Bank Execs Are Misaligned On Technology and Analytics

Many executives in the banking industry aren't just out of touch with consumers and the external market. They are out of touch internally, with each other.

Remember the Pushmi-pullyu from the 1967 movie Doctor Dolittle? With two heads on either side of its body, it found it hard to get anywhere as each head wanted to take the body in different directions. The Pushmi-pullyu is a good analogy for what’s happening in many banks. According to a recent study by Bank Director, there are differences in opinions among senior bank executives regarding the impact of technology for:

  • Cloud computing. If you thought the CIO would be the person in a bank most likely to think that cloud computing would have an impact on the institution, you’d be wrong. A higher percentage of both CEOs and other executives (e.g., COOs, CFOs, and CMOs) said cloud computing will have an impact than CIOs did.
  • Big data/analytics. Roughly nine in 10 “other” senior execs believe big data and analytics will impact their banks over the next five years, in contrast to just 56% of CEOs and half of chairmen/directors.
  • APIs. Among CEOs, CIOs, and directors, roughly four in 10 believe APIs (application programming interfaces) will have an impact on their institutions in the near future. That’s no where close to the seven in 10 other executives who think this technology will have an impact.
  • AI. One of the most glaring differences in opinion relates to artificial intelligence (AI). More than half of CEOs believe this technology will impact their banks over the next five years. However just 10% of CIOs hold this opinion.
Which technologies do you believe
will impact your institution
over the next five years?
CEO CIO Board Other
Mobile 78% 81% 70% 91%
Cloud 83% 76% 50% 79%
Big data/analytics 56% 67% 50% 91%
Automation 78% 57% 52% 71%
APIs 39% 43% 41% 71%
AI 56% 10% 43% 41%
Biometrics 44% 38% 28% 44%
Blockchain 39% 38% 30% 29%
VR/AR 22% 14% 17% 12%

( Source: Bank Director )

In addition, there is little agreement among senior bank executives regarding the analytics budget. Roughly a third of CIOs believe that their bank has not designated any money for data management or analytics, in contrast to about one in 10 CEOs, and two in 10 other executives.

Has your bank dedicated a sufficient
portion of its technology budget to
data management and analytics?
Data analytics does not represent a
sufficient portion of the tech budget
61% 53% 67%
We have not designated any money
for data management or analytics
11% 32% 21%
Data analytics represents a sufficient
portion of our technology budget
28% 16% 12%

( Source: Bank Director )

Overall, you’ve got to wonder who’s running the technology show at many banks, because senior executives there don’t seem to agree on it. Just 17% of CEOs think that IT leads the process (with minimal or no contribution from the lines of business), in contrast to nearly half (45%) of CIOs who think their department leads.

Do the business lines at your bank
contribute to and understand the technology
budget, or does IT lead and drive the process?
Business lines contribute, and IT
is a partner in the process
78% 55% 70%
IT leads the process, with minimal or
no contribution from business lines
17% 45% 26%
Business lines lead the process, with
minimal or no contribution from IT
6% -% 4%

( Source: Bank Director )

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What We Have Here is a Failure to Communicate

A contributing factor to these differences in viewpoints is a failure to communicate. Consider the following findings from the study:

  • 28% of respondents believe the board has a sufficient level of expertise regarding technology. That percentage is higher among respondents from banks with more than $5 billion in assets (47%), but is in mid- to upper twenties for banks below $5b in assets.
  • 47% of banks discuss technology at every board meeting. Considering the perceived lack of technology expertise among board members, wouldn’t you expect this percentage to be higher?
  • 24% of banks focus on the evaluation of new technologies in board meetings. Just 41% discuss implementing innovative customer-facing technology. In contrast, 94% focus on cybersecurity. How is the board going to learn more about technologies and their potential impact if all they’re talking about is security?
  • 21% of banks have a technology committee that regularly presents to the board. When asked who the board has brought in to educate itself about technology, the most frequently-mentioned source was internal IT staff. Yet, just 24% of banks have a team or lab focused on innovation, and only 38% have brought on key technology talent to transform the bank. It’s like the blind leading the blind.

Regarding the question about which technologies would impact the bank over the next five years (see the chart above), the percentage of directors mentioning a technology was lower than the percentage of CEOs citing that technology for every technology except one. And that technology was APIs, which frankly, it’s hard to believe that bank directors would be that knowledgeable about.

Clearly there’s a failure to communicate in many bank board meetings.

Who Jumps First?

Just 27% of banks see themselves as first-movers technology-wise, with 62% describing themselves as fast-followers. These bankers are falling prey to the fast-follower fallacy.

One of my favorite comments about a fast-follower strategy comes from JP Nicols: “Banking leaders often describe their approach to innovation as being a fast follower. They’re half-right. Most of them are definitely followers, but there usually isn’t anything fast about their approach.” Nichols goes on to say that being a fast-follower “is a great strategy when well executed.”

I would argue two things: 1) There isn’t a single good example of a bank that has successfully executed a “fast-follower” strategy in the past 20 years; and 2) Even thinking about pursuing a “fast-follower” strategy is a stupid endeavor.

The first point is easy to defend. When it comes to digital technologies — online and mobile — the rate of adoption among banks and credit unions is so similar that no one can really claim to have consciously and deliberately pursued and executed a fast-follower strategy.

In addition, an overwhelming percentage of banks and credit unions that have deployed digital products and services available (e.g., online/mobile banking, online bill pay, eStatements, etc.) have done so at the speed with which their vendors have offered those services. Or slower.

To further prove my point, can you name one financial institution that has achieved any sustainable gains in market share or profitability as a result of being the 2nd bank to launch a particular technology? I didn’t think so.

The reality is most financial institutions are hard-pressed to execute on a fast-follower strategy. To do it, you would need:

  1. A team of people evaluating technological developments in the market, [accurately] assessing the rates of adoptions, and the potential economic impact;
  2. A team of people to rapidly deploy the technological innovations after a “go” decision was made; and
  3. An agile, rapid planning process that took in the inputs from the team in point #1 and made the quick the decision to fund the team from point #2.

You don’t really think that describes your financial institution, do you?

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