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Digital banks are Copernicus banks (incumbents are with the Flat Earth society)

Twenty years ago, I was working on re-engineering projects.  Most of the time I was getting exasperated because the banks wouldn’t take on the big projects, like the mortgage process, as it went across too many divisions.  That’s big risk in their view, as it meant disturbing the structure of the organisation.  So, we would generally end up doing tinkering projects classified as incremental process improvement.  Yea, they may be valid to get a 5% cost reduction in the banks bottom-line, but they were dull.

The big issue for me back then – and still today – is that the bank wasn’t built around the customer and had little customer focus.  We would talk about the fact that no one wakes up and thinks I want to pay for this.  No, they think it would be great to have this.  They don’t drive around thinking hey, I need a mortgage.  No, they ‘re thinking I think we need a bigger home.

We had all these dialogues twenty years ago and the frustrating thing is we are still having them today.  The difference is that twenty years ago, a massive transformation project was massive risk.  It would mean reinventing the corporation and then building an infrastructure to support that organisation.  That’s a big ask, and maybe it’s not so surprising that few banks leaders did such projects.

Today, that has all changed because of various factors:

The bank knows it has a flawed business model based around physical distribution through building and humans, and that it needs a transformation project to design around digital distributing through software and servers

The bank knows it must migrate core systems to technologies that are open API and microservices based architectures over the next decade

The bank knows that digital platforms can reduce costs dramatically and make them more competitive, so why wouldn’t they do this? and

The bank knows that there are 1000s of new start-ups trying to squeeze their margins, challenge their products and steal their customers, so they must do this to survive.

I could go on, but there are very strong reasons for reimagining the bank through a digital transformation project right now, one of which is that the 1000s of start-ups who are focused on doing just one thing really well through an API are companies they could partner with.  After all, a 1000 start-ups focused on one thing each are generally going to be doing the job better than one bank who try to do 1000 things the start-ups are doing.

What should you do if you are entering a digital transformation project?

Well, my answer is always start with the customer.  Look at the interactions with the customer today, and challenge whether they really need to happen the way they do.  Why do we pay all our bills at the start of the month?  Because that’s when our salary is paid.  But why pay them all together?  Because then I know how much I have left to spend this month.  What about if an unexpected annual bill comes in, such as a subscription or similar.  Well, I have to handle it.  Wouldn’t it better if we advising your through the month and showing you what’s safe to spend?   Well, urmmm ….

In fact, I often wonder why I have to keep opening my bank app to see if money has come through from clients, when the app should auto-inform me whenever there’s a change in my balance.  Equally, it’s irritating that my bank purely shows me a transaction history, rather than a cashflow forecasting of what will happen.  This is purely a reflection of the old transaction banking ledger systems of the 1980s and built for branch balance tracking.  The trouble is that because banks have never touched those COBOL mainframe balance trackers, they’re still at the beating heart core of the mainstream banks.  Another compelling reason to transform and migrate them to modern, real-time artificially intelligent predictive engines obsessed with informing the customer of all they need to know.

Once we have challenged the status quo and tried to tear it down, we then can see the customer digital interactions we need for the future.  So, we start with the design of the customer-obsessed banks, and then we build the processes, structures and technologies to align with that vision.  We are no longer handcuffed to the old-world view.

What then becomes intriguing is the idea of moving the bank from not only being handcuffed by heritage, but also to see the world differently.  Instead of being product pushers who can only see as far as the interest rates and charges that can be made, they can become consumer champions obsessed with giving as much value and information as possible.  This is what a digital transformation project should be, and involves a major cultural change.

That culture change program I articulate as moving from the Flat Earth bank to the Copernicus bank.

Most banks today sit in a Flat Earth world.  Their Earth is at the centre of the universe, and it’s called the bank’s Head Office.  From that Head Office, the CEO can see various stars and planets circling around the Earth.  The Moon is his accounting systems giving him batch overnight updates; Mars is his Senior Vice President’s planet, which is full of product incentivised sales people; Saturn is the credit risk planet, running rings around the customer; Venus is mainly full of marketing people, as it’s very touchy-feely; Mercury is hot, and is the investment guys, making money on the markets every day; oh, and then there’s the Sun.  That’s very shiny planet that is so far away, it’s hard to see what’s on it.   Let’s call that the Customer planet then.

The Flat Earth bank often finds the Sun is also eclipsed, as so many of the other planets get their attention.  In fact, they’re often so focused on the movement of the stars and the planets that they don’t actually see what’s out there at all.

Imagine walking into the Flat Earth bank and saying that the shiny thing they see during the daytime is the centre of the Universe.  Get out of here.  That’s why there are no Copernicus banks out there … until now.

In talking with some of the new British challenger banks, they tell me how they are designing their bank.  Their bank is designed as a Copernicus bank, asking people lots of questions about how they currently bank, why they bank the way they bank, and challenging whether it should be that way.  You need anthropologists to create a Copernicus bank, not a customer focus group.

Once you’ve built your vision of the Copernicus bank, where everything is focused upon how you use the planets to circle around the centre of the universe which is the customer, not the bank, then you can start to really build a cool, new bank.

Oh, and you can do that by plugging in 1000 APIs from a 1000 start-ups focused upon doing one thing really well, rather than a 1000 things badly.

As you can see, a digital transformation program is not a change project or an incremental improvement process.  It is a fundamental cultural, structural and technological change.  Those that are not making such a change, are just digitalizing their old products from physical structures to digital ones.  They will never ever actually be digital.  Tough.

 

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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