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I'd say 95% of bankers I meet are stuck in the last century thinking you describe. WHere bundling all of the crap you can sell into one package is the way to maximise profit from the customer. It's not. It's a dying business model. Sure if you push harder you might eek out a bit more next quarter but at what cost? This idea needs really expanding and hammering home.
Having a mobile money account doesn't financially include. If you can't save for a rainy day or future education or healthcare needs, you've effectively replaced cash with digital cash. Also M-PESA works really well when you dominate a market in mobile. The challenge on the rest of the continent is interoperability and wider services.
On this one I don't think executives are the issue. Someone somewhere is tasked with "Building the single view of the customer", but then can't get it past the Data Protection Officers, or prove how it's treating customers fairly. Then there will be a cost, and cost board don't approve it because one of the vendors isn't an approved vendor... There are all these SILLY things that get in the way of doing the RIGHT thing. You can spend a £100 million on a single customer view project and deliver nothing if you don't have the grunts who know how to run the gauntlet that is delivering ANYTHING inside a bank. It's like trying to give birth to the jolly green giant whilst completing the course of Ninja Warrior. The banks reaction to compliance is to create tick boxes processes that stifle innovation, and do nothing to prevent the next big PR disaster. The checks and balances don't work, and they're killing the business of banking.
> "If a bank really understands this, then they understand that this is a bank-wide change program that has to be led the entire executive team, not buy one person who’s been given the job" It strikes me bank executive teams are much more worried about Grexit, the next regulation coming at them or getting through the next results cycle. The irony is they all *think* they understand digital, they may even start to *sound* like they do. Talking about their new smart phone, pushing the latest "targeted loyalty marketing campaign" that cost £80 million and barely made 10% of that back in revenue... Pretending to understand is the worst kind of sin. It alleviates the management team from the burden of having to take long term, strategic bets. When they do invest for the future, the company wide change programmes are usually just a head count reduction and a re-org. That isn't bravery, that's giving the problem to someone who's CEO - 5 and can't get the political support to do anything brave. Then there's a whole team of 20, sometimes MANY of these teams dedicated to finding disruptive innovation and bringing it to life. Except they never do. There are two types of big banks Those who are digital from the inside out (often less sexy looking / feeling but actually growing) and Those who are digital on the surface (they'll have some fancy APIs, maybe mobile app awards but their core is rotten, every 3 years or so they go through a big head count and branch closure cycle, their business is eroding but life goes on)... There is no technology strategy, because events, markets and policy are very distracting.
Everything is technology. If your technology is out of date, you can usually see it in the share price and RoE. The thing missing is the recognition of THAT being the issue. Well that and being useless at preventing the real compliance issues. I'm sorry but another computer training course won't stop the next LIBOR fix... But replacing a core system with something that is real time, and better at data analytics could give you the transparency that would...
FIDO and OIX completely miss the point, so long as we're relying on paper documents to begin with... then somewhere, everything digital is built on shaky paper foundations. One solution is to create an entire ecosystem someone can live behind and swallow the internet (facebook) Another is to hope OIX and FIDO will win the day... but with different corporates competing to "lock in" your identity *cough* misguided *cough* What literally EVERYONE is missing in this debate is that a digital identity either requires a centralised database of identity or a distributed one. Centralised ones cost a lot and basically make you your governments bitch. Distributed / Verfiable ones aren't proven or understood... and the big gap isn't tech understanding, it's legal and regulatory
I have no moral issue with cash, I just find it really irritating. 1) A wallet full of cards and cash doesn't work with skinny jeans 2) I hate that thing where you take off your jeans and the coins all jump out seeking attention and making noise... screw you coins! I also get a little ill tempered if a store doesn't do contactless now. Sainsbury's I'm looking at you...
The bank as a platform, could comfortably co-exist with narrow banks. It's a difference in risk policy and marketing... but it all uses the same underlying infrastructure. Non Bank Financial Institutions, use bank services... Why not make that more intentional?
Simple is hard Simpler is harder We all too often compromise experience because we can't manage complexity. It's a lack of imagination.
