Originally published on Global Banking & Finance Review | May 2021
It feels like a perfect storm: Automation technology has changed the face of product development and business processes. The pandemic has sparked customer interest in digital banking. The FinTechs are winning customer trust and market share.
Exactly 12 months ago, the UK’s Chancellor of the Exchequer Rishi Sunak declared that “An unprecedented crisis calls for unprecedented measures”. Thinking back, none of us can have expected that we’d still be working from home, grounded from travelling abroad and counting the immense fall out from the pandemic. The established banks estimate lost revenues hitting $3.7 trillion to $4.7 trillion between 2020 and 2024.
So how well is your bank tackling the immense disruption gripping the banking industry today? The pandemic raises a magnifying glass to the state of many banks. McKinsey research shows that the vast majority of banks are failing to bridge the ‘knowing doing gap’ : 80% begin transformations, 14% make and sustain performance improvement, yet just 3% complete the change.
Let’s look at the three biggest barriers: Legacy Technology, Organisation Silos and Skills Gap.
Replacing Legacy Technology with Microservices
The easy but flawed response is to see digital as a technology challenge which requires migrating from a channel silo based infrastructure to an omnichannel platform which enables connected experiences, screen design, workflows and personalised messaging for customers, employees and partners.
This is essential. Forrester Wave estimates the majority of banks cannot support seamless customer journeys, and just 18% can provide a seamless hand-off between channels.
omnichannel customer experience.
The FinTech environment has become a dynamic ecosystem. According to Google’s Cloud Platform team, the future will be about pulling together best-in-class FinTechs and independent software vendors (ISVs) to create a patchwork of microservices, replacing monolithic legacy systems. This approach means that change can happen more quickly, using multiple real-time data feeds to personalise customer journeys, reduce friction in financial services and streamline business processes.
Replacing Silos with Organisation Agility
Many banks retain organisation silos grouped by job functions within those silos; typically front office, middle office and back office. This model has worked in the past, but is no longer fit for purpose. The FinTechs and progressive traditional banks have reconfigured their operating model to meet the needs of the customer, by putting the customer first and at the core of their business. This strategy allows banks to provide a positive experience and build long-term relationships, whilst maintaining a consistent voice to the customer.
Tackling the disconnect between the front end customer interface and the back end organisation structure, ING sought to apply the customer-centric approach used by FinTechs.
Inspired by Spotify, ING learnt new management techniques to deliver greater coherence in developing and implementing innovative new product concepts, with faster response times to customer needs. If you’ve not seen it, check out this video on its Agile multidisciplinary squads solution.
In our recent Round Table event ‘Building an Agile Mindset’ over 40 banks and insurance companies put questions to a panel, which included a traditional bank, BNY Mellon – founded back in 1784, HSBC, founded in 1865, and Klarna – Europe’s largest FinTech by valuation – founded in 2005.
“You’ve got to explain clearly why an ‘Agile’ mindset is important: what it means to your teams and their projects”, advised our panel. After all, ‘Agile’ is a software delivery approach – based on the principle of design, build, test, review and iterate. So how will that be relevant to an investment banking business, a bank looking to boost uptake of credit cards or a commercial bank trying to mitigate the risk of loan defaults?
Communication style within an organisation is crucial. Think about re-crafting the language to avoid misunderstanding, and avoid impediments which inevitably follow. Plenty of bankers have carved our successful careers based on traditional banking practices, so why should they start with adopting an ‘Agile’ mindset?
This cuts to the heart of the challenge for every business: a true understanding of Digital Transformation. This needs to be approached from a top down view, whilst looking at how it cuts across all areas of the bank. Most importantly why its constant evolution demands obsessive attention from senior management, rather than being ring-fenced to the IT or HR departments.
Upskilling a team of self-driven, self motivated change agents
Platform businesses see themselves as technology businesses which happen to operate in different industries. Let’s consider food delivery (think UberEats), fitness services (think Peloton) or retail (think Starbucks). Each captures and processes real-time data to optimise the customer experience.
FinTechs follow the pattern, which points to another way traditional banks should apply the FinTech model. Our Round Table Agile Mindset panellist from Klarna, a former Google executive, described the business as a tech company with a banking license, and explained the cultural and organisational features which underpin its innovative product development roadmap and rapid growth.
Klarna is committed to investing in its teams’ skills, and has created a sense of urgency, an acceptance of moving fast and breaking things. The reward is a coalition of self-driven, self-motivated people, inspired by clear communication of the business vision from senior managers to rally the troops.
HSBC, with a network of 7,500 offices in 80 countries, which operated across investment banking, commercial banking and retail banking, is committed to cross-departmental staff training programmes which reflect its digital ambitions to drive true cross-functional change. If you limit staff training to individual projects or teams, you limit the potential of the digital transformation success for the bank.
Defining and implementing your digital roadmap
We are observing that although many corporations have ‘digital skills programs’ that involve technical learnings, we believe that at the executive level, education should be geared to delivering rapid practical improvements to tackle real time business problems.
Banks, asset managers and insurance companies face a stark choice. Their most valuable assets – their people – need the direction and skills to steer the path to recovery. The pandemic presents new challenges which require a new skill set and a new mindset. This is urgent, and not optional.