Another key factor in building a truly digital bank is commitment. Commitment right from the top and, by the top, I don’t just mean the CEO and the leadership team, but the Board of the bank. Quite often, a digital transformation of a bank requires years of commitment during which time shareholder return takes second place. A bank that is only focused upon shareholder return will fail in the process.
I heard this quite often from the C-level leaders of digital banks. Specifically, it was the support of the Chairman and commitment of the Board that allowed them to embark on what, for some, is a perilous journey of change. After all, we’re talking about major investment in new structures, a complete replacement of core systems and a determined focus on building anew.
Interestingly, most of these events were sparked by disappointment. For example, I have encountered a number of examples now where the banks were trying to refresh their systems in the last decade and failing. There had been massive projects costing millions to upgrade mainframe structures, and these projects were over-budget and overdue. Big consulting companies had made promises it could be done by X for Y dollars, and instead it was X times 5 years and Y times $100 million. Oh dear.
Now imagine a Board and Chairman hearing that you’ve spent Y dollars to get new upgrade finished by X, and it won’t happen unless you spend Y x $100m for delivery five years late. The alternative in the instances of the truly digital banks I’m meeting is that this disappointment triggered a new view.
Think about it. We’re talking end of the last decade. What was happening?
Oh, Cloud Computing. Oh, Big Data. Oh, APIs. Oh, Banking-as-a-Service.
And what amazes me is that a very small number of truly visionary bank CEOs got it way back then. Most are just waking up to it. Most have only just understood that digital banking is not a project, but a change. These guys understood that ten years ago and are now truly becoming digital banks. Sure, it has taken them ten years to get there, but they are getting there, and it never stops. They are now continuing on their change programs going forward.
Interestingly, most of these banks have had the same CEO and Chairman during this period, and they have steered the banks through this turbulent change period. And what they did is quite incredible really in that, instead of giving ABC consulting a billion dollars to upgrade their creaking old systems over five years, they developed their own bank structure through transitioning to cloud, piece-by-piece, program-by-program.
What’s more, the more they moved to cloud, the lower their cost and the more agile they became. Jeez, but that is it. That is what digital banking is all about. Creating a fast, flexible, new bank, unconstrained by creaking old systems and no longer tied to a big consulting company or big computer company to do everything for you.
No wonder these banks are starting to strip away from the crowd and prove that digital does not just deliver a better bank, but a more efficient and profitable bank too. One that increases shareholder returns by having an on-demand systems structure, rather than one with huge capital overhead.
Now it all makes sense, I guess?
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.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...