Welby’s war on Wonga

Are the Archbishop of Canterbury’s plans to take on payday lenders heroic or harebrained?

The Archbishop of Canterbury’s remarks about his desire to compete payday lender Wonga “out of existence” by strengthening credit unions in the UK has got people thinking power has gone to his head.

However, Archbishop Welby could be on to something, if the Church gets its execution right. Just look at the success of Islamic banking to see how religion can be a powerful force in banking. The first question is: why would the Church take on a market leader in its own game from a standing start? The second is whether credit unions are a business the Church should be getting into, given that mainstream lenders steer clear of this sector with a bargepole?

The first answer is pretty simple: the Church loves a fight. Think the Crusades, gay marriage or female priests. Although the latter two show that more recently it’s been internal rather than external conflicts. So Archbishop Welby picking a fight with payday lenders, of which Wonga is the best known, is par for the course. Welby said this could be a “decade-long process”, which again isn’t a concern, since the Crusades lasted 200-odd years. A couple of decades is a cakewalk.

So now to the second question, why do it? Backing credit unions is risky, but could pay off, for several reasons, not least the social good it could generate.  There is little doubt that credit unions represent a small slice of the overall retail /commercial banking, although that is changing. According to the most recent unaudited figures by the Association of British Credit Unions, there are 1,025,438 people in the UK using credit unions, including over 123,000 junior savers. Since 2007, the number of members has increased by almost 50 per cent while the number of credit unions has dropped by 23 per cent. The Department of Work & Pensions say up to seven million people use sources of high cost credit e.g. home credit, pay day lenders and pawnbrokers.

So there is a rising market worth £2bn, with a falling number of competitors – both good and bad news. Good because there’s demand, bad because it’s tough to make money.

A second reason is that the Church has a strong brand to leverage off, a loyal customer base (parishioners) and presumably trust in its overall intentions, something badly lacking from many mainstream retail banks. Thirdly, on the surface, its costs/overheads would be relatively low. It already owns the church halls and properties it’ll operate the credit unions out of – a reason why many mainstream banks have cut back branch numbers. It also has a ready supply of cheap labour. According to Welby, there are plans to encourage church members with relevant skills to volunteer at credit unions. It would need to invest in an easy-to-use and quick technology platform to make the most of its countrywide scale.

Now to the downsides. The main reservation about launching such an initiative is the fact that most financial institutions steer clear of the sub-prime sector because there’s significant risk. Mainstream banks don’t go there because these are high risk loans with a danger of not having them paid back. Although Airdrie Savings Bank has launched its own short-term loan, Co-op is an example of a mutual (so not in itself a credit union) that is clearly not working at the moment. Finally, there is the reputational risk. If Church-backed credit unions were caught up in a PPI-style, or sub-prime mortgage, scandal, it would lose the trust of not only its customers, but its parishioners too – the ultimate death knell for The Church.

So why do it? To provide an alternative for those who can’t get credit from traditional lenders, with a social, rather than profit, motive is a noble cause. I wish them good luck, but with the words from a report by Civitas ringing loudly: "To be effective charities, they must first be effective financial institutions."

The Archbishop of Canterbury, Photograph: Getty Images

Nick Moody is the editor - Private Banker International at Progressive Media Group.

 

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Why Angela Merkel's comments about the UK and US shouldn't be given too much weight

The Chancellor's comments are aimed at a domestic and European audience, and she won't be abandoning Anglo-German relationships just yet.

Angela Merkel’s latest remarks do not seem well-judged but should not be given undue significance. Speaking as part of a rally in Munich for her sister party, the CSU, the German Chancellor claimed “we Europeans must really take our own fate into our hands”.

The comments should be read in the context of September's German elections and Merkel’s determination to restrain the fortune of her main political rival, Martin Schulz – obviously a strong Europhile and a committed Trump critic. Sigmar Gabriel - previously seen as a candidate to lead the left-wing SPD - has for some time been pressing for Germany and Europe to have “enough self-confidence” to stand up to Trump. He called for a “self-confident position, not just on behalf of us Germans but all Europeans”. Merkel is in part responding to this pressure.

Her words were well received by her audience. The beer hall crowd erupted into sustained applause. But taking an implicit pop at Donald Trump is hardly likely to be a divisive tactic at such a gathering. Criticising the UK post-Brexit and the US under Trump is the sort of virtue signalling guaranteed to ensure a good clap.

It’s not clear that the comments represent that much of a new departure, as she herself has since claimed. She said something similar earlier this year. In January, after the publication of Donald Trump’s interview with The Times and Bild, she said that “we Europeans have our fate in our own hands”.

At one level what Merkel said is something of a truism: in two year’s time Britain will no longer be directly deciding the fate of the EU. In future no British Prime Minister will attend the European Council, and British MEPs will leave the Parliament at the next round of European elections in 2019. Yet Merkel’s words “we Europeans”, conflate Europe and the EU, something she has previously rejected. Back in July last year, at a joint press conference with Theresa May, she said: “the UK after all remains part of Europe, if not of the Union”.

At the same press conference, Merkel also confirmed that the EU and the UK would need to continue to work together. At that time she even used the first person plural to include Britain, saying “we have certain missions also to fulfil with the rest of the world” – there the ‘we’ meant Britain and the EU, now the 'we' excludes Britain.

Her comments surely also mark a frustration born of difficulties at the G7 summit over climate change, but Britain and Germany agreed at the meeting in Sicily on the Paris Accord. More broadly, the next few months will be crucial for determining the future relationship between Britain and the EU. There will be many difficult negotiations ahead.

Merkel is widely expected to remain the German Chancellor after this autumn’s election. As the single most powerful individual in the EU27, she is the most crucial person in determining future relations between the UK and the EU. Indeed, to some extent, it was her intransigence during Cameron’s ‘renegotiation’ which precipitated Brexit itself. She also needs to watch with care growing irritation across the EU at the (perceived) extent of German influence and control over the institutions and direction of the European project. Recent reports in the Frankfurter Allgemeine Zeitung which suggested a Merkel plan for Jens Weidmann of the Bundesbank to succeed Mario Draghi at the ECB have not gone down well across southern Europe. For those critics, the hands controlling the fate of Europe are Merkel’s.

Brexit remains a crucial challenge for the EU. How the issue is handled will shape the future of the Union. Many across Europe’s capitals are worried that Brussels risks driving Britain further away than Brexit will require; they are worried lest the Channel becomes metaphorically wider and Britain turns its back on the continent. On the UK side, Theresa May has accepted the EU, and particularly Merkel’s, insistence, that there can be no cherry picking, and therefore she has committed to leaving the single market as well as the EU. May has offered a “deep and special” partnership and a comprehensive free trading arrangement. Merkel should welcome Britain’s clarity. She must work with new French President Emmanuel Macron and others to lead the EU towards a new relationship with Britain – a close partnership which protects free trade, security and the other forms of cooperation which benefit all Europeans.

Henry Newman is the director of Open Europe. He tweets @henrynewman.

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