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What are the biggest challenges in banking today?

Sometimes social media kicks off great discussions about banking.  In fact, most of what I learn, collaborate, corroborate, develop, gain, understand and envisage comes primarily through my social network.  The latest dialogue that spawns its own blog entry is from the Facebook Group Next Bank (I’m speaking at Next Bank Europe btw on February 11th … you can be there with 25% discount).

The discussion began with a simple question asked by Next Bank orchestrator Rob Findlay: Guys help me out. Give me the top 3-5 BIG challenges in banking right now that are deemed too hard to solve or confront. Can be tech, CX, culture, whatever. Go.

Wow.  A week later, over 50 people had given their view.

A core theme was regulation, with some naming this the top three challenges whilst others said that just being bankers is the biggest challenge.  The latter was borne out mainly by views of bankers on risk, and an innate sense of risk aversion.  This was perhaps best summed up by Brett King:

The bank executive’s fear of regulation is ‘not an excuse, it's a mindset issue. You can say legal/compliance, instead of regulation. The number of banks I talk to who are simply too afraid to ask their legal/compliance teams for permission to do something that they'll need to push back on the regulator with is very high.  When they do go to the regulator with an idea (rare) and the regulator says no, then it's like "oh well, we did try, but we can't do it".  There are very few banks in the world which have such a transparent and open relationship with regulators that regulators TRUST them to try new approaches or prototype some new initiative that might lead to regulatory change or clarifications. Herein lies the problem. This is not a virtuous circle promoting innovation.’

Another regular mantra is the barriers of legacy systems.   Jim Marous picked up on this one:

Core systems upgrades are a known necessity, but really difficult to accomplish. Core systems being the back-office systems that drive the daily operations. In the US, many bank offices are running on technology installed 30 years ago. While upgrades have been made, the underlying systems are from a time when digital banking didn't exist.  Adding to the difficulty are senior managers that built and maintained the existing systems. How do you 'unlearn' what is ingrained in your DNA to build for the future.”

Why is this such a big barrier?

Daniel Gusev believes it is fundamentally because “banks are driven by legacy (save money for those already invested). Suddenly changing the mindset to adapt the new consumption model enforced by the information age is hard / near impossible. Hence:

1) How can the future deal with the history?

2) How to change a hivemind mindset (ant colonies take years to migrate)

3) Are we in a delusion well?  Talking about innovation and reading the innovation news pipeline where change happens by itself?”

These points about legacy renewal aversion goes with the risk aversion issue of bank cultures in general, as well as the issue of aligning IT and business agendas.  As Kjartan Hansson noted, we need to get rid of the 'Us’ versus ‘Them' mentality between bank IT and business leadership as, way too often, the two tend to not be on the same team. 

Harriet Wakeham gave the three barriers as Courage, Bravery and Fear, and it is notable that this bravery and courage barriers to overcome fear of failure is something that I’ve also noted often.  This is aligned with the barrier identified by Simon Taylor that banks have this cultlural need for everyone to 'get comfortable' before you can do anything.   Comfort seems to have been an unfortunate and unrequired side effect of collaboration.  Simon puts this down to the “sheer amount of people involved in every type of control function who all want to stick their nose in everything, always.”

Meanwhile, purely to provide a quick look at the other issues raised, here are a few of the other key bullets:

  • Core systems renewal
  • Opening core systems to useful customer services
  • Breaking down the silo's
  • Changing the product sales culture to a customer service culture
  • Being relevant to the digital generation
  • How do you sell/advise when you've taken all the casual face-to-face transactions that provided context for conversation and replaced them with screens?
  • Balancing security with usability
  • Compensation models for sales force and creating a no 'fail safe' culture
  • Being satisfied with business as usual
  • An internal and external lack of transparency
  • Public confidence as everyone hates banks
  • How to become a utility or, if you prefer, how to not become a utility
  • Lack of credibility; or as regulators see it credibly lacking
  • Inertia – we've always done it this way
  • Culture/Skills – these are the people to do it the way we've always done it
  • The inability to experiment and let customers drive adoption
  • Existing retail branch chains
  • The structure (strong corporate hierarchy with conflicting KPIs) and attitude (highly risk averse) of financial organisations creates an environment perfect for stifling innovation

Apologies for not citing all the other commentators individually, but the above represents an amalgam of views from those cited plus Aaron Chipper, Alok Kumar, Alvaro Guirao Lopez, Ash Donaldson, Ashley Veasey, Ben Bickford, Bruce Cahan, Cath Willacy, Jaiveer S Chand, James Moed, Jonathan Ethridge, Malek Yaber, Mykola Chumak, Raghav Kapoor, Robert Bell, Scott Bales, Sushmita Munshi and Yitch Blob.

Having written this up here, maybe tomorrow I’ll tackle the biggest barriers raised: regulations, legacy and culture.

 

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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  • Chris, some very good themes in the list that resonate with my views. Having worked in a bank and now with a fintech start-up selling back to the banks I can see a lot of these behaviours being impediments.
    Banks find it difficult to use innovative products from outside because of the stifling bureaucracy and the mindset of senior business heads that drive them to be risk averse (“no one ever got fired for hiring IBM”..or more recently the big 4 consulting firms)….people in the banks need to be given leeway to be less risk averse but with the downsizing going on most people dont want their heads above the parapet.
    The point about the back office systems is especially true. Digital strategy is too focused on the front office. The back office is still building systems for the industrial world. Big centralised systems in the back office are no longer suitable, banks will need to break down these back office “empires” and push the functionality into front office systems. This will allow businesses to be more autonomous, but operating under the principles and values of a wider organisation. This will ultimately address the big issues:
    (1) Agility – smaller businesses can be more agile
    (2) Cost – break down hugely inefficient back office systems
    (3) Control – big banks operating under a command and control structure will never create a good control culture
    By pushing responsibility further down the organisation into individual business and giving these businesses more accountability is likely to achieve a better “control culture”. There will still be a place for “monitoring” but this should be done by a more streamlined and empowered back office function.