Could we have a Bank of Dave?

How would local go in 2024?

One of the most popular movies on Netflix at the moment is Bank of Dave, a (very) fictionalised account of how the Burnley Savings and Loan (BSAL) company was set up in that Lancashire town in 2011.

Despite what the movie tells us, BSAL is still not a registered bank in the UK. Instead  local businessman Dave Fishwick and his team operate a peer to peer lending system. A person with money will loan it directly to a borrower through BSAL who do the administration and credit checks and take a margin for doing so. The lender gets a good rate on the investment, the borrower gets the money and BSAL operate a business where profits are donated back to the Burnley community, upwards of thirty million pounds since the BSAL opened its doors.

What’s not to like? It would appear nothing really. The key to BSAL’s success is keeping it local – and honest. Dave Fishwick was a Burnley success story in vehicle sales and wanted to help other aspiring business owners in Burnley get investment that big banks wouldn’t provide.

Which begs the question – how would small local banks and financial institutions fare in modern day New Zealand?

In the week in which the Commerce Commission reported on the uncompetitive nature of our banking system and suggested two major fixes – increased capitalisation for Kiwibank and easier access to open banking – watching Bank of Dave took me back to the time when I first had a bank account.

Like millions of other kids, my first savings were in the Post Office Savings Bank. That was bought by ANZ.

When I started working I put my pay in the Otago Savings Bank. That was bought by Westpac.

I once had a mortgage with the Countrywide Building Society. That was bought by the National Bank, who were bought by ANZ.

See the pattern here?

Once we had countless local financial institutions. A trustee savings bank in every province where the profits were ploughed  back to the  community and local building societies, many of which actually gained banking licenses for a time before being taken over by the ravenous Big Five who became the rapacious Big Four when ANZ swooped on National.

The only remnants of those days are seen in the Taranaki Savings Bank (TSB), Southland Building Society (SBS)  and Heartland Bank - which has its origins in the Ashburton Permanent Building Society.

There’s also the successor to another institution I deposited with and borrowed from in the 1970s, the Public Service Investment Society, the PSIS. These days it lives on as the Co-Operative Bank, mutually owned by its very satisfied depositors but with a piddling 0.5 percent share of the retail banking market.

When you look back, the local trustee banks and building societies were pillars of their communities. Our family’s first house, in Invercargill in 1963, was bought with funds borrowed from the Southland Building Society, an organization founded in 1869 to do precisely what my father did nearly a hundred years later, to borrow money for his family’s betterment.

SBS survives and thrives to this day. This year its profit was 56 million and it has 86,000 owner-customers across the country.

I’m happy to give SBS a plug because they sponsor my local golf club, the club banks with them and they offer deposit rates a few points ahead of the Big Four.

But the question I should ask myself is this. Why don’t I personally bank with SBS?

It’s because there is no compelling reason to do so other than to support a local business. At my stage in life I’m not borrowing money and what savings we do have are well looked after by one of that rapacious Big Four.

But why wouldn’t a young person starting out in the workforce today open an account with a much smaller bank? There are plenty of options. I mentioned most of them above. There’s Kiwibank as well, although because of their involvement with the dreadful New Zealander of the Year Awards, I’ll never go near that mob again, ever.

I imagine it’s because children are the products of their parents’ habits and if a family has banked with a Big Four institution, the child needing a place to deposit income will follow the parents’ habits.

Our current banking environment is a product of the 1980 and 1990s, a time when economic deregulation said Big is Better, when mergers and acquisitions were de rigeur and when the concept of little community financial institutions came to be regarded as quaint and old fashioned.

Sure some were struggling. Many had merged locally. For a time I was with the Eastern and Central Savings Bank, a merger across the trustee banks of the central North Island.

But the ongoing success of TSB and SBS and Heartland and even the Co-Operative shows that if done well local banks can make a difference, with the added bonus of their profits going back to the community.

The great reminder of how important those local savings banks were in their time is in the community trusts set up to own them and manage their surpluses, and which still exist today. Foundation North came out of ASB, the Otago Community Trust came from the OSB, Community Trust Southland out of the SSB and so it goes on. Only the Toi Foundation, formerly the TSB Community Trust, still owns a bank and makes charitable distributions.

But think what our banking scene would be like if the trustee banks hadn’t first merged in 1986, then sold out to Westpac in 1996. The industry wouldn’t be dominated by the Big Four, many of the surpluses would be distributed to community activity and we wouldn’t be in a constant state of angst about those huge annual profits.

It’s all ancient history now but like many aspects of New Zealand business from those times (electricity reforms anyone?) we should be asking if it was really that good an idea.

More significantly, could we replicate those times again. Is there a place in 2024 New Zealand for a Burnley Savings and Loan, a Bank of Dave?

Or have too many of us been burnt by finance companies and small investment operations over the years so we’re more than happy to lie in the bosom of the Big Four?

Yes they make huge profits, but our money is safe.