I’ve been presenting the theme around what banks have to do to become digital for a while now, and obviously have blogged and written loads about it, and yet something still niggles in the back of my head. I guess it’s that I’ve written some of the things down, but not all, and the thing that I haven’t blogged in great clarity is what stops banks being digital.
Incumbent banks have lots of issues, and I’ve regularly blogged that they have to change core systems and have passionate leadership from the whole executive team. But why? What’s the real problem with being an incumbent bank? Surely, we have the upper hand? Millions of customers, thousands of staffers, hundreds of branches … and therein lies the problem. The problem is threefold.
- First, banks were built upon a presumption of a branch or face-to-face interaction in a physical space.
- Second, their technologies have been implemented based upon this null presumption.
- Third, their organizational structures are fundamentally flawed due to product silos.
I summarize these three challenges as a focus on physicality, legacy and product. Let’s just explore these three major challenges in a little more depth.
It’s a hard one to let go of, but until we do we’re hampered by heritage. You can never be a digital bank while talking about channels and the need to bring the branch along with you. As I’ve said so often, you need to talk about access and think about what branches are needed for access to digital self-service structures, if any.
This is why the first and most fundamental shift to digital is to accept that this will be a massive change program of the whole bank, not just a project with designated leaders. Digital requires restructuring the bank to a foundation that has the presumption that the internet underlies everything in the bank. Branches, employees, customers and all technologies are implemented on an IP base. Once that’s clear, we can move on to point number two, which is legacy.
How much spend goes into digital innovation?
I keep saying banks must get rid of their old systems (many of which were developed before Mark Zuckerberg was even conceived) and implement fresh, new, shiny ones. But not all banks. Banks in China, much of Asia, Africa, Latin America and parts of Europe such as Poland and Turkey, have core systems implemented after 1994, the year the internet ignited thanks to Tim Berners-Lee and others developing the World Wide Web in 1989. Yet, the banks that are handcuffed by heritage – mainly those in Europe and America – have to ditch their stinking, old monoliths for newly integrated enterprise structures.
To me, it’s like watching a house on fire and the CIO and his team are the fire department. The fire department are spending all their time trying to stop the house burning down, and a small amount trying to build better fire prevention systems. Meanwhile, they haven’t noticed that the owner of the house is pouring petrol on the flames from behind to ensure the fire will never go out.
The fire of legacy will never be tamed if we continue to spend all of our time investing in keeping it going. We have to bite the bullet and work out a plan to get rid of it, either through migration or reinvention. At that point, you go back to the core question: Do we evolve the bank or build a new one? The answer to this question will be different in every bank, but assuming:
- the executive team understands that digital is a real change program for the whole bank and not just a rinky-dink project; and
- they’re committed to a massive infrastructural rethink from core systems that cemented in place physical structures to a new enterprise core that enables digital access in real-time …
… and both of those are big asks … but assuming they can buy into (1) and (2) then (3) is fairly easy, which is: what is the right organizational structure for our new bank? and hey, if we’re wiping out the old structures, then we can start completely afresh.
Digital allows you to micro-serve mass customers in real-time for almost free, but you can only do this if you have a holistic view of the customer’s data, and you’ll never have this if the King of Spades won’t share his customer data with the Queen of Diamonds.
In fact, banks are only built as product-focused companies due to an error in the 1960s, and we can rebuild to be customer-centric. However, we can only rebuild to be customer-centric if we commit to a massive change program from the executive leadership team down.
Hence, for all these reasons, the three big challenges of a focus on physical, legacy and product can only be broken if the bank truly commits to digital change. Meantime, if it doesn’t, what then?
– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. You can read the original article here. Main image: Indigo Skies Photography