Dear Friends, I want to summarise the last book of
Chris Skinner that is “Doing Digital Lessons from Leaders”. In this book, he is
discussing the change happening especially in the banking sector. In addition,
he claims that banks are not dump but just challenged. He says, many banks he
met with have good middle management and good line of business owners, but they
are not structured correctly for the digital age. They have too many silos, too
many business owners, too much politics and too little ability. Moreover, they
should reinvent those old core systems and build digital bank business model. Plus,
he says that the challenge is not easy. This is why most banks are adding
digital as a function, a project or a channel to their existing structures,
rather than reinventing their business model.
He sees Fintech and bank relationship is like a
parent and child relationship. Many banks are starting to collaborate and work
with different Fintechs and they are not in competition with them but they are
nurturing and feeding different start-ups in order to make them more successful
in the future. Fintechs are making banks do what they have always done, but
cheaper, faster and better with technology.
There are seven new ways in which finance deliver
it by technology is changing the game. These are;
1- It is real time.
2- It is all the time and everywhere.
3- It is
seamless. From now on banking should be invisible, frictionless and seamless to
everyone. No customer wakes up and says “I need a mortgage”. However, they need
a bigger home. The bank in this process is just an enabler.
4- It is
personalised.
5- It is
not only personalised but also predictive.
6- It is
for everyone.
7- It
reaches the unreachable.
There are also five areas of change.
1- Financial
inclusion. The fact that anyone who can get access to a mobile telephone, can
now get access to finance is why so many people are getting engaged into
trading and transacting.
2- Financial
literacy.
3- Financial
capability for the financial disabled.
4- Financial
wellness overall. For example UK Challenger banks like Monzo and Starling are
helping customers to give up gambling by offering a block to prevent their
financial accounts accessing anything related to gambling.
5- There is
sustainability and responsible banking. There is a good example of Alipay in China,
which is using a gamification in order to make its users decreasing the carbon
emission. For instance if you take a bus to work rather than a taxi you get
points.
Anyone can start a tech company but very few
people can start a bank. Because to start the bank is not simple as opening a tech
start-up. We trust the bank because they run under regulation. We trust the
utility of the company to keep our money safe.
Banks and Fintechs are creating faster horses but
the Bigtechs and the challenger banks are inventing the cars. Every bank is talking
about investing billions in technology over the next few years. Some talk about
mass lay-offs in the process of digital change, others talk about cost saving
in the digital transformation process and a few talk about customers and
service. However, the challenger banks start with the customer needs and the
customer journey. They design from scratch around customer needs and the
customer journey. They have no legacy, no background, no heritage and no mess. However,
the banks have plenty of legacy like legacy systems, legacy vendors or legacy
staff.
The banks of the future should be like “Lego”
banks. The services provided from the banks should be very easily used by the
Tech companies to provide service for the customers. However, it will be very
difficult for the banks that have a Spaghetti structure.
The banks are dealing money through technology
where the Bigtechs are dealing technology through money. However, the Bigtech
companies such as Google, Facebook and Amazon do not think about opening a
bank. First of all their revenues are depending on the financial community
because the banks are advertising through these platforms. In addition, they
are serving the financial institutions cloud platforms.
There are five phases of Fintech history:
1- Disruption; between 2005 to 2014.
2- Discussion; between 2014 to 2017. It is a buy
or partner relationship.
3- Partnership; between 2017 to 2022. It is the
collaboration phase.
4- Integration; between 2022 to 2027. It is the
fully integration of Fintech capabilities through APIs through open banking.
5- Renewal; from 2027 and onwards. It is the
integration of banking, Fintechs and the Bigtechs.
The executive teams of successful banks are
composed of half digital and half bankers. Is it seen in the “digital banking” term
that it is partially digital and partially bank. Which means 50% digital and
50% bank. The old guys do not think that the young guys understand financial
markets. In contrast, the young guys do not think that the old guys understand
technology.
An industrial area company made everything,
controlled everything, and distributed everything. However, a digital era
company makes nothing, just connects everything.
There is a three-question test for a digital
transformation success:
1- The DT is delegated to CDO as a project or
handled entirely by the management?
2- The DT is a cohesive, enterprise operation or
not?
3- After DT, the bank is developing everything on
its own or partner with others?
Three objectives for the banks are incompatible.
These are; large quantities of customers, great service with high quality and
low-cost. Only some internet companies can meet all these goals. For example
Amazon.
Without advertising, the customer should find
every function on his own in the mobile application. The bank should not depend
on any guidance or information for the customer to find the right service in
the mobile app. It should be convenient for everyone and the process should be
designed subject to the user’s experiences.
Going digital does not mean that the branch
network will die soon in the future. Regarding a survey; if the bank has
physical presence, it receives 2.5 times more deposit or asset than a place it
doesn’t have any physical presence.
Chebanka!, an Italian digital bank, has physical
branches. For the bank, having branches has three important reasons. First one
is the customer service. The second one is the trust of the clients that they
see the branch and the bank physically and they are satisfied with the presence
of the bank. Finally, the third one is the marketing. First two serves the
needs of the clients but the last one serves the needs of the bank.
The people do not trust the bank or its management
team but they trust the manager of the branch. They may know them personally
although that is less and less likely in this mobile app internet age. Moreover,
the physicality of a bank creates trust. When the 2008 global financial crisis
happened, the first thing that the people did was queueing outside to branches
to get their money out.
If you engage with the customer in the first place
then you can retain the customer in the future. For example, Google founders
Sergei Brin and Larry Page has converted a $100,000 check (received from the investor)
in Wells Fargo branch so still Wells Fargo is their main bank right now.
If the bank founds a new enterprise whereby they
make digital banking, it should run completely separate from the bank with a
completely separate management team and a completely separate budget.
In conclusion;
1- The
leadership commitment is crucial,
2- The
banks should have clear principles,
3- The
banks should be customer focused,
4- The
people should be reskilled and retrained,
5- The
organisation should become agile,
6- The
technology and business should come together,
7- The user
experience and the customer is experience is the key,
8- The
banks should learn to co-create with the partners and customers.
I want to close this essay with the quote from Jack
Welch. He says that if the rate of the change on the outside exceeds the rate
of the change on the inside the end is near.
Thank you for reading.
