by Brett King
4.Stop hiring bankers, attract differentiated talent
It is key that new skills are infused throughout the organisation. A focus on people who have worked in banking before, or “banking experience essential” on the job description, is only going to reinforce the traditional decision-making process and reduce your likelihood of survival. But hiring the programmers, designers, data scientists, and deep learning specialists that will bring a breath of fresh air into the organisation’s thinking is tough when your culture is bankers or banking first, instead of customer experience and technology transformation focused. A recent article by a coder that had worked for mainstream financial institutions in the UK for nearly a decade is telling:
Banks will tell you they’re tech companies. Don’t believe them. Technologists are second class citizens in banks—if you work near the trading floor (I did), the traders are in charge. The politics in the technology team are immense and the career progression is limited. You won’t be working on innovative new technologies. Most banks are cutting costs and this means you’ll be focusing on maintaining the infrastructure.
—“Banks are no place for coders”, eFinancialCareers, Richard Ling, March 2017
How does a bank compete with the likes of Google, Facebook, Uber, and the tens of thousands of FinTechs also competing for talent? Peter Lawrey, Stack Overflow’s most active community commentator and a high-frequency trading coder, made the observation in a 2015 interview that banks are having to pay 33–50 percent higher salaries just to attract talent16. In most cases, however, banks just don’t compete. If you want the best technology people, you do need to present your organisation as a business that eats and breathes the potential for technology to change your destiny.
In a benchmarking study by Emolument.com in September 2017, it found that two thirds of software developers working in banks believed their bosses didn’t care about the working environment or them personally. For those we’d traditionally call bankers the survey showed the opposite statistic, with two-thirds saying they were happy with the way the organisation prioritised their needs. That reinforces the anecdotal evidence that within many banks digital or technology is still not considered “real banking”.
In an effort to attract talent, the more innovative banks I’ve seen are “googlizing” their offices. I visited Banco de Chile in 2017 and was told by COO Ignacio Vera that interviewing staff in their incubator offices had been “an essential element in turning around our ability to attract talent”.
Figure 6: Banco de Chile’s Lab Environment in Chile has been successful in attracting design and developer talent.
In 2014 Capital One acquired the design firm Adaptive Path17. They did this as part of a deliberate culture shift, where design became central to the future delivery capabilities of the bank. This is obviously a key strategy in both attracting talent, getting rapid delivery capabilities and changing an organisation’s culture. As acquired talent is injected into the organisation, they can often be seen internally as the new benchmark in respect to culture and approach. This can help, but only if your organisation is receptive.
Hundreds of banks over the years have started innovation departments only to see them wither on the vine when the head of innovation departed for a better gig, or closed them down because they didn’t fit the culture of the bank. The issue here isn’t that the innovation team doesn’t fit the culture of the bank, it’s that the immune system of the bank works hard to reject something new that threatens change. Change is perceived as risk, and risk is the last thing banks want to take on.
5.Prioritise the most impactful digital journeys and get started
Transforming your entire business overnight is basically impossible, but you can start building experiences that circumvent traditional organisation structures, departments and technology. Experiences that demonstrate successful transformation.
Bain and Company research showed Millennials were placing calls to their banks at 1.7 times the rate of customers aged 65 plus. But that isn’t because younger customers love talking on the phone18. The research showed that in more than half those instances they had tried using a digital channel first and had failed—whether due to usability issues or simply that the digital channel did not support what they were looking for. Well-designed customer journeys make good economic sense. Each digital interaction with a customer incurs a variable cost of about 10 cents, compared with more than $4 for an interaction with a human teller or call-centre agent. The incentive to get those customer journeys working properly is strong. But how do you prioritise the journeys that will lead your transformation efforts?
A simple method I’ve used over the last decade or so with strong business case performance has been a weighted, business impact scoring methodology. You take the key elements of revenue generation, customer relationship impact, customer friction, organisation cost savings, and risk management and look for those customer journeys that tick the most boxes. The key is that journeys that positively affect the bottom line and improve engagement, reduce attrition and increase revenue per customer, naturally flow to the top. Here’s an example I prepared earlier for typical retail banking transformation:
Table 2: Customer/Business Impact Scoring Matrix.
The weighted formula used in this example is as follows:
=((IF(B=“Yes”,5,0))+(IF(C=“Yes”,5,0))
+(IF(D=“Yes”,5,0))+E)+(5-F)
Essentially, each column is given a weighting, and the journeys with the greatest impact to both customer and business profitability rise to the top. The formula could be adjusted, but the current formula provides a strong balance between business objectives and customer prioritisation. Many of a bank’s traditional products and experiences simply don’t rate well using this methodology, and would not make the cut.
An example from the opposite illustration is a Credit Card Usage Offer—something that the cards guys would inevitably want stuck in the mobile app as a high priority. The problem is that it doesn’t solve a customer problem, and it doesn’t have a massively positive impact internally, either. Whereas an instant In-Store Credit Approval performs much better, scoring almost twice as high on the potential score. In many regards you could view this as the same fundamental offer, but one is experiential and the other is product-focused.
