The banking industry is being transformed more than ever in history, with the confluence of new technologies, new delivery channels and new competitors promising a future much different than what the industry has become accustomed to. Despite the handwriting on the wall, not everyone seems to be on the same page … or maybe they are.
Representatives of major banks, US and European, repeat two mantras that seem to be part of some ‘Learned Helplessness Support Group‘. Mantras so ingrained that bankers won’t, or in some cases can’t, see past them. Risk-averse practices, compliance requirements, and sensitivity around data and cost are often cited as the barriers to why innovation doesn’t occur. But these are shorthand for maintaining the status quo.
“There’s no budget” they cry, as if their bank doesn’t already spend a huge amount of money on IT, lose money through mass inefficiencies, and waste a lot of money on frivolous activities.
“The burden of regulation has killed our naturally innovative spirit” they complain. Banks are highly regulated entities, true. But in an open banking future, the part that is heavily regulated – essentially the holding and moving money part – will only be one element of what constitutes the provision and, crucially, the delivery of financial services. The ‘naturally innovative’ point is moot, at best.
When this point was raised during a panel at a recent banking event, a major bank representative smiled and said, “We’ve already been disintermediated many times by mortgage and insurance brokers, so bring it on.” While it makes for a pithy response on stage and raised a few laughs, this attitude reveals itself in the launch of tools such as Personal Financial Management (PFM) that work poorly, offers limited value and has limited take up.
That merely reinforces that these ‘things’ are poor products, roundly rejected by increasingly digitally savvy and discerning customers. This mind-set ignores three drivers that other players in and around this market are recognizing and responding to.
Drivers of Change and Innovation
The first and most important driver is peoples’ attitudes, behaviors and expectations, which have been shaped notably by the world’s biggest tech brands. Under their influence, people have come to expect services that function perfectly, are available on demand, and are increasingly personalized.
The second driver is technology that allows firms to shape, hone and deliver against those customer expectations – that means the ability to gather and interpret data and do useful and interesting things with it. And critically, it also includes engagement technology, enabling a two-way communication with consumers, including through natural language interfaces such as Amazon Alexa and Google Assistant.
The third driver comes from new competitors entering the financial services space, but not necessarily competing head-on with banks to sell banking products. It can equally mean building expertise in areas where banks have never played, but are going to be absolutely vital to success in the future: the innovative ways of gathering insight, understanding consumers and being able to engage naturally with them to deliver services that are both valuable and pleasurable.
A Different Type of Competitor
The companies occupying the new competitive space are not traditional competitors for banks, and therefore banks have not felt the loss of the territory these companies have claimed. This reveals itself in the pithy disintermediation comment from the banker at the industry event, because it means that banks have not fully understood and responded to the nature of the competitive threat they face.
The advantages of big tech firms are simple and powerful: enormous customer reach and brand recognition, and a level of emotional trust that banks don’t have. What makes them particularly dangerous for other players is their mind-set of deploying new services, viewing financial services as another way to facilitate their business model.
These large tech companies have no reverence for anybody else’s business model, and they will casually disrupt without any sense that they should not be on that territory. Equally, they’ve got very little reverence for their own business model – they will iterate it repeatedly to deliver a better service, to grow faster, to own more share of heart – not just mind.
A Business Fit for Yesterday
The risk is growing that banks are dominated by people with the skills needed to answer a set of strategic concerns that were central to the recovery from financial crisis. Metro Bank in the U.K. is often cited as an example of a new bank ‘challenging’ the establishment, but it is, in reality, what bank branches should have been more than decade ago … a model for yesterday.
The post-crisis years have seen digitalization accelerate across all areas of business. As they frame a human-centric strategy for the years ahead, banks must now reassess the blend of behaviors and skills in their boardrooms as well as their ability to attract the all-embracing talent they need right through the organization – reflective of today’s customers.
This means developing a deeper understanding of consumer needs and behaviors, and to harness data and computing innovations to create services and experiences that will fit seamlessly into the daily lives of these households. To achieve this, banks must attract the right kinds of technology talent, but just as importantly, they will need people who can bring the necessary level of insight and empathy for consumers: behavioral psychologists and ethnographers, for example.
Do banks have the range of skills they will need at board or executive level to frame a strategy that will depend increasingly on technology and human insight? And, are they attracting the right kinds of talent further down the organization to deliver the next generation of services?
A View of the Future
The daunting thing about the future is that nobody has defined it. There is no frame of reference, so the default setting is that many describe the future in terms that resembles the immediate past, but with a few more virtual reality toys or a chatbot garnish.
It’s not about having a technology-based strategy – it’s about thinking strategically. Shouting “there’s simply no budget” or “it’s just about carrying the burden of compliance” is the reaction of the Learned Helplessness Support Group of bankers – from a culture that is institutionally programmed to think in very specific ways.
That time has passed due to consumer’s expectations, enabling technology and newer entrants with a focus on data and building services, not products, off the back of what that data is telling them. The future is going to be a lot more than an app or an improved user experience over the top of what are essentially 200-year-old products.
Making the transition to the new world order needs the imagination to conceive something that doesn’t exist, the creativity to work out how to achieve it, and the courage to make it happen.