In the 1970s, Walter Wriston, then CEO and chairman of Citibank, said that “information about money is becoming more important than money itself”. His successor John Reed said that “banking is just bits and bytes” in the 1980s. How right they were, and this just underscores how important digitalization is to banking. We have known it was coming for a long time, we just didn’t know how big it was.
I remember making a presentation a couple of years ago to a major UK financial institution’s board executive offsite. During the presentation, I touched on the growing impact of apps and APIs.
“API,” said one board member. “What the hell is one of those?”
I explained that it was related to open source architectures and integrating systems.
“Jesus,” said the pumped CxO. “I never expected to be attending a technical meeting. I run the business, not the systems!”
At this point, it was either him or me leaving the meeting, and so I made my way home. This is a strong illustration of the problem we have today: banks are being eaten by technology, but the parasites are not even understood by the bank executive team. I recently blogged about this, with my favorite story being the battle between Klarna and Stripe, and most bank CxOs having never heard of them, even though these are two mighty unicorns in a battle for payments supremacy.
Take the chief risk officer, CRO. The CRO needs to know Basel III, regulatory requirements, the compliance and audit processes, and more. Tech? Hmmm … what about cybersecurity? What about real-time risk reporting? What about instantaneous credit risk ratings using clever software algorithms? What about exposure to markets through high frequency trading? Nah, the CRO needs to have a systems knowledge as much as the CIO.
CFO? Hmmm. The chief finance guy is normally the head of spend avoidance, yet banks spend huge amounts on technology. Most banks invest 10% or more of their annualized budgets into systems spend, and, of that investment, the majority is washed down the drain by giving it to the CIO to keep the lights on. It’s maintenance spending, not spending for the future. As illustrated by my regular notes on banks such as CBA (which saved 35% on annual IT costs by investing in the cloud or BBVA , which is saving over €300m a year in costs through digital transformation), if the CFO isn’t challenging the CIO about reducing costs through adopting new technologies, they’re failing in their duties.
In fact, I cannot think of a single role in the leadership team of a bank that shouldn’t be at least keeping up with the latest technology trends. After all, if the leadership isn’t understanding the technology threats and opportunities, then they’re surely failing in their leadership role.
– 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.