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Shaping the future of finance

Handcuffed by heritage

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Building on yesterday's blog, Money2020 has an official Money Magazine to go with the European show, produced by Norfico.  I was picked as one of a few commentators to talk about what's going on in the world and was featured in the magazine, which you can find and download here.

Anywho, for blog purposes, I thought I would record the final interview notes and share for those interested.

Handcuffed by Heritage

An interview with Chris Skinner by Kristian T. Sørensen

Chris Skinner needs no introduction in the fintech and banking space. His work and publications have not only described the future of financial services and banking – it is shaping it as great many of the world’s leading banks look to Chris Skinner and his publications for advice and inspiration when shaping their strategies and solutions. We met Chris Skinner for a talk on the latest global banking trends and how banks mainly in Europe and North America deal with the challenges of their legacy systems and position and face the dramatic changes in the financial services market.

Legacy economies vs. Innovation economies

Chris Skinner describes how mainly Europe and North America are shaped by an ageing financial services infrastructure which was laid in place before the internet appeared and therefore needs refreshing. While both Europa and North America falls into the group of what Chris Skinner labels legacy economies, he does note that Europe is ahead of North America in terms of trying to overcome the issues because the US also struggles with an antiquated regulatory structure for financial services, which further impair innovation in banking.

An example of how the European legislators actively work to accelerate innovation and development is PSD2, but according to Chris Skinner, PSD2 is more a result of the regulators acknowledging and reacting to a more overarching global trend:

“What I see happening is the unlocking of financial data through open sourcing which is far wider than an open API for payments. It is a smorgasbord of APIs across the whole of the landscape of customer information that links front and back-office. The front office is all apps-based, and the back office is all artificial intelligence and analytics”.

This trend of flexible platforms and the unbundling of financial services apply even more clearly to another group of economies – the innovation economies. Chris Skinner highlights China as the fastest movers in the financial services innovation:

“China has leapfrogged the legacy economies as they have implemented everything in the last 15 year as fresh new internet-based services. This is why Baidu, Tencent and Alibaba are offering services which are lightyears ahead of everyone else”.

But not only the fast development of China is shaping the future of financial services:

“We also see completely new ways of thinking about financial services coming out of The Philippines, Indonesia, Latin America, and in particular sub-Saharan Africa – are creating a mobile wallet based financial services economy that is completely new and different from anything we have seen before”, says Chris Skinner.

The legacy challenge

Chris Skinner does not shy away from having firm opinions on the state of things and clearly states that he is directly annoyed by the state of the core systems of the legacy economy banks. According to him these banks only continue to get away with building on top of this foundation as long as they have what he calls “legacy customers”. When asked if there really is nothing good to be said about the legacy platforms, the response falls swiftly and bluntly:

“No, there is nothing good! It is an indictment of leadership that we’ve got so rotten systems at the core of our banks."

And the outlook for these banks is quite bleak according to Chris Skinner:

"If the banks’ leadership do not stand up to the challenge of dealing with that issue then they are going to die. There is no way you can survive in a globalised internet economy with systems that are built for batch overnight updates – it is ridiculous.”

The banks have, to a large degree, failed to solve this legacy challenge as they have only managed to embrace the new technologies as new channels for distribution on par with the branch or ATM networks. This way of thinking of distribution of products is according to Chris Skinner as outdated as the systems powering these processes:

“The distribution structure is now irrelevant because the core of the future bank is a digital structure combined with an enterprise data architecture that can analyse the customers’ digital footprint in-depth and service them effectively through a front-end user experience that is based on devices. The devices are not channels – they are just access-capabilities to data”.

Turning banking on its head

Understanding the ongoing paradigm shift will, according to Chris Skinner, turn banking on its head when moving from distributing products through a physical network to organisations that aggregate, curate and distribute data through digital networks. But it requires a completely new approach to the data management. Chris Skinner explains that the challenge for banks in Europe and North America is that the legacy infrastructure tie data to products and processes. Comparing that to data-driven companies like Amazon, Apple, Google, Facebook, Tencent, Baidu, Alibaba, who would never start to silo their data as they data-wise all work on a holistic enterprise level. Without the holistic data, perspective banks will have a huge problem according to Chris Skinner:

“Banks are plagued with dirty data. You cannot work efficiently in an internet age with that structure as you cannot apply machine learning and artificial intelligence to do data analytics on dirty data. It is not possible to give the customer an experience equivalent to an Amazon or an Alibaba if you got dirty data.”

As an example of where the banks' services fall short due to lack of analytical capabilities and thereby open a flank for competitors, Chris Skinner quotes Ollie Perdue, the millennial CEO of the neobank Loot in the UK. According to Ollie Perdue, he and his fellow millennials cannot see the value in transaction overview provided by the traditional banks. Historical data is a view of the past, but what millennials want is a view of the future – they want to know if they can afford to go out, afford to travel and afford their tuition. According to Chris Skinner, the fact that the traditional banks cannot provide these type of service is that their legacy systems are built for branch ledger based historical debits and credits recording. They are not built for cash-flow forecasting. When asked what banks can do about the legacy challenge, Chris Skinner explains:

“we are handcuffed by heritage because the data is locked into the processing systems. If you moved the data from the AS/400 or similar engine from the 1980s into a private cloud structure where you cleanse the data into an enterprise data architecture, then the data becomes independent of the processing. Once data becomes independent of the processing you can literally take out the engines over the weekend and replace them with new ones”.

This way of operating resembles what consumers are used to from the app economy of smartphones:

“On your Android or Apple phone, you wouldn't expect apps never to be updated. Typically, they are updated every week – why don't banks update system once per week? Because they can't – in fact, they are lucky if they can update them once per year,” Chris Skinner concludes.

Coming together

While legacy economy banks in Chris Skinner’s opinion are clearly challenged, they do also have something to bring to the table in collaboration with the fintech startups and as they all need to learn banking. Chris Skinner explains:

“I have encountered are quite naïve to financial markets. They think that banks are big, slow and ugly and then discover that yes, they are big and yes, they are slow, but they are only ugly because they are forced to be that by the regulations and by the structure of the markets. Gradually a lot of the startups learn that once they understand the regulatory requirements of financial services, they are required to be a little bit ugly themselves.”

Chris Skinner believes that the two groups need to come together:

“The fintechs need some grey hairs in their boardrooms, and the banks need some diversity and youth in their boardrooms - That is what fintech is all about – the ‘tech’ is bright young things, and the ‘fin’ is people who have been around for a while.


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Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog,, 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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