Back in the 1980s, Walter Wriston, the then Chief Executive 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 becoming bits and bytes”. A quarter century later, this vision of the future of finance has come true. By way of example, I just saw that the cryptocurrency Litecoin processed a single transaction between two users in April 2018 valued at nearly $100 million. The transaction took just over two minutes to process for a cost of $0.40 cents. On a similar note, the move to Open Banking means that most banks are now managing a marketplace of apps, APIs and analytics, with disappearing branches and humans.
The relentless move to automation moves at a pace. Traders and investment bankers are disappearing and being replaced by algorithms, whilst tellers and call centre workers are being replaced by mobile apps and chatbots. Is it any wonder that the forecast long-term is that banks will be run as automated structures without people? By way of example Opimas, a US research company, forecast that 230,000 jobs will disappear in Capital Markets by 2025 thanks to Artificial Intelligence; Citibank forecast that 1 in 3 jobs in banking will be slashed over the next seven years; and outgoing CEO of Deutsche Bank, John Cryan, announced in October 2017 that half the jobs in Deutsche Bank will be removed by technology because most of the humans are “just abacuses”.
The march of technology is unstoppable. Bearing this in mind, it surprises me how nonchalant many bank leadership teams are about technology. The reason I say this is that back in the 1990s, I remember key presentations from the leaders of several tech firms. One particular one was delivered by Ken Olisa, now Sir Kenneth, who was the Chief Marketing Officer of Wang Computers back in the day. In a speech in the early 1990s, he talked about the network effect of technology and how it would mesh into a world of networked systems requiring every business to have a technologist at the helm. Another was the head of financial markets for NCR who, in the mid-1990s, predicted that every bank board would have people with technology experience leading the charge forward.
Twenty years later, it is starting to happen, slowly but surely, but it is amazing that based upon all of these predictions from a quarter of a century ago that banks’ executive team members are only now just getting the message.
For example, when Barclays Bank announced the formation of a new board for the ring-fenced retail bank, one of the key requirements was that “candidates should have experience of organisational transformation, particularly with a focus on customer, digital and technology”. However, when they announced the new boardroom team, there was not a single technology person on the team. There was a retailer, an accountant, two investors and a banker.* This surprises me in that I would have expected a former CIO of a bank or CEO of a technology firm to have been amongst the team, if you were truly appointing someone with real experience of digital and technology.
Maybe I’m being a bit extreme here however as, if I take a step back, does the bank board really need to know digitalisation, technology and transformation? According to many respected regulatory and oversight organisation from the International Monetary Fund to the Clearinghouse in the USA, the answer is no. The board is there to oversee the leadership team of the bank – the people who do the day-to-day management – and ensure the team is fit to maintain the bank’s stability, to ensure it is not taking excessive risk, to ensure the bank has a strong balance sheet, and to ensure that it is responding to the strategic requirements for change.
In other words, there is a major difference between the Boardroom and the Management Executive of a bank. The board are there to oversee the bank’s management leadership team, and the management are there to deliver the day-to-day needs of running the bank.
I agree with this to some extent. The leadership team of the bank, the C-suite, must be fit for digital transformation and the board must provide the oversight to ensure that the management team is balanced between the right level of skills to cover digital transformation. However, my contention would be that if the team at boardroom level have little digital transformation experience, how can they vet the management team of the bank and, specifically, their digital leaders are the right people? More particularly, if the massive changes of technology and digitalisation predicted a quarter-century ago by leading bankers and technologists are held true, surely both the management and the board need to have digital intimacy?
* This particular banker had, admittedly, oversee the finance of the digital transformation of a bank but that, to me, is not a technologist. A technologist is someone who has implemented the transformation and made a success of it, not overseen the cost of it.