Do banks need a CIO?

I was talking with a technology firm the other day.  They offer everything from cloud to core systems.  Their issue is that the competition wins every time.  Not IBM.  Not Accenture.  Not TCS.  Not FIS.  Not SAP.  Not any of the big names you could mention in such areas.  No, their competition is the CIO.  Core Innovation Objects?  No, the CIO, as in the Chief Information Officer.

I’ve encountered this myself.  I remember dealing with a great idea of automating corporate actions.  We had a great product and started to punt it around the market only to find the COO would always kill the conversation.  The reason?  If he automated corporate actions, then several tens or even hundreds of staff would become redundant.

That may sound screwy as surely the point of automating a function is to displace the humans, but the guys who run those empires really don’t want that.  When you open source bank technologies, what happens to those thousands of bank developers currently engaged in maintaining all the old shit?  When you have irrevocable transactions on shared ledgers that need no reconciliations, what happens to the firms who focus on reconciliation and their staff and customers?  When you can do everything in the cloud, what happens to the IT operations department?

Some of this may sound like ephemeral ideas, but it’s often at the core of how some bank CIOs think.  They are actually the Chief Incumbent Orifice.  They are there to maintain the status quo, keep their empire, ensure as little innovation as possible and keep their nice vendors relationships intact.  What’s their incentive to innovate and possibly cut the branch off the tree that they sit on?

This is why many predict that the IT and CIO guys will become like the electricity people of the past.  Fifty years ago, there actually was a Head of Electricity in banks who ran the electrical departments.  Wiring and structuring the bank to be able to turn the lights on, rather than the bank of today that employs 1000’s of developers to keep the lights on.  It’s intriguing to watch and think about these poor souls who have no future, as that’s exactly what will happen over the next ten to fifteen years.  Why will it happen now?  Because one fundamental difference has occurred: the consumerisation of technology.

As technology moves to open sourced structures, even a dumb CEO can see that Amazon’s cloud makes sense; that Gmail works; that Dropbox is useful; and that Salesforce is easier than a spreadsheet.  As this extends to APIs like Stripe, smart apps for smart things and shared ledgers that are tamper proof, even the dumbest CEO is going to wonder why he’s got all these architects and keyboard hackers running 1980s systems that cost a fortune and do little for agility.  As marketplaces, platforms and the FinTech community start to build peer-to-peer connectivity based upon algorithms, software and servers, even Jamie Dimon can tell something has to change.  And it is.

In fact, it intrigues me that a lot of the innovation within the banks today is not coming from the technologists.  It's coming from the business guys.  That shows both the urgency to change, but also that the IT guys have been called out.  The business bankers are seeing the open sourcing of banking and saying: "hey you guys down there in the BASIC bowels of our FORTRAN bank.  Start the C++ out of here or we'll be Java'd away" ... or something like that.  The business bankers are seeing the threat, as evidenced by so many quotes of fear:

• Jamie Dimon, CEO, JPMorgan Chase: “Silicon Valley ... want to eat our lunch.”
• Urs Rohner, Chairman of the Board of Directors at Credit Suisse: “Technology competence on Board level is not only a necessity, it will soon become indispensable for financial institutions.”
• Henri de Castries, CEO, AXA Group: “Digital transformation is no longer an option.  It is a must.”
• Ana Botín, Executive Chairman of Santander: “If you think about the big guys now, it is not the banks, it is these four large tech companies (GAFA) that are worth more than us.”

So the leaders of the banks are fearing technological redundancy in their institutions are re-architecting to merge FinTech with the bank.  The losers in that process have to be the 1000s of internal developers and architects.  It is not just they who will disappear though, but many of their higher paid brethren in the front office trading rooms who believe they are Masters of the Universe, when they’re actually just monkey market operators who just have to win more often than they lose.   Those jobs are being automated by AI and machine learning.  Eventually, the human hand will no longer be involved in trading.  Already, the market funds are moving to passive investing.  Soon the active fund manager will be sitting next to the Head of Systems Maintenance, wondering what happened to their jobs.

This is again not some wild prediction, but a fairly obvious move over time from proprietary to open and from internal focused technologies that no one understands, except the technologists, to external focused technologies that everyone understands, including the customer.

Customer-focused open systems that provide platform connectivity for marketplaces are the way of the world and, if you work for a bank and haven’t realised this yet, then start learning how to maintain, develop and create robots and intelligent system, as that’s where the few who work on maintenance will be in the future.