The Bitcoin bad, Blockchain good message works in disarming people who have massively misunderstood what Bitcoin is and fallen for every misconception there is. If you talk about blockchain(s) or Distributed Ledgers you can get people to like the idea of near zero cost money transmission and smart contracts. Then you can dismantle some of the following misunderstanding; 1) I thought it was full of Money Laundering? No it isn't - We had DARPA scientists do some research with - there's no more money laundering in Bitcoin than any other electronic payment mechanism. The anonymity is a misconception. When every transaction ever is searchable in real time you're actually in a far better situation. You can identify suspicious behaviour rapidly, and then seek warrants to reveal IP addresses (and finding people behind TOR is relatively trivial these days). Compare this to current banking, where you know the alias of the person, but the transactions are hidden in some other banks systems and may take weeks to get the report on... 2) Don't regulators hate this stuff? Regulators are a schizophrenic bunch. Their innovation teams are trying desperately to embrace competition, whilst their enforcement teams are trying to spread a message that says "even in the wild west we'll get you!". On the one hand you have the recent Ripple fine (which was a bit harsh), and the other, Fincen, the very same agency protesting that not enough banks take a risk based approach. Banks view taking on business as very binary "yes or no" and set the barrier super high for a yes. 3) It's really not secure though is it? Again not true. There have been some terrible implementations of private wallets. Mt Gox for example, was the equivalent of everyone in the room giving their cash to Chris, only for Chris to leave his wallet on the table outside. It's not the fault of the protocol, which to date... has NEVER been hacked. I agree with Richard Brown on this, people are too quick to dismiss Bitcoin. There is a lot of value in the short term in distributed ledger tech for banks to get some operational efficiencies... but long term Bitcoin is interesting. There are 2.3 Billion people on earth under the age of 20. 220 Million agricultural workers are paid in cash. There is no way the cross section of these people will be walking into a branch any time soon. The war on cash got stuck at 45% because you can't displace a bearer asset with a liability and expect it to function the same. Cash is expensive both logistically (vans moving cash around), and from a risk perspective (open a chicken shop and run drug money through it - to cleanse it into a bank account). Cash is also not profitable - money sitting in your bank account is leveraged on the stock market by the bank. That's why we have "free" banking. Bitcoin functions in a similar way to cash, in that it's 100% collateralised. A bank can't use Bitcoins you hold for anything else. I think people lack imagination here and don't see the possibilities. Just because it doesn't fit your current model doesn't mean it couldn't... Digital cash has tremendous potential 1) It's harder to steal 2) It's traceable real time 3) A transparent record of cash usage could be an interesting way to risk score someone for say - a loan or savings product.
Thinking in channels, suggests the customer experience can be carved off from the core product experience. They're one at the same thing. I think the reason the term is so repulsive is that it proves the speaker DOESN'T GET IT. It's the careful union of the core product and the digital front end that creates an experience. Not a mixture of front ends that can cross reference each other. That's creating more spaghetti. If I had a magic wand, I'd make anyone with a budget in a bank work for a year trying to deliver a project and putting up with all of the compromise and BS that takes a well intentioned idea, gives it to smart well intentioned people and slowly ruins it, demoralising everyone in the process. Banks have a talent retention issue looming. Not because they don't pay enough, but because they don't deliver enough.
The question here is about opportunity Opportunity #1 Continue to cut costs in core markets, and be commoditised. Gradually eroding your customer base to become a profitable, smaller bank that never quite lives up to it's potential. Outlook ~RoE will rise and fall with economic conditions Opportunity #2 Commit from the CEO down, into the tech strategy. The CEO MUST understand how the core is to be modernised, replaced or adapted. Even if this start's at the margins of the business. CBA, mBank... as you say. This works. Outlook ~RoE will dramatically improve as will share price Of course #2 is harder. Mostly because your executives and staff won't understand it.
Interesting. I read somewhere 80% of lending club (or one of the SME lending start-ups) liquidity actually comes from banks. What they've actually built is a more usable front end for corporate banking services. The real risk is being commoditised and eroding margins, with high underlying costs. Banks are therefore, rightly afraid of being commoditised. It's already happening to a degree. Fintech players are taking the UI and the customer relationship. In addition banks are structured with checks and balances that don't allow ideas like APIs and Big Data to become reality. For a couple of reasons 1) Most stakeholders don't get the business value of these ideas and kill what looks like risk, rather than embrace what they can't see is opportunity (Innovation looks a lot like risk when you wear compliance goggles) 2)The systems banks use are old, don't talk to each other and often don't have the ability to simply have an API published, or pull out metadata for sharing with clients. Banking is a black hole of batch processes, not only to corporates and consumers, but to bank staff too. The disruption threat comes from new core banking platforms like Fidor OS, and some others that are now popping up in emerging markets. The idea of a "bank in the cloud" is now possible, even though your risk teams will swear blind it isn't. It's not technically compatible with current regulation, or your current infrastructure... So what we will see is these bank in the cloud / wallet based solutions grow outside of the traditional banking markets and slowly get adopted / acquired by banks in a 3 - 5 year time frame. Don't believe me? Have a good look under the hood of what Alibaba has... A wallet / payments capability A merchant / e-commerce play Credit scoring capability Lending and "deposits" by any other name... and 800M users Banks are stuck in the 1990s mindset of trying to "Own" the customer, and need to get really humble, really fast. Have a sexy back end and scale like crazy OR, create the consumer brand everyone wants to use. As Chris says in another post, focussing on mobile being being too shit scared to touch the back end HASN'T worked. Cap Gemini agree. Could have told you that 5 years ago but lets try again. What do we want? APIs! When we do we want them? NOW!
