Banking Fintech

Why banks find it hard to change

Why banks find it hard to change. Image by blambca,
Written by Chris Skinner

Chris Skinner explores the politics of fudging the numbers when it comes to implementing innovation, and how to protect your job in the process.

I was in a conversation with a bank executive talking about innovation. We all know the Catch-22 in a bank: you want to be innovative, but only as long as there’s no risk. Yet, with any innovation, there has to be risk. You can play in the sandbox like little kids, but if you try to step out of the sandbox we will slap you back down. That’s your place. Stay there.

Any innovation that comes out of the sandbox is incredibly hard to internalise, because the banks’ culture is there to wipe out the antibodies of the cannibalistic innovators. This is why heading up innovation in any financial firm is a frustrating job that inevitably leads to moving to a fintech startup or the job centre.

The banking guy reflected on this and then said something really interesting. His comment was that banks don’t like failure. We know this, but it’s all to do with the compliance culture. Failure implies issues and can raise regulatory alerts. Banks want to avoid regulatory alerts at all costs, so failure is not an option.

I took the view that microservices architectures in an open marketplace of APIs allows failure, as it doesn’t have the same repercussions. He said: “Look Chris, you should know this. We, as a bank, find it difficult to invest in conjecture, so if we trial a project for $1m and it fails, then we soul search to see what went wrong and, more importantly, who led the wrongness. Someone has to be blamed, and that someone is then fired. However, if we’re thinking about a $1m project and can hire a consulting firm to investigate the project and tell us whether it will work or fail, then we’re far happier. So we might hire one of the big consulting groups and spend $1m on their report that tells us our project – which would have cost the same to trial – is going to fail, and then we’re happy because they told us it would fail for $1m. But look how much further cost, embarrassment and shame they allowed us to avoid.”

Woah. I realised the enormity, and at the same time the reality, of his statement. I’ve seen this first-hand. It’s far better to get someone externally to come in and tell you if something is right or wrong because if it later turns out they gave the wrong advice, then you have someone to blame and possibly take to court. However, if an internal guy says it, then woe betide that person if they’re wrong.

It ticks so many other boxes. For example, I remember a C-suite member of one bank talking about business cases, ROI, cost-benefit analysis and the future project revenues and costs. He said that the bank was rigorous in ensuring that there was a business case for anything and everything. If you wanted to do any new project, you had to show the numbers.

That’s difficult if you’re innovating, as it’s never been done before, but hey ho, here’s the numbers. The trick of the game, he said, is to make the numbers convincing. Show that you’ve done your research. Show that you used some consultants to bring together some customer focus groups who overwhelmingly believe your next-generation app will get a million users in a month, and then flesh that out with projections and graphs. Make it look amazing. Don’t just put it in a PowerPoint, but PDF it with the best graphic designers in town, and add some GIFs or videos which, when in the boardroom, keeps the management awake.

Fudging it

The reason why this advice is sound and sage is that, once you get the money, stop worrying. You got the money based on your sound (but fudged) business case. You actually made the whole business case up and the numbers are all estimates based on a finger in the air and a discussion in the pub over a napkin. The fact you have numbers and seem to have substantiated them, and have research and presentational material that looks amazing, gets you the money.

Once you’ve got the money, don’t worry because no one ever, ever, ever goes back and looks at the numbers from last year to check. Yes, they may check if you have a substantial failure, but if you work the numbers and the politics, you can pretty much get away with anything for a long time.

OK, the two conversations seem a bit at odds. On the one hand, if I fail spectacularly then I’m out, but if I get the analysis, I’m in. On the other hand, if I present a load of fictional thoughts, I get the money, while if I tell the truth, I don’t.

But this is how it works guys. Not just in banks, but in any large corporation. It’s called politics. If you’re seen to fail, you’re out; if you’re seen to be doing the right things, you’re in. Bear that in mind when you innovate. Large firms will not allow public failures. Equally, large firms rarely invest properly unless they have numbers.

READ NEXT: The excuses banks use to avoid change

– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Image by blambca,

About the author

Chris Skinner

Chris Skinner is an independent commentator on the financial markets through the Finanser, and chair of the European networking forum the Financial Services Club, which he founded in 2004. He is an author of numerous books covering everything from European regulations in banking through to the credit crisis, to the future of banking.

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