If you listen to the Breaking Banks AM Radio Show today (also available via stream and podcast) you’ll hear a spirited rematch of the Great Digital Banking Debate that Michal Panowicz and I had on Twitter a few weeks ago. The debate concluded with a split decision – Twitter declaring the FinTech team the winner, and an in-house count declaring the Digital Bank team the winner. This pretty much sums up the industry debate right now. Anyone who is in a FinTech, of course, believes that FinTech represents the future of the banking experience, but Digital Bankers, especially the more competent players like Michal Panowicz, aren’t ready to lie down and die just yet, and that’s good for banking.
Unfortunately, it’s really just a numbers game right now. The facts as they stand today show that most of the investment in digital transformation are going into compliance and simply retooling core systems for things like real-time payments than doing a full digital bank rework as mBank in Poland did. To be clear there are some really outstanding digital banks out there today making their best efforts, with very competent CEOs and technical, experience and digital teams executing behind that vision. The promising digital banks include banks that are all in, and banks whose CEOs get it and have started the process to all-in. They would include the likes of Garanti in Turkey, Hana Bank in South Korea, mBank in Poland, BBVA, Roberto’s team at Che Banca, most of the Big 4 Aussie banks are on their way, ASB and Westpac in NZ are stars, Amex (ok not a bank, but an FI), Capital One in the US who is busily in acquisition mode and USAA – probably the most FinTech “bank” in the US today. If you look, you can find maybe two dozen really committed digital banks, mostly outside the US that will be successful at a digital transformation. Barclays, Santander, Lloyds, RBS, Deutsche, Chase, DBS, the Nordic leaders and others all are getting close, but they’ve got a little way to go – mainly it just involves getting bankers out of the way of digital bankers.
Juan Pedro and the team at Accenture did a fantastic piece on this last year entitled “The Digital Disruptors” where they made the distinction pretty simple (no pun intended) and clear:
“Most mainstream banks simply aren’t using technology smartly enough to deliver the transformation they need. At the same time, some of their pioneering peers have recognized that every business is now (or should be) a digital business, and they are starting to position themselves as digital winners” – Accenture Digital Disruptor Report, Feb 2014
We talk about digital banks and what it takes to be one all the time. Chris Skinner even called his latest book Digital Bank – if you haven’t read it you should. The reality, though, is that in most mainstream banks we’re still debating ‘how digital’ the bank should be. Not “if”, mind you (thank goodness we migrated from that probably on a net basis in 2013), but when and how much ‘digital’ the bank should be. For someone who has been talking the need to be digital first since 2006, it’s a relief that finally this is fashionable. So now everyone is saying “Yes, we’re a digital bank and we’re going to give those FinTech companies a run for their money!” Great, but saying you are a digital bank doesn’t make it so.
So do you want to know if you are a Digital Bank? Take the test below and rank yourself out of 5 for each element. If you average 4-5 you are a digital bank. Below 3 – nope. While this is retail banking focused, the same test could apply with a little imagination to corporate, investment banking, investment services, etc.
1. A Digital CEO – either a technology geek that has risen the ranks to be a CEO, or a CEO that has had a ‘come to Jesus/FinTech’ moment and has told the entire bank their mission is to be digital. The last point is key – if your CEO hasn’t given your business this mission, you don’t get a 5 here.
2. A Realtime Core – a real-time banking core with the ability to create any product instance from a digital channel in real-time, and the ability to handle real-time settlements on payments across any platform (sort of excludes the entire US banking industry).
3. The Head of Digital is the CEO (and maybe CTO) – Digital is not a department, channel or separate competency, it is simply the job of the bank, and the CEO is the head of Digital with a great team behind him that is fully committed. You can have some specialized competencies under this, but if you have a separate head of digital, you aren’t a digital bank, you only have a digital competency within a traditional bank. Apple and Amazon don’t have Heads of Digital, Tim Cook and Jeff Bezos are the Heads of Digital, but with great teams behind them.