This illustrates the point once again: if a bank is going to work on customer journeys, it shouldn’t be to just adapt a product designed for brand distribution on to new digital channels, but should include the customer journeys or scenarios that will make the most impact. A poor example of this is Capital One’s Alexa deployment, where they focussed on paying the customer’s credit card as one of the first-use cases they developed. Why were they trying to shove a plastic card into a voice experience? Everything about voice commerce suggests a plastic card with a 16 digit number is an anachronism. This is a missed opportunity.
What is the core utility a bank offers, and how best can that utility be presented through the technology layer in real time? That should be at the heart of great CX design in everyday banking.
How do you take 19th century management and measurement practices and make them work in the world of today—the world of Steve Jobs and Mark Zuckerberg?
—Jason Berns, Senior Director of Innovation—Under Armour
Research from Innovative Leader found that the vast majority of companies don’t even have effective metrics to measure their successful transformation. The research did show that both activity metrics and impact metrics were critical in measuring the success of transformation efforts. Activity metrics being the inputs into transformation—the number of employees involved in innovation, number of ideas generated, number of new projects started, patents filed, etc. Impact metrics were the tangible results of innovation—revenue growth, new market share/entry, new product or service revenue.
Here are the top five measurements that came out of that survey of 200 leaders of innovation:
1.Revenue generated by new product
s
2.Projects in the pipeline
3.Stage-gate process (i.e., projects moving from proof of concept to implementation)
4.P&L or financial impact
5.Number of ideas generated per quarter
If you want to transform, you should be measuring how successful your team is at adapting.
Survival starts at the top
We can’t solve problems by using the same kind of thinking we used when we created them.
—Attributed to Albert Einstein
If you’ve made the decision to survive the disruption of technology and FinTech, rather than accept the slow decline into obsolescence, then you must start by committing to changing the culture of the bank. You might want to be a technology company—but that adds up to a lot more than simply saying you are a technology company, swapping out the office furniture with bean bags, and slapping some pastel paints and whiteboards around the place. It requires a culture shift, starting at the top. It requires leaders that both want to transform the business, and have the skills to make it happen.
Let’s think about what the data is telling us.
The fastest growing financial institutions globally are either technology companies that acquire customers at scale quickly and cheaply via digital direct approaches, or those incumbents who are spending literally billions of dollars a year to innovate in a host of areas. FinTechs are gradually taking market share, and while they don’t dominate the sector, their growth means they will absolutely be a part of the future that is coming, and others are likely to get consolidated out. It is not just happening in the acquisition arena, either. Technologies like artificial intelligence, blockchain and cloud architectures are fundamentally changing the way we build financial institutions for the 21st century. When it comes down to it, technology is not at the heart of the modern financial institution. It’s the heart, the brain, the legs, the vocal cords—heck, it is what we know as banking today.
If you don’t have technology people on the board of your bank, and if your CEO has spent their entire career as a banker and doesn’t know a GPU from a CPU, then call me a cynic, but I just don’t think he’s going to be the guy to lead you through the transformation required.
When I see the likes of HSBC promote a CEO who has practically zero technology experience and has spent his entire career in the bank19, I’m going to bet they will probably fail to transform their business20 before it is materially disrupted. HSBC’s leadership is still built around a core of traditional thinking, and that is going to be the biggest hurdle to rapid organisational change. HSBC does have a Global Head of Digital for Retail Banking, Josh Bottomley, a really solid guy. But when you look at the leadership profiles on HSBC.com21 he doesn’t even make the cut, emphasising the disconnect between the skills needed to adapt, versus the skills needed to just continue being a 20th century bank. Sure, the Group COO, Andy Maguire, has technology in his portfolio, but he isn’t a dedicated technologist, and technology is certainly broader in impact than just operational aspects. The best the HSBC leadership team could offer on their “About Us” page with regard to a tactical technologist was a Head of Financial Crime Risk. That’s hardly transformational, that’s essentially a compliance role. They do have a technology advisory board that meets quarterly22—but again, how is that supposed to move the ship fast?
As an ex-HSBC-er, this distresses me immensely, but it is indicative of the core problem with broad corporate statements about digital transformation such as HSBC’s “simpler, better and faster” technology mission statement. I’m not picking on HSBC specifically23, I’m trying to illustrate the need to get real about change. You simply can’t claim to be transformative, innovative, customer-first or “a technology company”, unless you actually have leadership that gets the tech stuff. Leadership that can execute for the 21st century.
By contrast, if you go to BBVA.com’s corporate leadership page, you’ll see immediate messaging about digital and customer experience transformation (from the chairman); you’ll see social media metrics around BBVA’s reach; you’ll find plenty of people with a strong technology pedigree in the leadership layer; and you’ll see a history of acquisitions and partnerships that walk the talk. Go to AntFinancial and you’ll see that the entire leadership team is based on years of strong technology experience and competency24, starting with the Executive Chairman Peng Lei (Lucy Peng).
