Short term – Long term balance

Two companies, somehow, seemed intrinsically linked this last week for some reason. Tesco Bank and Monzo.

Tesco Bank was in the headlines, announcing they would be closing all current accounts, news quickly following on the heels of the sale of its mortgage book last year. Without overdrafts, it would seem that current accounts struggle to make money and they are no doubt focused on greater returns elsewhere.

Monzo bank was also in the news. Initially, this was with the announcement of an FCA investigation into compliance with money laundering rules, but quickly followed by a financial announcement of nearly £115m pre-tax loss for the year. All of this whilst picking up subscribers (no doubt from the likes of Tesco above too).

And, then strangely there was a story where Tesco seemed to be double charging some Monzo cardholders twice in store. Just a bizarre coincidence.

Business Returns – Business Strategy

All of this talk of ever-changing business strategy got me thinking about where we should draw the line between short-term income vs longer-term returns.

In this case, Tesco Bank has seems to have taken the financial view, that each product must make a return in income, any that don’t are exited so funds can search for higher returns elsewhere.

Monzo, up until now, has taken a different view. The current account is a central customer touch point, the key to an embedded customer relationship. It can also be lead into other products with higher returns (which Revolut and increasingly Starling Bank have demonstrated).

This balance between short term vs long term is never easy and applies in other areas too.

  • Do I invest in future technology and systems capability now, or wait for a positive business case and proven savings to be locked in?
  • Do I invest in employees’ future capability, training them on what they may need, but are interested in, or limit this to courses where there is a proven business need and return?

Different hats

The finance accountant in me says the latter, “be conservative make sure there is a return”.
The business developer in me says, “go ahead build the capability you need, if you don’t have the capability when you need it you will be late to the party and miss out”

However, the risk manager in me probably has it right…”to get higher returns, you need to take some risk. Take a risk, just make sure it is a calculated one”

In this world we are now, sitting back and being conservative unless you have too, is probably not the right approach. We are in times of significant change, and taking calculated risks to invest is going to be even more important to be able to move quickly and generate the returns you need… just make sure you have some expertise on hand to help 🙂

Have a good weekend everyone.

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