4. Experience Design is HOT – you have a team that is constantly prototyping and revisiting every aspect of customer interaction trying to not just optimize it, but revolutionize it. The CTO and CMO either have an agency on speed dial, or you have a in-house creative team that works with agencies to execute. This is the fastest growing budget line item in digital save core system and real-time retooling. If you don’t have an in-house design team, you aren’t a digital bank. If your CTO has never done a wireframe sketch on a whiteboard or piece of paper, you aren’t a digital bank. If your traditional marketing budget exceeds digital direct, you are not a digital bank. If a product department or head, can override experience design, you’re not a digital bank.
5. Data Science is HOTTER – the ability to leverage off of your data, and the ability to capture more data through devices like wearables is something the CEO is super excited about. The biggest question remains how quickly can you use it. If you don’t have a Head of Data Science you aren’t a digital bank.
6. Regulations are never an excuse – To be a digital bank you will never use regulation as an excuse. Here’s the test – in the last 12 months you’ve gone to the regulator with a technology or experience pilot that doesn’t fit into current regs to get their approval to proceed. If you haven’t done this, you aren’t a digital bank.
7. You are partnering with, investing in or acquiring FinTechs – the smart digital banks know the bigger they get, the harder it is to innovate purely as a function of size. So the smarter banks (that’s another book by the way) are finding ways to learn faster through partnerships with very agile teams that are thinking differently about the problem. If you’ve run a ‘hackathon’ but don’t fund a fintech startup, you aren’t a digital bank.
8. You have a Mobile or Retail/App Independent on the Board – mobile is a core competency, but the banking sector is significantly behind most other industries in terms of innovative approaches (not necessarily in adoption though), so having a non-bank mobile person on the board to level set board expectations is really key.
9. You are non-plussed about branches – you are well past arguing that people love branches. You think you’ll keep them if you can continue to justify a right-sized network (much smaller numbers and square footage) based on economics, but you are already channel agnostic. Whatever channel the customer uses you will support. If you can not sign up a customer for a basic bank account in-app, you are not a digital bank.
10. Everyone’s job is digital – Everyone is passionate about building great experiences for your customers and everyone believes that the best way to do that moving forward is digital, not ‘future branches’ or other such silliness. If you don’t allow access to Facebook, Twitter or YouTube in your bank, you are not a digital bank. If you have a senior executive that has shot down a digital initiative in favor of status quo, you are not a digital bank. If your digital budget doesn’t exceed your real-estate budget, you are not a digital bank. If at least 30% of your staff don’t know how to do some basic sort of coding, you are not a digital bank.
In the debate Michal Panowicz and I had on Twitter and in New York yesterday, I was arguing whether FinTech would win out over banks in the battle for Phone/Device-share and customer mind-share. The simple fact is that there is a great deal more effort going into FinTech’s reshaping the industry today, than through banks – so that means there’s only one outcome – FinTechs as a class take market share from Incumbents. Anyone who argues differently is blind to the reality and momentum behind innovation in the sector. If banks were defending their market share, Lending Club and 36 other FinTech companies wouldn’t have valuations of $1Bn.
Having said that, great digital banks will survive. So everyone says, “Great, then I’m a digital bank!”
Saying you are a digital bank, and being a digital bank are two very different things. To be a digital bank, you have to forget being a bank (mostly). If you are arguing that we need banks the way they are, or because of regulation, or yada yada yada… you aren’t a digital bank. A digital bank knows that if they don’t completely change the way they work, they are screwed. If you are in the guts of this change right now, you are not a digital bank… but there is hope for you.
If you look at the scorecard I gave above, you’ll find most of the digital banks I mentioned get a 4 or 5 on each item. Most regular banks get a 1 or 2.
Everyone wants to be a digital bank, but very few are digital banks, and most will never be a digital bank at their current rate, based on their current structure. This is time to get real – don’t talk the talk in the hope that this will be enough. Be the Digital my friend.
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