I did a presentation to a conference via video link the other day. Slido allowed audience members to ask questions through the presentation, and the list of questions at the end was quite extensive. I didn’t get time to answer all of them, but here’s a selection.
The most popular question at the top of the list was: How do you see the impact of coronavirus to financial industry?
I’ve answered this earlier in some of my coronavirus updates:
- #Coronavirus, cash and the breakup of the Eurozone
- Our world is just a fiction
- A bank making a mark in mad bad times
- WFH? WTF? NSFW and other acronyms you encounter in the home office
- The rush to digitalisation post-pandemic
The last one is the most relevant. What is clear is that work will move online. The surge in the use of Google Hangouts, Microsoft Teams, Zoom, Slack and other services to videoconference and network effectively is a clear move towards digitalisation of work practices. That will continue.
It is clear that money will move online. We have already digitalised money effectively, and the pandemic will push more and more of that to continue. The result will be a rapid decline in cash usage, but also card usage. Cards are dirty tokens requiring PIN pads that get coated with bacteria fast. We need to get rid of it. As for cheques …
Authentication will also rapidly digitalise. Providing tokens as identity doesn’t make sense. We need to move to biometric contactless authentication like Alipay’s Smile-to-Pay …
In other words, anything that can be automated, digitalised and placed on the network will be. Having said that, we need a backup to the network. During the crisis, the one thing that failed in banking is the physical office. When everyone was ordered to stay at home, the bank’s offices effectively closed, their call centres closed, their mainstream services were understaffed and overloaded. What would happen if, compounded with all of that, the network failed and all digital services were unavailable. You need a backup.
Anyways, after answering this question, we could move on to a few others.
Are the challenger banks in UK or other places profitable? Do you think their businesses are sustainable?
They aren’t profitable yet (see here for more) but the expectation was that some of them, like Starling, would turn a profit in 2020. That will be jeopardised now by the coronavirus impact but, long-term, I do think some of these players will turn a profit and are sustainable. Monzo, N26, Revolut, Nubank, Chime and others don’t reach multimillion user numbers without a viable business idea. And the key to their business idea is to make a customer obsessed financial journey as easy to manage digitally as possible.
Without the heritage of physical structures which constrain traditional bank players, the challenger banks are building amazing relationships with customers through deep data analytics based upon a holistic customer view augmented by the latest technologies from cloud to artificial intelligence.
Re-read that last sentence and you can see why challenger banks have a sustainable business, as traditional banks are unsustainable in this context. Just look at the coronavirus crisis moment for more.
Do you think lessons from large banks can be applied to small regional banks?
The lessons learned from leaders that forms the new book Doing Digital, can be applied to any business to be honest. Although the discussions are all focused upon conversations with large banks – specifically JPMorgan Chase, BBVA, ING, DBS and China Merchants Bank – the output is how to do digital transformation that can be applied to any large or small firm, bank, retailer, manufacturer or airline. The lessons are all about how to do digital transformation.
What was your motivation to write about large financial institutions?
It actually goes to the heart of where many get things wrong. Many think that technology will disrupt banking. Some go further and talk about digitalisation destroying banking. That view is wholly wrong. Sure, there are challenger banks, FinTech innovators, new financial models and new major players like Amazon and Alibaba out there who are making banks think. But banking is a core function of economies that is regulated by governments and therefore protected. Banks therefore won’t be destroying by digital, just severely challenged by it to change.
That’s the real motivation, which is to change what? Charles Darwin talked about the survival of species and nailed it when it claimed it is those most adaptable to change who survive. But the question then has to be: to change what and how? That’s what I wanted to find out.
So, I wrote down a list of the biggest banks I knew doing digital transformation well, from external observation, and asked if they would let me in to talk to them about it; to learn from them about it; to find out what went well and what went badly; and to identify who is changing to what; and how to be digital.
In fact, I was conflicted between calling the new book Being Digital, rather than Doing Digital. I ended up with the latter is that you have to do digital to be digital, and the doing is the hard part. Doing it right is even harder. That’s what the book is really about: banks trying to do digital transformation right.
What are your ideas to convince the top executives of banks to radically change the way of their decision making and the internal culture?
That’s a tough call. They have to realise this has to happen and then make it happen. I cannot tell them, and nor can you. In fact, maybe the most useful lesson I learned during these interviews is that the top executives of these banks knew they had to make digital transformation happen because they could see the threat of the internet giants and rise of thousands of new FinTech firms. They made the decision they had to change. Then they struggled with working out what to change and how. So, they went and explored and discovered how the big internet giants and digital players organised and operated, and copied their management styles. New, agile, flat organisations of small teams, empowered to own code and co-create together.
However, in doing all of this, they had to find out how to change the bank whilst running the bank. And this was the most important secret sauce in my view. The leadership team were given the mandate to change the bank and focus upon business as unusual by the Board of the bank. The Board promised that they would protect the leadership team from the shareholder and investor magnifying glass during this period. Therefore, it two teams. The change the bank team who focused upon business as unusual, and led by the key executives including CEO and Chair to deliver digital transformation; and the run the bank team, led by an operational executive team who just focused more on business usual to deliver the quarterly results.
What advice would you give to startups who are trying to partner with big banks?
Bank partnerships: takeaway lessons to help you move faster
- Do not look for partnerships, instead engage with banks that are approaching you proactively
- Do not spend too much time with innovation teams, instead navigate ASAP to the business line that makes sense for you, (i.e. Corporate FX or Treasury in our case)
- Check the bank’s partnership record and their appetite. There are so many banks that can build teams which will spend years on partnership discussions without reaching any business outcome
- Try to quickly understand how they perceive you. Do they see you as a business enabler, revenue generator, a way to boost loyalty, to upsell, to better engage clients or to provide an improved UX versus being a potential business cannibaliser? (In the case of Kantox, banks usually feel that we offer unique technology that brings extra value to their clients; we are a differentiator, we increase clients’ loyalty without cannibalising a banks’ existing revenue)
- Be very clear on what you are keen to do and what you will not accept. At Kantox we have always been very clear that we do not want to be a white label, nor a vendor to banks. Our partnerships are based on co-branding
- Engage at the highest level possible with people that have influence inside the bank. In our case, we usually engage with the Heads of Corporate FX, FX e-commerce or FX Products, as well as FX Salespeople to make sure they see the benefit for their own clients
- Do secure a project manager inside the bank to lead the process. This makes all the difference in reducing friction and improving coordination between business lines, IT, compliance and legal. I would say that you should put pressure on the bank to appoint a tech-savvy PM as proof of their motivation to partner with you
- Be patient. Banks are slow to move, particularly at the beginning. Realistically, you should consider allowing at least 12-months from the moment you engage to the moment you have a partnership agreement signed
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...