I was having dinner with a friend the other night, when he asked me: “what do you think about the fast follower strategy?” I said it was stupid and doesn’t work. He then added that the major bank he’s working with are proud that this is their strategy.
Now, here’s the funny thing. That strategy used to work. It doesn’t anymore.
It used to be that a bank could adapt and change when they saw things working. They had the luxury of time. Regulatory and capital requirements meant that new competition were slow to make an impact and, if they did, the bank could just copy what they were doing.
Today, regulatory and capital requirements have been lowered so that almost anyone can launch a bank in many countries, and the things they are doing with their bank are hard to copy if you have old and fragmented systems.
Take my favourite example: Monzo. The difference between Monzo, Starling, Tandem and other new banks is that they began in today’s world. Their core systems and therefore their data is designed to be leveraged. They can provide proactive and personalised service through algorithms.
Now, take my good old bank. Their core system is designed to be a historical snapshot of transactions. They provide zero analysis or personalisation and the data gives me no knowledge of my financial lifestyle.
That’s why, as I blogged the other day, challenger banks are getting the lifestyle banking whilst old banks keep the utility transactions.
Returning to that theme of being a fast follower, the old bank then needs to think about how to create a data structure that can be proactive, personalised and rich with informational analytics. There is no way the old bank can ever achieve that with a core system designed for branch operations, as most of them are. Their systems were designed for an offline world of the 1970s, and to follow new challengers fast, with their real-time analytics, is impossible with such outdated back office structures.
That leads to slow following. The traditional bank has to restructure and rationalise its old systems structures, refresh them and renew them, and then add the analytics and personalised capabilities to their apps and services. That will take about five years, if they’re lucky. That’s not a fast follower.
The fact is that if a bank is stuck in last century thinking with last century leadership, then they will think a fast follower structure still works. Instead, the reality is that such a strategy will lead to final failure, as the bank is not fit to compete with the Big Tech and FinTech firms who really get the data.
Bottom-line: the world of 2025 and beyond will be dominated by firms that can analyse and leverage data for customer intelligent marketing and service. Any existing bank that has customer data in a static, fragmented, silo structure will fail in that world.
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...