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Build, Buy or Transform the Bank?

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I was recently watching an online poll that asked the best way for a traditional bank to compete with the new digital banks. Should they build a new bank, buy a digital bank competitor, or transform the old bank? The vote was split fairly equally between all three choices after over 1,000 votes.

Buy or build a digital bank or transform the old bank is a good question. I’ve asked it several times times – probably the first time back in 2015 – and my conclusion is always the same: you cannot ignore transforming the old bank. Sure, you can buy a digital bank, as BBVA did with Atom and Simple; you can build a digital bank, as RBS has with Bó and Goldman Sachs with Marcus; but it still leaves the question: what do you do with the old bank?

Let it rot? Let it fail? Let it move into cryogenic freezing and move back over time?

Equally it raises a key issue, as evidenced by JPMorgan with Finn, which is: if you launch a new digital bank that competes with the old bank, everything fails. The new bank doesn’t get the support it needs to effectively compete; and the old bank creates a political wave of hate that is difficult to quell; and maybe nigh on impossible, unless you completely change the whole remuneration and reward mechanisms of the old bank.

I’ve seen this many times and typically what happens is that any bank that launches a new digital bank tries to position it to target an audience completely separated from their old bank audience. That creates frustration for the new bank management, as they want to appeal to anyone who wants digital banking. It also creates frustration for the old bank management, who don’t want to see any cannibalisation of their customer base.

So, what’s the right answer?

You must transform the old bank.

Now doing that is really tough. How do you take a 200,000-employee bank built in the last century and transform it into a 20,000-employee bank fit for this century?

I’m not saying you’ll lay off 90% of the staff but, if you think that most retail banks have branches with 10 people per branch and most investment banks had trading floors with 1,000 or more people – well, most of that disappears in the new digital bank. Equally, when you consider that most old banks have strong, hierarchical structures of management, where middle management forms a large bulk of the human population; whilst most digital banks are agile, flat organisations, where management is through dashboards rather than humans, well, most of the management disappears too.

This is why it is so hard to transform a bank. The fear of change is huge; the human resistance to change is massive; and the leadership and management are often unfit to deal with it; especially when most of the management are worried that it’s their empire which will be cut.

However, transformation can be done. It can be achieved. It’s not rocket science, as companies like Netflix have done it; Amazon has done it; Alibaba has done it. None of these companies began life as digital. However, their advantage has been that they were born on the internet.

Therefore, most of the banks I’m talking to who are becoming digital are transforming by learning lessons from companies they respect as digital companies. They go and see how they work, how they manage, how they monitor, how they remunerate and reward, and they copy them. It takes time and leadership, but it can be done.

Finally, therefore, my prediction for the next decade is that the banks who have effective leadership to transform to be digital will succeed. They won’t buy or build a bank, or if they do it is for reasons other than dodging the bullet of transforming the old bank. It might be to give them time to transform or ability to keep up, but it won’t be to avoid digital transformation.

Every bank has to transform as if you don’t, you die. You will be acquired. You won’t survive. That’s a promise.

Chris Skinner Author Avatar

Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog,, 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...

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