Could new community banks change Britain for the better?

A protest against the ECB in 2015. Image: Getty.

In the wake of the 2008 crisis, it rapidly became clear that banking was broken. The global financial sector had captured its own regulators and mis-sold mortgages while spreading the risk across the entire system to such an extent that the global economy crashed nearly overnight.

Andy Haldane, chief economist of the bank of England responded by suggesting that part of the problem was lack of diversity of ownership model. This dovetailed neatly with the work the Royal Society of Arts (RSA) was doing, envisaging the new economy that was clearly necessary to replace the broken old one: modelling, researching and promoting initiatives and policies such as economic democracy, basic income, financial reform etc. Now, over 10 years later several economists affiliated with the RSA are launching or promoting public and community banks.

Community and social banks of this sort are commonplace in several other countries: there are the Sparkassen in Germany, the ICBA group in the US and Triodos in the Netherlands. The Sparkassen banks have very good customer relations relative to the rest of the German financial sector, while an ICBA member bank, the Bank of North Dakota, helped the state weather the effects of the financial crash in a way that just did not happen in other states. Meanwhile the Netherlands’ Triodos only finances projects that aim to make a positive cultural, social or environmental change – particularly financing a transition to renewable energy.  

Tony Greenham, former director of economics at the RSA, is one of the economists promoting community banks as a solution for the UK, and is currently launching South West Mutual, a community bank for the South West region. Greenham describes it as a regional stakeholder bank that is “focussed on a particular geographic subregion of a country, with a dual social and financial mission”. It differs from a normal shareholder bank insofar as it’s accountable to all stakeholders, not just shareholders. In practice this means that anyone with a stake in the bank, which could simply be a current account, gets to vote on how it is run.

Greenham explains that “these banks are quite often successful by collaborating together in networks to share costs and resources”. That is exactly what is happening in the UK. The Community Savings Bank Association is a network of eighteen banks, of which South West mutual is one, which are aiming to establish themselves across the UK, from Scotland to Kent.

Such banks could help the UK address the structures behind a variety of social and economic problems. The city of London and the hegemony of the banks and financial institutions based there, bear significant responsibility for the political and economic malaise we find ourselves in today. Capital flows from the various regions of the UK into London, and the presence of the financial sector there narrows the focus of politicians to a small area in and around London, meaning it receives a disproportionate amount of public spending at the expense of poorer areas.

New community banks might not be able to break the stranglehold of the city over our politics and economics, but they can mount a challenge and show there is another way. They outperform the big banks on a number of metrics such as financial inclusion, lending to small and medium businesses and smoothing out regional inequalities.


That last metric is crucial to the UK which has some of the worst regional inequalities in western Europe. Greenham and others in the new economics scene argue that part of the reason that these inequalities are so bad is because we lack these regional stakeholder-owned banks that can capture and recirculate money within a region and prevent it from flooding back into the capital.

Greenham is not the only one who thinks this. He has been in touch over a period of months with Matthew Brown, leader of Preston Council and pioneer of the much lauded “Preston model”, who is helping to launch the North West regional community bank which is part of the CSBA network. Their regional and community focus, and the ability to retain capital inside an area, means these banks will be a boon to further devolution and projects, like the Preston model, based on radical municipalism.

Some critics – such as RSA fellow, economist and social bank advocate Paul Gower who will be speaking at the Institute for Social Banking’s summer school in Switzerland – have suggested that the smaller scale of these banks can lead to corruption, as has sometimes happened in Germany, if they are not carefully managed. Greenham’s argument is that “all corporate failures are ultimately failures of governance”: he disagrees that the smaller scale makes these banks inherently more vulnerable to corruption. Indeed, he notes, nobody points to the corruption at Metrobank as indicative of inherent flaws at that larger scale of finance.

Supporters of community banks also argue that they could have an impact beyond their size by dragging the larger banks in a more socially oriented direction. Greenham likens it to the role the BBC as a public service broadcaster has played in raising the quality of other channels’ programming, by forcing them to compete with programme designed a social good.

Meanwhile, Gower notes that the big banks are stealing the language of social banks and may find themselves in a situation where their employees have bought into the social purpose: shareholders and directors would have no choice but to comply or risk damaging employee engagement and therefore productivity.

The CSBA network probably isn’t the revolution people in Occupy camps were hoping for 10 years ago. But whether it’s helping finance the retrofitting of houses with passive insulation as part of the zero carbon transition, regenerating regions or rebuilding the high street, these smaller, democratically controlled and socially oriented banks can help address the abject failures of big financial institutions and could form a small part of much wider transformations in the country.                    

 

 
 
 
 

What Citymapper’s business plan tells us about the future of Smart Cities

Some buses. Image: David Howard/Wikimedia Commons.

In late September, transport planning app Citymapper announced that it had accumulated £22m in losses, nearly doubling its total loss since the start of 2019. 

