Bank reincarnation: the best way to become a digital bank

There was an interesting discussion at #Money2020 about Business Reincarnation. It’s a rather dramatic term, especially if you don’t believe in reincarnation, but it does help visualise the idea. Like a Phoenix from the ashes, a bank needs to die and reincarnate itself to survive this digital revolution.

This theme came up several times. In particular I hosted a panel with Marko Wenthin of Solaris Bank, David Brear of 11FS and Liesbeth Rigter of MoneYou about whether a bank can become digital or not. We discussed at length the idea that a bank needs to create a new bank, and let the new bank flourish, cannibalise their business, grow and eventually become the new bank.

Interestingly, this is not what is happening with MoneYou. MoneYou is the offshoot digital bank of ABN AMRO and covers the Netherlands, Belgium, Germany and Austria. It has half a million customers and was launched in 2001. The discussion with Liesbeth was all about the relationship with the parent firm, or mothership as she refers to ABN AMRO. The art is to learn to say no, both to requests from the mothership and to customers that don’t fit the digital demographic or, preferably, psychographic. The former is to not let the parent interfere in the business, its products and services; the latter is to have a laser-sharp focus upon who you are trying to serve and to only serve them, and not everyone (as the mothership tries to do).

It was interesting, but also clear that MoneYou is not the future reincarnation of ABN AMRO. In fact, I asked at one point if a bank should launch a new bank or try to transform the old bank to be digital. The answer is that they have to do both. You cannot just invest in a new bank launch and leave the old bank to rot. You must do both.

Again, I’ve blogged about this theme a few times before:

• Question: change the bank or launch a new bank?
• Wouldn’t it be simpler just to launch a new bank?

And feel that launching a new bank is not the best answer to the challenge of how to keep up. The difficulty with launching a new bank is commitment. Commitment to let it flourish and grow, without interfering. Commitment to let the new bank steal business from the old bank, and not fight back. Commitment to let the new bank cannibalise the old bank’s products and services. Commitment to fund it effectively and give it the time to complete its journey, without cutting costs halfway through as the returns are not showing.

In fact, this last point is probably the most important one as banks are caught between the devil and the deep blue sea right now. The devil is how to maintain the bank’s existing margin and profit, in an ever more crowded and competitive marketplace. The deep blue sea is how to grow a new bank, and fund it, when the old bank is struggling to maintain margin in an ever more competitive market.

I guess the saving grace is that the old bank’s market share has not changed much, even with new competition, as few customers are switching their main deposit accounts across to new players … yet. Given time however, things will change, and they are changing already.

In another blog I recently said that it’s three minutes to midnight for banks’ core systems to change, and I still believe this.

All in all, I guess this means that:

a) a bank must change its core systems, fabric and foundations to become digital over the next five years, which is a massive internal change programme;

b) a bank can launch a new bank to cater for the digital world, but it will dilute resources and capital;

c) if a bank launches a new bank, it must be committed to let it fly free, without interference, and step on the old bank’s toes as much as it wants or needs to; and

d) however, the future looks, the old bank and the new bank need to ensure they are adapting fast to survive.

Nothing is simple in this digital financial world of today, but the easiest path may well be to reincarnate the bank with a new, clean start, rather than trying to resuscitate the old, broken bank.