How to Transform Your Bank - Part 1 - Banking’s Red Queen's Race
Billions Spent But Where Is The Benefit?
Whenever I start any presentation to banking folk, which I do pretty frequently these days, I start by talking about money. I do this not because I’m obsessed with the stuff, although I’m pretty fond of it, but because I think money is a pretty great barometer of the level of importance that organisations place upon something.
After all (as I’ve written on the wall in the 11:FS office) and as Gandhi said way earlier than I did, “action expresses priorities” and I don't think there is any greater sign of a bank's priorities than what they are investing in. To this point, not a week goes by these days without an announcement that reads something along the lines of this: “Banks X in country Y plans to double investment in technology to £3 billion over the next 3 years, as part of its commitment to adapting to changing consumer needs”. Now this announcement could be HSBC, RBS, BOA, Deutsche Bank, BNP or pretty much any of the big players in the market right now and I think we’ve seen something similar from most of them. Really my question, having faced an industry that has spent close to £300 billion on “digitising” itself is…Where the hell is all the change?!
Not a week goes by these days without an announcement that reads something along the lines of:“Banks X in country Y plans to double investment in technology to £3 billion over the next 3 years, as part of its commitment to adapting to changing consumer needs”.Specifically if you look at the changes from 1990 to 2017 and the level of investment against the return we are seeing - in terms of the changes to operational efficiency, customer experience or employee experience - it’s fair to say the returns have been pretty underwhelming. And that’s putting it nicely.
Banking’s Red Queen’s RaceNow for those who don't know, the Red Queen's Race is a scene that features in Lewis Carroll's Through the Looking-Glass, and involves the Red Queen and Alice constantly running but remaining in the same spot. It goes a little something like this: "Well, in our country," said Alice, still panting a little, "you'd generally get to somewhere else - if you run very fast for a long time, as we've been doing." [caption id="attachment_64097" align="alignleft" width="800"] Image credit: Rachel Nabors[/caption] For well over a decade the big banks have been running the Red Queen's Race. They have been spending billions on investment just to stand still and maintain the position they were in before. There are a huge amount of reasons for what has led to this. Rising operating costs through legacy technology, resources and real estate have led to a situation where those billions being provisioned for transforming their legacy stack are having to be spent elsewhere instead, merely to keep the lights on. Sadly this was an acceptable outcome when every other person in financial services was equally treading water at the same pace but the world has changed and banks are busy trying to readjust.
A Changing Banking BattlefieldBanks are spending billions and, while I cannot fault their intentions to make real change happen, we haven’t seen the resulting impact for the investment to date. A major motto for my business life has been “think rich and act poor” and I can't help but feel that a little more of this thinking and a lot less of the Red Queen’s Race would result in a different outcome for these organisations. As the Red Queen said herself: "Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!"
Banks are spending billions and, while I cannot fault their intentions to make real change happen, we haven’t seen the resulting impact for the investment to date.My fear is that banks will react to this new challenge by further doubling down on the speed they are running to get somewhere new, but what if that was the wrong thing to do? With skyrocketing operating costs, products being hugely commoditised, the regulatory and technological barrier of entry being at an all time low then money isn’t enough to help banks weather the storm of this new banking battlefield...but I'll talk to you more about the Banking Battlefield next time in Part 2 of this series. In the meantime see if you can spot the Red Queen’s Race in the wild. It's easy when you know what you’re looking for. For more from David M. Brear: follow him on Twitter, connect with him on LinkedIn, or book him to speak at your event. To learn more about 11:FS, please check out our services pages, follow us on Twitter, or download our podcast Fintech Insider.