In the wake of the horrific school shooting in Parkland, Fla., the debate over gun control has once again seared the nation’s conscience. Clearly, this is not the forum to engage in the gun debate. But like it or not, the debate is knocking on the industry’s door and bankers may need to decide whether or not to take a stand.
In the past, banks have prudently avoided getting involved in partisan political issues that do not directly impact their institutions or the industry as a whole. This time feels different. In this case, the difference is the nature and intensity of the voices speaking out — the victims. They are passionate and articulate young people who have experienced horror firsthand and they are standing up. This group, which is adept at using social media, has the potential to mobilize a large portion of an entire generation to call for and create change. Only time will tell if this movement is both sustainable and effective. However, if it is, guns could become to millennials what Vietnam was to the baby boomers.
So why should bankers care? Over the past year, I have repeatedly written about the difficulty banks will have navigating a shrinking neutral road in an increasingly partisan and toxic political environment. Indeed, there are times when silence and inaction actually increases reputational risk rather than diminishes it. Is this one of those times? Perhaps, especially if millennials make guns a watershed issue and a litmus test for institutional credibility.
This is where the risk comes in. Millennials, which now represent the largest generational group in America, are tech savvy, and importantly, question the very relevancy of traditional banks. While it is dangerous to generalize about an entire generation, the evidence is clear that many millennials are gravitating to nonbank financial services providers for a broad range of products and services. More than 50% of millennials already use or plan to use nonbank payment providers and one-third see no need to use a traditional bank for any purpose — now or in the future. Importantly, many of the major nonbank payment providers and processors that are stealing market share from banks have long-standing policies that restrict usage of their platforms for various types of gun purchases. Is this an integral part of their value propositions? Probably not, but it shows that they are in tune with the attitudes and expectations of their target market.
In a recent New York Times op-ed, Andrew Ross Sorkin hits this issue head on and identifies a number of ways that he believes financial services firms could play a significant role in helping to reduce the sale and accessibility of assault rifles, high capacity ammunition magazines and modification tools such as bump stocks. Sorkin also points out how nonbanks — PayPal, Square, Stripe and Apple Pay — already ban people from using their services for the sale of firearms. For the first time, fair or not, banks may be brought into this difficult debate.
Some observers have already responded. We can expect more to do so if Mr. Sorkin’s perspective gains wider traction. The counter arguments are clear and rational. They make all the right points in all the right ways: It is naïve and dangerous to expect the banking industry to solve societal problems that elected officials can’t or won’t; previous attempts at restricting access to the payments system by otherwise lawful entities have produced negative and unintended consequences; and using the payments system to support one side of a highly divisive issue creates a dangerous precedent and a slippery slope that can lead to abuse across the entire political spectrum.
It is hard to argue with any of these points and it is unreasonable to expect the industry to take a concerted and preemptive action in the absence of legislative action on assault rifles and other gun safety measures. After all, the industry is highly diverse. It often can’t even agree on less consequential issues, let alone what to do about access to assault rifles.
This does not mean, however, that individual banks should not make individual risk management decisions regarding how and if they will do business with certain business sectors and entities. They do this every day.
Based on their market strategies and assessment of various types of risk, some banks will do business with money transfer services, payday lenders and adult entertainment establishments, while others will not. Traditionally, these have been pretty straightforward decisions that banks make based on well-established risk parameters rather than individual political or moral points of view.
However, the definition and nature of risk, and particularly reputational risk, are changing dramatically as political issues become more partisan and divisive. The result is that social and political issues are becoming risk issues, and increasingly, banks must consider these issues as integral parts of normal business decisions.