Effect from banks digital programs depends most on HOW than HOW MUCH
Irrespective as banks announce their IT investment programs, deployment strategy and supportive structure matter most for their outcomes
Disclosure: I’ve led 2 successful innovation programs at major banks in the CIS region, and 1 failed one, while also building 1 major unicorn payment business and contributing to another, seeing both sides of the coin of what innovation inside a big financial service player is — and whether it correlates with amount of money specifically announced for innovation (it actually has an inverse correlation).
Fintech is the name of the year, with close to USD 60 billion in investments done through the first half of 2018. The figure is pushed mainly by big growth-stage rounds, enabled by cheap dept and the need to scale to realise the efficiency of the low-cost service enabled by agile and lean tech.
Banks try to steal the banner or ride coattails of this wave — announcing to much fanfare how their ivestment would be:
1) Remarkable in size
Nationwide will invest an extra £1.3bn in technology over the next five years, in an effort to keep up with pressure…www.ft.com
Three-year strategy to bolster its digital capabilities - job cuts are included.www.bankingtech.com
2) Totally eclipsing the market and poignantly having more money to spend, than generally reported spending for retail fintech industry
The David and Goliath nature of the struggle between up-and-coming fintechs and the established banking world has been…www.finextra.com
Often though, these programs fail to deliver and turn the life of banks management into a never-ending nightmare.
TSB has dealt with less than half the complaints arising from an IT meltdown that happened five months ago…www.ft.com
TSB has been forced to delay a long-planned shift of customers to new debit cards while the troubled UK bank struggles…www.ft.com
This has to do pretty much what the tech stack in banks, how it was formed and how one had to manage it.
IT platforms of incumbents are often a mesh of disparate systems and databases, coded in different style, connected through API, batch file exchange, often replicated for user speed — and garnered at a time of rapid consolidation as banks used assets as leverage to merge — seeking economies of scale and less stringent capital requirements. Today is different and optimisation is in order — motivated by steeper capital requirements, costlier capital, near-punitive regulation and a different scenery with lean and focussed fintechs stealing the best and most profitable customers.
Superbanked savers and lenders flock to P2P, general retail spenders take money from e-commerce platforms and mortgage seekers find their best buy through digital brokerage platforms, while retail investment is free (and earning little for traditional players).
Paid tenure to manage vs. live’s mission to change the world:
Part of the problem is how banks see their digitisation programs: for most it is putting the old established processes to online — digitise paper, rather than create a new product around a digital lifestyle:
These programs live and die commanded by committees of paid managers — not committed teams lead by charismatic leaders.
The art of innovation management in banking needs proper guidance, real examples of achieved change and financial return — not citing PR clippings and comparing sizes of who has larger budget
James Gardner’s book on the subject, published in 2009 has been a revelation and still stands the test of time on how banks have to transition for sustained change — since it happens around us at a constant pace (a geometric progression it is) and change has to be permanent. Management decisions to launch a program, a hackathon or a fund are often static and definitive: the board believes it already achieved something by issuing a decree — while it’s inherently wrong.
The more frugal the program is, the better. Most of the change the team has to instill in terms of how the process is organised: win the hearts through small changes that produce tangible results due to management change: brandishing big tickets build resentment and acrimony and adds to banks internal division.
For a change program to be successful, it has to have chief executive support who is oneself a carrier of the need to change — and then project the tools and resources based on intended effect — so that the amount would correlate to the desired effect. Without it, it’s window dressing and a game of make-believe.