I can understand why bankers can be sceptical about what technologists say. For years, technologists have been telling them that their business is threatened by technological change. They’ve been shouting that they will be disintermediated; they say that the bank must change and change fast to keep up; they argue that the bank is not invested enough in technology.
Of course, the aim is to sell more stuff. The technology guys are driven by aiming to get the banks to upgrade more often; buy more systems; enhance their software; and create big ticket projects.
So, I’m a bank CIO and sitting thinking I’ve heard it all before. Big Data, Cloud, Artificial Intelligence, Blockchain … blah, blah, blah. This big technology firm is going to eat your lunch … blah, blah, blah. FinTech is unbundling your bank and you cannot keep up … blah, blah, blah. All the latest, hottest tech and you’re not up to speed if you don’t get it … blah, blah, blah. Buy our sexy new toy … blah, blah, blah.
I can imagine that the CIO got to their position by working hard, managing risk, project structuring and organising over years or even decades and, in the process, they’ve heard these themes over and over again. It’s now got to the stage that the first response would be: is the threat real?
Equally, in much of the above, it’s a disturbance sale. Like life assurance – you’re going to die, what will happen to your family? – much of technology sales is about threat – you’re going to go out of business if you don’t buy this, what will happen to your company?
Everything is a threat if you don’t change.
That much is true. If you don’t change, everything is a threat. If you don’t change, you get stuck in the middle and run over, so keep moving. And most banks are continually moving forward, slowly but surely. However, the one threat that looms large is the legacy hole.
It is still the case that many banks are talking about seventy or eighty percent of their budget being sunk into keeping the lights on, maintaining systems, keeping things going. Hence, the moving forward budget is tightly squeezed.
Some interesting stats from McKinsey is that banks spend 4.7 to 9.4 percent of operating income on tech (airlines spend 2.6 percent). Money going toward new investments accounted for only 27 percent of bank IT spending in 2017, according to Celent. The rest — a whopping 73 percent of spending — went toward maintenance. Globally, that equates to $200 billion spent just keeping the lights on.
JPMorgan Chase* is a good example of a bank facing this challenge. The bank budgeted $9.5 billion for tech spend in 2017, but less than a third ($3 billion) was for new initiatives and, of that, $600 million was spent on emerging fintech solutions. Meantime, JPMorgan Chase employs nearly 50,000 people in technology, with more than 31,000 are in development and engineering jobs and 2,500 in digital technology.
These are massive operations with lots of legacy and fragmentation built up over half a century of technology deployment, which brings me to the second real threat: systems fragmentation.
An awful lot of banks have been built through years of mergers and acquisitions. Often, in that process, the companies leave systems in place rather than converting them, which is why they have 100s of fragmented systems. Without consolidation, these systems can bring down the bank as they fragment the view of the customer and, as I keep harping on, the future is all about customer intelligence.
It’s not about artificial intelligence, it’s all about customer intelligence.
Intelligence about the life of that customer, whether retail or corporate, and about the risks and opportunities with that customer. Customer-intelligent sales, marketing, advice and service will be the battleground for the future, and that is the greatest opportunity and risk for the bank.
So, when we always talk about the technology threats, where’s the opportunity? Well, it is all about getting rid of the high cost of systems maintenance and moving to agile customer intelligent data structures.
In my conversations with the big banks doing digital well, that means moving to cloud. Nearly all of them are cloud-based with flexible enterprise data architectures focused upon customer intelligent sales, marketing, advice and service. This is why their technology maintenance costs are sinking and their technology innovation and data analytics costs are rising.
In fact, a clear delineation between a bank doing digital well and a bank doing digital badly has to be their technology budget, and how it breaks down. If that budget is placing the majority into maintenance, then it’s not fit for the 21st century.
* Post note:
JPMorgan Chase is one of my banks going digital. The bank increased its technology spending by 15 percent to $10.8 billion in 2018, and by a further $600 million to $11.4 billion in 2019, with most of it going toward enhancement of mobile and web-based services in its four main lines of business: consumer, commercial, and investment banking, and wealth management.
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...