I regularly speak at events where a CEO of a community bank or credit union will come up to me afterwards and say, “Gosh, after hearing about all that, I’m so glad I’m retiring next year.” I guess I don’t need to point out that this is not actually a solution to the organisation’s impending difficulties.
Yep, transformation is super hard. The bigger the organisation, the harder it is going to be to turn that ship. But just saying you are digital isn’t enough. Digital needs to be at the heart of your business, and the organisation chart doesn’t lie.
In Bank 2.0 I put it this way. I asked a simple question in the concluding chapter: “Does your Head of Branches have a more senior organisation role than the Head of Internet [or Digital]?” That question, which I asked almost a decade ago, is still at the very heart of your ability to adapt, but today the Head of Digital should be senior to the branch head. Why? Because if you are going to survive, you must recognise you are now competing against a new class of competitor and every FinTech CEO, every technology major CEO, is also the Head of Digital at their organisation. The answer in 2009 when I wrote Bank 2.0 was in most cases “no”. The answer today is still not much different.
Banking is no longer about banking competency. Banking will forever be a technological pursuit from this point forward. Revenue will be largely technology dependent within just a few years. Brand, reach and scale will be technology dependent. Customer engagement is already 95 percent technology delivery, based on daily behaviour. Your ability to attract great talent is about culture and your ability to leverage technology. Artificial Intelligence at the heart of your future business won’t be built by guys who started off as a teller in a branch.
You can’t adapt to the incredible changes that are occurring in our industry by simply being great at banking. That’s no longer enough. You need an unyielding focus on being embedded in your customer’s life through the technology they have at hand, and by transforming your capability to deliver on that promise, when and where the customer needs you.
First-principles thinking means the ability to start from scratch and approach the problem in a fundamentally different way. If you’re iterating on the same basic banking model you’ve had for the last 30 years, you just won’t get there fast enough.
Banking will be everywhere, but only through the technologies that allow it to be ubiquitous—not through real estate and humans. If you don’t have the right leadership transforming your business, if you don’t allow yourself to think differently about what banking is, your bank simply won’t be there.
Endnotes
1See: “One statistic shows how much Amazon could dominate the future of retail”, Business Insider, Kate Taylor, 1 Nov 2007; Amazon is driving half of the growth in retail—Sears, Macy’s and ToysRUs are all victims of this shift.
2Source: FDIC Data. See also “Banks are getting bigger, not smaller” The Independent, 12 March 2017.
3Including Australian, UK, US and German majors.
4Source: Gallop Poll “Confidence in Institutions” July 2017—http://news.gallup.com/poll/1597/confidence-institutions.aspx.
5Amazon, Apple or Alibaba, for example.
6Source: E&Y/DBS Survey 2016 “The rise of FinTech in China”.
7Source: “The disruption of banking”, The Economist EIU.
8Source: FDIC Statistics At a Glance (30 September 2017 figures)—Total no. of FDIC Insured Institutions 5,737 (92 percent of that total are community banks).
9Source: American Bankers Association.
10There is one bank for about every 50,000 citizens in the Eurozone, a similar leve
l to the US, but far more fragmented than the UK’s one per 170,000 people and Japan’s almost one per 900,000 people.
11Source: The Financial Brand.
12Interview, March 2016, Salesforce.com—emphasis ours.
13TheFinanser.com.
14Source: “Bridging the Technology Gap in Financial Services Boardrooms”, Accenture Strategy Report 2016.
15See Goldman Sachs Report “The Asian Consumer: Chinese Millennials”.
16Source: JAXEnter, “Banks ‘pay 33 percent to 50 percent more’ in developer salaries”, March 2015.
17See Techcrunch, “Design Firm Adaptive Path Acquired by Capital One”, 2 October 2014.
18If you have teenage children, you’ll know from experience how hard it is to get them talking on the phone.
19See http://www.hsbc.com/about-hsbc/leadership/john-flint.
20HSBC has stated for the last couple of years they wish to be “simpler, better and faster”.
21See http://www.hsbc.com/about-hsbc/leadership.
22Source: BankingTech.com, FinTech Futures “HSBC to capitalise on tech innovation with technology advisory board”; Tanya Andreasyan, 18 Jan 2017.
23Well, I guess I am, to be honest.
24See https://www.antfin.com/team.htm.
10 Conclusion: The Roadmap to Bank 4.0
Disruption isn’t about what happens to you, it’s about how you respond to what happens to you.
—Jay Samit, author of Disrupt You
When we talk about Bank 4.0 it is good to establish both a timeline and a definition for clarity:
BANK 1.0: Historical, traditional banking centered around the branch as the primary access point. Started with the Medici family in the 12th century.