The difference between cloud-based and cloud-native

I am having a debate on a regular basis about being cloud-native and digital at the core versus cloud-based and adding digital. The two are very different. Most big banks are moving to be cloud-based and adding digital, but that is not digital at the core and cloud-native. The latter has a business model born for the internet; the former is evolving an old business model for the internet age.

The fact that so many banks are committing to cloud and working from home during this pandemic convinces them that they’re doing digital. But they’re not. It reminds me of the surveys I’ve seen where C-level bankers claim they’ve done digital because they’ve got a mobile app and that it does not require any change of their core business model.

That’s so wrong.

Therefore, it amused me when I saw a headline stating that banks worldwide have wasted almost $1 trillion of investment in digital transformation.

An IDC analysis estimates that 70% of all digital transformation initiatives do not reach their goals. Of the $1.3 trillion that was spent on digital transformation in 2018, it was estimated that more than $900 billion went to waste.

Ravi Kittane, Financial Services Technology Consulting lead at PwC Malaysia, wrote a post about it

In my experience leading major digital transformation initiatives for over 10 years, the following three reasons are major contributors.

1. Lack of alignment between top level management, transformation teams and teams deploying the new capabilities
2. Failure to automate end-to-end business processes (such as customer onboarding, account opening) resulting in fragmented solutions
3. Inability to build organisational capabilities and talent to sustain continuous development beyond initial Proof Of Concepts

I agree with Ravi’s view but would take it further and say that most digital efforts fail because:

Look at the reasons:

#1 not understanding what digital means
#2 thinking it means a project
#3 delegating the project
#4 asking the CFO to lead it
#5 CFO brings in a big 5 consulting firm to do 'the project'

— Chris Skinner (@Chris_Skinner) September 28, 2020

Or, as Joshua James interpreted it:

1. start with the wrong goal
2. take the wrong approach
3. don’t take it seriously
4. don’t allow any learning/risks
5. outsource the blame for failure

As you can see, I gave the reason why this happens; the reason why 70% of all investment in digital is wasted by banks; the reason why things like Bó and such like never living up to bank expectations. It is because banks do not understand this subject.

Now, that may sound weird, but Andy Haldane – the Chief Economist with the Bank of England – made this clear years ago when he presented at the Financial Services Club. Back in 2012, Andy claimed that bankers take productivity gains from technology as bonuses citing research by the American academic, Thomas Philippson of New York University, which shows that the markets are inefficient. His findings proved that the unit costs for finance have risen over the past century which, in other words, means that the financial markets of Rockefeller and J.P.Morgan a century ago were more efficient at a unit cost level than the markets of today.

This is down to the fact that banks invest billions in technology but have rarely used technology effectively. They’ve dodged replacing and upgrading core systems for years, which holds them back; they’ve seen the internet and mobile revolution and decided it is an add-on to everything that was there before; some have tried to adapt their organisation to the internet age, but without rethinking the business model, products or services therein.

It is for these reasons that challenger banks, big technology firms, the internet giants and new players like Ant Group are stealing a march. It is not because banks are being disintermediated by technology. It is because {most} banks are useless with technology.