I find it interesting that so many bloggers on financial technology, or finch, deride banks for being slow, clueless or stupid. So many blogs talk about how banks don’t do this, don’t do that; fail at this, fail at that; have no idea, cannot change; are stuck in the past or have their heads in the ground like an ostrich.
Come on guys. Do any of you, or us, really believe this? Does anyone seriously believe that the day someone joins a bank, they have their brain removed? Does anyone believe that you can rise to the senior management of a bank and have no clue? Does anyone seriously think that a bank CEO has no idea?
These are intelligent people. These are intelligent businesses. So to say that bankers are stupid, clueless and are ignoring the challenges they face, underestimates the banks and shows the absurdity of the author’s thinking.
Future fears
In reality, every bank executive I meet is concerned about their future. They recognise that the traditional structures of banking are changing; that their margins, and therefore profits, are disappearing; that they need to move from physical to digital; that fintech is changing the market for good; that peer-to-peer, mobile and blockchain are key; that… well, you get the idea.
Their problem is that they don’t know what to do about it and consultants cannot tell them. They tell me they have spoken with the big consulting firms and that they are as much at a loss to all of this change as everyone else. It reminded me of the moment in 2006 that I heard YouTube had been bought by Google for $1.65bn. In a presentation made a year later, the story was told of how the then CEO of a major consultancy called in his global team and asked them what YouTube was. None of them knew or had even heard of it, because they were firewalled out.
In other words, we are living in fast cycle change where many bankers – and consultants – are finding it hard to keep up. Right now, by way of example, we see a mega battle playing out between Stripe and Klarna and yet most bank executives haven’t heard of either company, even though they are core to their business.
This is because of the very nature of 'unicorns'. Unicorns can appear within months and suddenly eat into our space. A great example is Venmo which, if it were an independent company and not now part of PayPal, would be a unicorn. Venmo appeared as a result of a fun weekend among two developer millennials because one of the two friends forgot his chequebook. Now, just four years later, Venmo’s processing power is doubling year on year ($700m processed in the third quarter of 2014 versus $1.6bn in the second quarter of 2015) because it was designed by millennials for millennials and understands that developments can take place in hours (don’t even consider months).
The keeping up challenge
This is the age of real-time, almost free instantaneous change, and it’s hard for the overnight batch analogue generation to keep up. That’s why bankers don’t need to hire consultants or millennials. They just need to make sure they have a living, breathing culture of digital innovation.
I guess it was best wrapped up by a bank CEO recently who asked me, if I were in his shoes, what would be the first three things I would do. He runs a bank that is challenged by change, offers consumer loans, worries about peer-to-peer lending and distributes through branches.
I said to him that he first needs to build a vision based upon the premise that they will never see the customer face to face, only deal through screens and make no margin on their loans. I said that this vision needs to assume the consumer can get everything he does today for free elsewhere. Based upon this supposition: how is he going to make money?
You make money by delivering value in new forms, such as the Brazilian bank that is crowdfunding bulk buying of new cars in order to secure major discounts for its customers – and giving them competitive loans in the process. Or the Ukrainian bank that is overcoming the concerns about buying goods online by creating its own version of Amazon/Alibaba where a customer buys the goods online, in the bank branch, or at home and the goods are delivered to a secure locker in the bank branch. The customer only pays when they are happy with the product and, as that happens to be when they are in the bank branch, they can get a loan too.
These are the new models of banking where value is created through ancillary services to financial products, but not by the financial product itself. In a world where everything is free, banks have to be much cleverer at value generation, and not rely on old-world products with fat margins that will not exist in 10 years.
Once you have a vision of how to make money when everything is free, then go build the vision. Communicate that vision. Share that vision. Live that dream. Make everyone excited and be passionate about what you believe. Finally, deliver the vision. Make it so, as Star Trek's Captain Jean-Luc Picard famously said.
Three things: create the dream, live the dream, deliver the dream.
Chris Skinner is an independent financial commentator and chairman of the London-based Financial Services Club.
