In the 1970s, Walter Wriston, the then CEO and Chairman of Citibank, said that “information about money is becoming more important than money itself”. His successor, John Reed, said that “banking is just bits and bytes” in the 1980s. How right they were, and this just underscores how important digitalisation is to banking. We have known it was coming for a long time, we just didn’t know how big it was.
I remember a prediction in the 1990s that bank boards would have CIOs sitting at the table, and that a CIO would one day run the bank. That hasn’t quite happened – I cannot name a single bank run by a CIO – but the role of technology is certainly in the driving seat and at the boardroom table today.
But here’s the thing. How many CxO’s really understand all of this?
I remember making a presentation a couple of years ago to a major UK financial institution’s board executive offsite. During the presentation I touched on the growing impact of apps and APIs.
“API”, says one board member. “What the hell is one of those?”
I explained it was related to open source architectures and integrating systems.
“Jesus”, says the pumped CxO, “I never expected to be attending a technical meeting. I run the business, not the systems!”
At this point, it was either him or me leaving the meeting, and so I made my way home.
This is a strong illustration of the problem we have today. Banks are being eaten by technology, but the parasites are not even understood by the bank executive team. I recently blogged about this, with my favourite story being the battle between Klarna and Stripe and most bank CxO’s having never heard of them, even though these are two mighty unicorns in a battle for payments supremacy.
So the real question is: how long can a bank CxO get away with being dumb about technology?
I don’t know the answer to that one. If you’re the CIO, you should know about tech, but even some CIOs are pretty poor when it comes to vision. I’ve met many who have no vision at all. They are there more to keep the lights on, than make the bank light up. Nevertheless, if your job in the bank is not tech related, you may think you need no knowledge of tech.
Take the Chief Risk Officer, CRO. The CRO needs to know Basel III, regulatory requirements, the compliance and audit processes and more. Tech? Hmmm … what about cybersecurity? What about real-time risk reporting? What about instantaneous credit risk ratings using clever software algorithms? What about exposure to markets through high frequency trading?
Nah, the CRO needs to have a systems knowledge as much as the CIO.
CFO? Hmmm. The Chief Finance guy is normally the head of spend avoidance, and yet banks spend huge amounts on technology. Most banks invest 10% or more of their annualised budgets into systems spend and, of that investment, the majority is washed down the drain by giving it to the CIO to keep the lights on. It’s maintenance spending, not spending for the future. As illustrated by my regular notes on banks like CBA, who saved 35% on annual IT costs by investing in the cloud or BBVA , who are saving over €300 million a year in costs through digital transformation, if the CFO is not challenging the CIO about reducing costs through adopting new technologies, then they are failing in their duties.
In fact, today, I cannot think of a single role in the leadership team of a bank that should not be at least keeping up with the latest technology trends. After all, if the leadership is not understanding the technology threats and opportunities, then they are surely failing in their leadership role?