senses. Aesthetic theories attempt to derive principles of good taste. Our question can be rephrased, “what are the aesthetics of a good transaction product?” Can we set out a set of principles for a good product? This is harder than it might appear.
Take website aesthetics as a relevant example. In the past two decades we have seen an evolution in website aesthetics comparable to two millennia of art. Our early website scratchings were flat, two dimensional presentations of Byzantine text. We moved through a Renaissance of experimentation and new techniques, culminating with some Baroque Flash-based websites. Our Enlightenment and Modernist period were full of predictive analytics and scientific reconfigurations of websites. Google reinitiated a Minimalist tradition with its deceptively simple initial site. Today, our post-Modern aesthetic encompasses a smorgasbord of styles, as long as they work on a tablet or smartphone. Robert M Pirsig’s classic work on the metaphysics of quality was the book Zen and the Art of Motorcycle Maintenance: An Inquiry into Values. He mused, “I think there is such a thing as Quality, but that as soon as you try to define it, something goes haywire. You can’t do it.” [Bantam Books, 1974, page 184].
Simple Is Good And Good Is Fit
But as businesspeople we have to do it. We have to decide what is good or bad about our websites and our products. One aesthetic approach has been to say that good design exists when you don’t notice the product. Simplicity is paramount. Philips, the Netherlands consumer products firm, tries to focus on the aesthetic principle of simplicity, with variable results. It’s not easy, particularly when you span their wide range of products. Apple is widely considered to be a design-led company. Its products are not the most innovative, though often close. Its simple designs and intuitive interfaces draw exclamations of delight, as systems built for idiots. Apple has many emulators, few of whom manage to comprehend and replicate the simplicity. Doubters question whether Apple can keep up the wonder for the next product line.
Yet a Swiss army knife is both complex and simple. Another aesthetic approach has been to say that good design is evidently fit for purpose. Form follows function. The Swiss army knife provides a single survival tool, perhaps now in conjunction with a Swiss army smartphone. The form follows function school draws on a wealth of management work on quality systems. However, a primitive website that works is as fit for purpose as a well-designed website. How can we tell the difference? User experience is one test. Far too many sites work, but remain confusing and unclear.
My personal differentiator for banking products is the security regime. Banking products need not just to be secure, but to be seen to be secure, so my tolerance for onerous redundant checks in systems built by idiots is high. That said, one of my commercial banks seems to revel in confusion over its own terminology. A security number is at times a PIN, a password, and a security code, intermingled with a few challenge numbers. Combined with their confusion about customer identification numbers, account numbers and usernames, all inconsistently referenced, I’m flummoxed at some points about what number they want me to enter when, particularly as they ask me to enter some numbers multiple times. I get worked up and worried. I don’t have something to hide, do I? Yet, well beyond websites, what makes a good transaction product design?
From Swords To Egg Cartons To Locks To Safety
I had hoped to illustrate this article with talk of wonderful Japanese designs, e.g. katana, wakizashi, or tachi swords, but when I spoke with people about transaction banking design metaphors they came up with ideas such as egg cartons or locks. The egg carton is perhaps somewhat inelegant, but fit for purpose in so many ways, stackable, protective, cheap, recyclable. Locks are particularly interesting as we have both analogue and digital locking systems now. The traditional lock-and-key still works well and is probably what you will take out of your pocket at home tonight. Digital keys are widely used for apartment blocks and hotels.
In fact, safety seems to be the overriding principle for transaction banking, more than simplicity or fit-for-purpose. Safety is why I’m so much more tolerant of my bank’s ludicrously inept checks than I would be for other websites. Notwithstanding banks claiming they’ve been very safe about transaction banking, the clients want more. The clients want trust and safety. With admirable honesty Ross McEwan, CEO of RBS, pins the current situation down hard - “We are the least trusted industry and we are the least trusted bank”.
Trust is also not easy to evaluate. The Old English 'tr'owe' and Old Norse 'troust' are both about faithfulness. Trust as a noun is defined as 'a relationship of reliance', but also a dependence on some future contingency, credit (buying something on trust), holding property on behalf of another, as well as a charge or duty, for example a child committed to your trust. Further, as a noun it often means a legal or business structure for third-party beneficiaries, but equally a cartel to reduce competition, e.g. anti-trust laws. As a verb, trust means relying on someone or something, but also to entrust into care, believe someone or extend credit.
Trust is when we leverage on a history of relationships to extend credit and benefit-of-the-doubt to someone. In risky environments trust enables cooperation and permits voluntary participation in mutually beneficial transactions which are otherwise costly to enforce or cannot be enforced by third parties. By taking a risk on trust, we increase the amount of cooperation throughout society while simultaneously reducing the costs. Trust is not a simple concept, nor is it necessarily an unmitigated good. A too-trusting society is its own worst enemy.
Trusting In Long-Term Aesthetics
Probably the hardest aesthetic to achieve is a simple, fit-for-purpose, trust-based product for the long-term. The financial crises since 2007 have been the reason that Ross McEwan’s customers have so little trust. The products we proffer in transaction banking should be those that avoid boom and bust. A range of longer-term products from payment protection insurance to rate swaps to LIBOR-based contracts have undermined customer trust. Oddly, complex products correlated too well with failure. At the time these products were proffered, the banks involved gave little thought to their ‘legacy’ or ‘future heritage’. Now they reap what they sowed. The relationship is what matters - “…eventually he saw that Quality couldn’t be independently related with either the subject or the object but could be found only in the relationship of the two with each other. … Quality is not a thing. It is an event.” [Pirsig, page 215]
Ultimately, an aesthetically good transaction product can fulfil many principles, but the overriding principle is whether it contributes to trust in the relationship between bank and client. William McChesney Martin Jr, Federal Reserve Chairman in the 1950s and 1960s, said that the job of a central bank is “to take away the punch bowl just as the party gets going”. Transaction banks have a choice. They can offer clean and simple products with no leverage or fancy footwork that are the equivalent of alcohol-free fruit juice. Equally, they ‘spike’ the punch bowl with products full of leverage and special conditions. I know which one looks more beautiful.
About the author
Professor Michael Mainelli is Executive Chairman of Z/Yen Group and Principal Advisor to Long Finance. His latest book, The Price of Fish: A New Approach to Wicked Economics and Better Decisions, written with Ian Harris, won the 2012 Independent Publisher Book Awards Finance, Investment & Economics Gold Prize.