Machines will still fail, crops will still have a bad year, freak snow events will happen. Insurance has a place in a world governed by Chaos and quantum mechanics. I suspect for the IoT to really reach that level of possibility two things will have to happen 1) Humans will have to find something else to do with their time - unlikely 2) The economics of insurance and bid / ask on commodities will be managed by machines - likely The fact that #2 is likely doesn't obviate that #1 will become likely. The industrial revolution can / could have replaced most jobs already. Do we need McDonalds staff at a drive thru in an age where machines can build a car? Do we need shop assistants in the age of credit cards and barcodes? There's a lot that could be automated that hasn't been. There was a case I'll look up, of Ford workers in the 1930s dropping to 6 hours per day and a 4 day week. By the 1940s they were back to 8 hour days and a 5 day week, because their wives were sick of them being at home, and peer pressure from friends who worked longer. Even though the pay was the same. We're a species that would rather feel useful, than be useful and often we can't see how that affects our decision making in the economy. The outcome is either some giant welfare state without a social stigma (possibly like Wall E), or communities of engaged individuals challenging themselves physically and mentally like happy children for life. We're basically going to become the pets of our own machines if you follow that line of thought. Before we get there though, there will be two types of people. People who tell machines what to do, and people who get told what to do by machines.
The only thing missing here is the business argument for the change. The obvious one is cost, but the nuanced question is. What is the best way to reduce cost AND what is the time horizon over you which to do so? If you're trying to reduce cost in the next year, then closing another 5% of your branch network and having an adequate digital presence is probably enough to get by. You could even outsource a little more, consolidate a little more. But that has the downside of mortgaging the future of benefits today. Something banks are VERY good at. Especially given how sensitive banks are to market and regulation changes. A strong market can hide many ills. If you're trying to reduce structural cost issues over the coming decade this is a very different question. Your points above then become table stakes and a hygiene factor. What's still missing is why, why are banks cutting their cost base? Because top line is down, and they need to maintain / improve the RoE. I think that's part of it. I think another big part is the regulators actively creating competitive pressures, and the potential for new types of competitor who operates at a different scale. In the West we've been quite lucky that GAFA (Google, Amazon, Facebook, Apple) cannot get their shit together on this front. In China and many developing economies this is an entirely different situation. Tencent and Alibaba both have very strong "bank" like offerings for merchants, huge customer bases (in the hundreds of millions) and a significant chunk of liquidity. If you believe the future battle, is not about who gets to charge for using the rails, but who manages the liquidity and the data, this is a huge threat to long term profitability in the 10 year time frame. So reducing cost base is about finding a way to compete at scale, and offer your services to corporates and consumers... not by default or because you're the only game in town...but because you're competitive. Of course, why would this motivate the C-Suite? The core of the business is still solid... Which is exactly what Blackberry and Nokia execs were saying in 2007. Banking moves much slower, but what happens when major corporates start moving to these new platforms. Death by 1000 cuts?
When it takes 2 weeks to get a tweet approved, you're always going to struggle
If you take one recommendation from me this year, take this one. Read "Bitcoin, Burning Man and Beyond". The crowd regulating through consensus is a better model, but it's going to take a very long time to get there. The observer in the west see's that Land Registry, Payments and "freedom" are largely effective and balance the ability to prevent bad actors in the system. The observer in Zimbabwe does not see the same. This technology can solve problems and be proven in markets where centralisation is actually a bad thing. In doing so it can dramatically reduce costs to serve and bring billions into economic activity. Then over the 100 / 200 year time frame, the west will gradually adapt to group forming networks. Democracy is simply the least worst form of Government, but there may be better. I don't know if decentralised regulation can prove itself in the short term, how do you aggregate consensus? It would be nice however, to have a system that pushes towards consensus without falling for populism and doing stupid things like bringing back capital punishment. We don't vote on everything that happens, but we empower people to run the system for us. Voting on a blockchain has a certain usefulness, because it's transparent and irrevocable, but it's not yet proven. The youth who want this change emotively would be best served channeling that energy to building the change they want to see in the world.
Salesforce has nailed how to build and sell B2B products. The crazy thing is most companies that use the services are getting less than 10% of the value. The service is only as good as its implementation, and often the people in the corporate tasked with implementing don't get the big picture or the value of consolidating services. There will be howls of pain if you take 18 CRMs and push it all into one cloud, but the net benefit is enormous. I'm yet to meet a COO with the foresight to do this...
Can we do something simpler. Can we have risk teams that talk to each other, speak with one voice and have answers to questions that don't involve governance, escalation, sign off of spreadsheets with a matrix nobody will ever read but take months to negotiate internally. #bonuswars
Car metaphor ftw! Book marked these 4 pages...
People overestimate the pace of change in banking, which means the banks are still here and probably have a decent runway in front of them. People underestimate the impact the change that has already happened, because it happens so slowly and this is precisely why it's so dangerous. Death by a thousand cuts, is death all the same.
More than ever, banks need their CTO and CIO community to be embracing the opportunity that solving this complexity can bring.
Is providing APIs to welcome the new overlords (and potentially add value) cannibalisation or the only way to survive? I believe it's the latter, and for the ones that get there first, there is a huge opportunity... because Google aren't the only platform out there that could improve the transactional nature of banking. What about Salesforce? What about Facebook? What about a push payments version of