BankNXT was the lead media partner at the recent Retail Banking Innovation Conference in London. It was a two-day event, well organised and vibrant with opinion. The first thing I heard at the start of the conference was, “What if we wait for fintechs to die off, then prosper afterwards?” The answer was delightfully and appropriately succinct: “I think the consumer will decide what the future looks like.” And over the course of a handful of panel discussions and some excellent speaking slots, the room slid gracefully from one hot topic to the next.
Such topics included the concept of working together rather than against one other, open banking, PSD2 and the new regulatory landscape, transformation (digital or otherwise), leadership and culture. On this last topic, much was said, and it became something of a mantra. Neil Tomlinson’s opening remarks, for instance, swept vigorously through business cliches such as suits and ties, an inability to adapt to progress, and the disabling “permafrost” inherent in so many incumbent institutions. He was followed by Alasdair Smith from the CMA.
“The Times asked me what open banking was,” said Alasdair. “I explained it to him. Then he said, ‘It’s just glorified banking comparison services, isn’t it?'” Despite Alasdair’s clarifying remarks to the contrary, the next day’s article used the reporter’s words rather than the truth. Thus, the beginning of the conference opened to the usual wall of misunderstanding, frustration, and the feeling of, as the British Board of Film Classification might put it, “mild peril” where fintech is concerned.
But what do incumbent banks have to lose, other than customers, money and face? Well, I suppose there’s those three for a start.
Real innovation, not just for giggles
Here’s what incumbent FIs already have: lots of data. Resources. Regulatory know-how. Heft. They can also be hamstrung by their own heft, with little breathing room for innovation. Token gestures such as hiring (or creating) a Chief Innovation Officer is all well and good, but as was mentioned in the audience, “People with ‘innovation’ in their title are often the least innovative person in the company”. There were chuckles after that, and some sloped out of view.
Some incumbent banks know that things need to change in order to stick around, and there’s a sense that things are happening. There were some bright representatives at this event, and you only hope they’re empowered with the right people and financial resources to make it happen. I also noted remarks from some incumbents who quite frankly are struggling with the concept of having to change at all, and that competing against their peers is still a priority over what the customer actually wants.
I reluctantly sense that customer data isn’t what some banks want to share at all, which Chris Skinner alludes to in his article about “getting around open banking“. There was some discussion about switching banks, with statistics thrown enthusiastically around the acoustically endowed hall, yet no one mentioned that people often switch banks for products and services without necessarily leaving their current bank. Many second and third products and services are with other FIs, without ever having to close a current account with an incumbent. So while customers may stick around at said incumbent bank, they may get their mortgage from somewhere else, and open a savings account elsewhere, or transfer money, or get insurance, and so on. Customers are demonstrating agility, which is a concept fintech companies completely understand. They’re not doing this in any great numbers right now, but you would be wise to not sit back and see an uptake in service switching happen right before your blinkers.
Research from 2015 underlines that incentives still play a major part in making a decision to switch to another bank, product or service. However, monetary incentives aren’t always the most attractive option, and any decent user experience expert will tell you that even good app design isn’t as good as the customer service representative at the other end of it.
Stealthy ninja or collaborative fintech?
So how do banks make a stab at this fintech thingamajig? David Mitchell from Futurice interviewed Sebastian Wikström from Nordea Markets on stage at RBI 2017. They talked about the experience of being agile, finding the right people in various parts of your organisation and getting buy-in. Sebastian’s matter-of-fact approach was countered by questions from the audience such as, “When you don’t know what you don’t know, how do you find the right people?”
There wasn’t an easy answer, other than somehow knowing that you don’t know something, so best start looking. Stones are only ever overturned by curious people, right? It’s the same in business – if you blindly go from one stakeholder to the next, spit-shining shoes and polishing boardroom tables, you may never experience the joy that is real innovation. The journey won’t be easy, was the sum total of opinion from even the die-hard optimists in the lecture hall, but rewarding. And it’s what the customer wants, so that’s … the most … important thing. Right?
It’s absolutely critical. You have to be agile. There are new things popping up that you cannot predict. You have to react fast. Being agile is the only way to go. — Sebastian Wikström, Nordea Markets
Sebastian put it neatly, and without irony: “We need to be bold enough to step up and not be eaten by more agile players.” Yet, the fintech companies in the room, emboldened by well-briefed and knowledgeable panel mediators, reminded the gathered that collaboration is still the key to success, and that open banking is an opportunity to discover new business, not a threat. I also believe that if we tackle the future of banking transformation by being a stealthy ninja, and not taking customers on this journey with us, we’re asking for trouble.
It’s OK, and probably overcautious, to say that we need to lay the tracks before we drive the train. Yet, customers need to be educated about open banking before the carriage door swings open – they can help lay the tracks if we let them, and blindly ignoring what the customer wants is what gets many incumbent FIs in trouble in the first place. Daryl Wilkinson’s recent article underlines the fact that 90% of Brits haven’t even heard of the Open Banking Initiative, yet this is just around the corner.
Open banking is the next step on this banking transformation journey, with so many other game-changers on the horizon. If incumbent banks lead with vision, they could effect positive change that affects us all.
Photo: Reginar, Unsplash