Like Uber and Lyft, Citymapper survives on investment funding rounds, hoping to stay around long enough to secure a monopoly. Since the start of 2019, the firm’s main tool for establishing that monopoly has been the “Citymapper Pass”, an attempt to undercut Transport for London’s Oyster Card. 

The Pass was teased early in the year and then rolled out in the spring, promising unlimited travel in zones 1-2 for £31 a week – cheaper than the TfL rate of £35.10. In effect, that means Citymapper itself is paying the difference for users to ride in zones 1-2. The firm is basically subsidising its customers’ travel on TfL in the hopes of getting people hooked on its app. 

So what's the company’s gameplan? After a painful, two-year long attempt at a joint minibus and taxi service – known variously as Smartbus, SmartRide, and Ride – Citymapper killed off its plans at a bus fleet in July. Instead of brick and mortar, it’s taken a gamble on their mobile mapping service with Pass. It operates as a subscription-based prepaid mobile wallet, which is used in the app (or as a contactless card) and operates as a financial service through MasterCard. Crucially, the service offers fully integrated, unlimited travel, which gives the company vital information about how people are actually moving and travelling in the city.

“What Citymapper is doing is offering a door-to-door view of commuter journeys,” says King’s College London lecturer Jonathan Reades, who researches smart cities and the Oyster card. 

TfL can only glean so much data from your taps in and out, a fact which has been frustrating for smart city researchers studying transit data, as well as companies trying to make use of that data. “Neither Uber nor TfL know what you do once you leave their system. But Citymapper does, because it’s not tied to any one system and – because of geolocation and your search – it knows your real origin and destination.” 

In other words, linking ticketing directly with a mapping service means the company can get data not only about where riders hop on and off the tube, but also how they're planning their route, whether they follow that plan, and what their final destination is. The app is paying to discount users’ fares in order to gain more data.

Door-to-door destinations gives a lot more detailed information about a rider’s profile as well: “Citymapper can see that you’re also looking at high-profile restaurant as destinations, live in an address on a swanky street in Hammersmith, and regularly travel to the City.” Citymapper can gain insights into what kind of people are travelling, where they hang out, and how they cluster in transit systems. 

And on top of finding out data about how users move in a city, Citymapper is also gaining financial data about users through ticketing, which reflects a wider trend of tech companies entering into the financial services market – like Apple’s recent foray into the credit card business with Apple Card. Citymapper is willing to take a massive hit because the data related to how people actually travel, and how they spend their money, can do a lot more for them than help the company run a minibus service: by financialising its mapping service, it’s getting actual ticketing data that Google Maps doesn’t have, while simultaneously helping to build a routing platform that users never really have to leave


The integrated transit app, complete with ticket data, lets Citymapper get a sense of flows and transit corridors. As the Guardian points out, this gives Citymapper a lot of leverage to negotiate with smaller transit providers – scooter services, for example – who want to partner with it down the line. 

“You can start to look at ‘up-sell’ and ‘cross-sell’ opportunities,” explain Reades. “If they see that a particular journey or modal mix is attractive then they are in a position to act on that with their various mobility offerings or to sell that knowledge to others. 

“They might sell locational insights to retailers or network operators,” he goes on. “If you put a scooter bay here then we think that will be well-used since our data indicates X; or if you put a store here then you’ll be capturing more of that desirable scooter demographic.” With the rise of electric rideables, Citymapper can position itself as a platform operator that holds the key to user data – acting a lot like TfL, but for startup scooter companies and car-sharing companies.

The app’s origins tell us a lot about the direction of its monetisation strategy. Originally conceived as “Busmapper”, the app used publicly available transit data as the base for its own datasets, privileging transit data over Google Maps’ focus on walking and driving.  From there it was able to hone in on user data and extract that information to build a more efficient picture of the transit system. By collecting more data, it has better grounds for selling that for urban planning purposes, whether to government or elsewhere.

This kind of data-centred planning is what makes smart cities possible. It’s only become appealing to civic governments, Reades explains, since civic government has become more constrained by funding. “The reason its gaining traction with policy-makers is because the constraints of austerity mean that they’re trying to do more with less. They use data to measure more efficient services.”  

The question now is whether Citymapper’s plan to lure riders away from the Oyster card will be successful in the long term. Consolidated routing and ticketing data is likely only the first step. It may be too early to tell how it will affect public agencies like TfL – but right now Citymapper is establishing itself as a ticketing service - gaining valuable urban data, financialising its app, and running up those losses in the process.

When approached for comment, Citymapper claimed that Pass is not losing money but that it is a “growth startup which is developing its revenue streams”. The company stated that they have never sold data, but “regularly engage with transport authorities around the world to help improve open data and their systems”

Josh Gabert-Doyon tweets as @JoshGD.