So I was talking about the big challenges of creating a Digital Bank, and am reminded of the approaches that banks take to do this.
The first is the hardest, and it’s the one I described last week: transformation.
A transformational bank process – where the whole bank’s business model is turned on its head to move from physical to digital foundations – is just too difficult for most. It is also too risky for most. Hence, they fudge it. They add budget to invest in digital whilst also investing in dusting up their branches, adding more people in compliance and audit, juggling the sale of non-core assets whilst also thinking about acquisition of new assets. In other words, they are a bank that is spinning plates.
The trouble with this bank is that plates can often drop and, if too many plates require too much focus, that is likely to happen. And that is what I think is happening with big incumbent banks thinking about evolution to digital.
First, the terminology is wrong. They’re thinking about digital as a channel, appointing a head to run the digital function and assigning the function a budget. Job done.
The thing is, as I said last week, the job is not done as this is a core foundation of the future bank, not an adjunct. It’s not a channel or a function therefore.
The problem is that banks like to assign things to boxes, or plates continuing my prior metaphor. So you have the digital bank plate; the retail bank plate (they look after the branches, which are separated from the digital plate); the regulation plate; the compliance plate; the payments plate; and so on.
All these plates are spinning separately, and all require attention. As a result, some plates get dropped, but it doesn’t matter as long as you can pick it up and spin it again. So the digital bank app is rolled out and now someone is demanding that you roll out the next service: the wearable app, the internet of things app, the data analytics program, etc. You just start spinning a new plate and things keep going.
But it isn’t working long term as the new Fintech world isn’t spinning plates. Instead, new startups are a plate to themselves. They’re attacking the business by just having a plate on the table. It’s not spinning and, as a result, it works non-stop to disrupt your spinning plates.
That’s what we’re seeing with these 1000s of new companies out there focusing just on digital, retail user experience, payment and so on.
This means that the multi-spinning universal bank is dropping its plates faster and faster thanks to regulation and innovation. So what’s the answer?
Start a new bank of course.
I see a lot of incumbent banks feeling the frustration of spinning too many plates and, as digital demands transformation and it’s far too difficult, they’re investing in launching NewBank instead. NewBank gets a big budget and spins out of old bank.
A good example of this one is Hello Bank, an offshoot of BNP Paribas. Hello Bank was launched in May 2013, with the ambition of gaining 1.4 million customers by 2017 in Germany, Belgium, France and Italy of which two-thirds would be new customers to BNP, rather than existing account holders.
The bank invested €80 million in developing and launching the bank two years ago and, today, has already achieved a good number of customers. Figures vary from anywhere between 800,000 today and 1.3 million, but one statistic that is freely quoted is that the bank has gained 350,000 customers in Belgium, heading towards 400,000, and 70% of customers do more than ten transactions per month.
These are impressive numbers and show that BNP has been serious about building the NewBank but, as the Financial Times points out, most bank rebrands fail: “the roll call of banks that have tried to do this is small and inauspicious. A wave of silly names accompanied the UK’s internet banking launches 15 years ago (Abbey National’s Cahoot, Halifax’s Intelligent Finance), now either ditched or side-lined.”
I think this is because they were not given the right investment and, although some failed, others have succeeded like First Direct (HSBC) and Smile (Co-operative Bank), although the latter is also now likely to close due to its parent’s problems.
In both cases, and in the case of BNP’s Hello, the offshoot needs to run as a completely separate bank with a completely separate management team and budget to succeed. It cannot just be a pilot or a project or an offshoot adjunct run under the core bank umbrella. That’s the real difference between First Direct and Hello compared with Cahoot and Intelligent Finance.
So whether the bank is transforming or launching a NewBank, neither approach is easy and, as I’ve said before, it all comes back to leadership.
Does your leader have the stomach to make the change happen? Equally important, does your leader have the backing, the budget and the board behind them to make the change happen?
If yes, you’re good to go. If no, what are you doing?