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Transformational Banking

I just finished watching “The Big Short”; a film about the financial crisis and how one person, Dr Michael Burry, predicted the banking crisis. Despite being contrarian to the major Wall Street banks, the US Government, the credit rating agencies and the regulators, he stuck by his analysis and view and bet against the industry. A couple of smaller investment houses latched onto his theory, agreed, and also backed it. Effectively the banking industry had buried its head in the sand; it denied a collapse could be possible, let alone imminent.

When I see banks respond with a lack of urgency and investment to the changes in the industry driven by digital, I wonder if heads are being buried again. Will the impact of digital be as hard as the financial crisis? Changes are already starting to filter through and to me it seems inevitable that a number of banks will cease to exist in the near future.

Customers are already telling banks that they’d prefer to bank with Google, Apple, Amazon or Facebook. P2P lenders are facilitating billions in lending, and more brand new banks have been created in the last 2 years than the previous 100 years. In parallel, technology innovation grows apace from even smarter phones, smart/connected cars, home and cities to smarter AI and robots. Technology is having a profound impact in every industry, from farming to health care, manufacturing to retail; in fact I struggle to think of any industry not impacted by technology.

So it still begs the question why some banks are doing very little? I’d love to hear from banks that aren’t investing in digital why this isn’t a priority.

However, even for those that are investing:  will they succeed and beat the newer players? If you’ve read Clayton Christensen’s “The Innovators Dilemma”, you’ll know even successful, well run banks with smart people can fail when a market is disrupted. Why? Well, one of the reasons is because what made them successful previously holds them back from innovating the future. These banks have a deep ingrained understanding of today’s customers; they have products and services for these customers and complementary processes for managing them. Tomorrow’s customers are inevitably not their focus. 

Steve Jobs has provided many relevant quotes on this; here’s a couple of my favourites:

“It’s not the customers’ job to know what they want” and “get closer than ever to your customers. So close that you tell them what they need well before they realise it themselves”.

Perhaps BBVA is getting this right by acquiring disruptors: first Simple and now Holvi. Or perhaps taking Bre Bank and HSBC’s approach of spinning out a separate new bank is the right approach?

As the industry strives to find the answers, I’ve spoken to many banks that do understand that digital will have an impact and that it has to be a priority, and are forming their strategy for transformation. In a series of four posts, I’ll be sharing some views and insights on transformational thinking for digital banks. I hope they’ll provide some help and, as always, I welcome feedback…



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