As a term, disruption is both overused and under-delivered on – but ignore it at your peril. The big tech platforms and 12,000 fintechs are redefining financial products and services, so now is not the time to be complacent, says Chris Skinner.

I just had a conversation about my presentation for a forthcoming conference. They didn’t want to provide a prescriptive approach and just asked what I talk about in general. That’s a challenge – but here goes.

First, we need to get rid of the word ‘disruption’. It kind of goes with ‘disintermediation’, which has been around for decades. In the 1990s, all the techie folks said the banks would disappear thanks to the internet. It hasn’t happened and most big banks have just gotten bigger since then. So, disruption is a yawn.

Second, disruption may be a yawn – but the fact is that technology is changing things, slowly but surely. Specifically, it began when cloud and application programming interfaces (APIs) enabled start-ups to launch on a shoestring. Now there are 12,000 start-ups globally attracting investments that have been doubling down each year to reach $111.8bn in 2018 – and so something is happening. So don’t be complacent; nothing may have happened in the last quarter-century, but something will happen in the next – and only the banks that adapt will survive.

Third, there is specifically a fourth revolution of humanity occurring where the people who historically could not be reached by banks are now being reached by technology. The financially illiterate, the financially vulnerable and the unbankable are all being included, because that’s what digital does. In a world where money is distributed physically, it is not affordable to deal with someone in a remote African village; but in a world where money is distributed digitally, even the guy sitting in the Mount Everest base camp can trade and transact.

Time for a rethink

Fourth, because we can reach the unreachable, we can also rethink the product and service. We can provide loans for hours and minutes rather than months and years, because the digital model is dynamic and real time. The only reason we dealt with annuity products is that in a physical world, we could only deal with changes on a 12-monthly basis and with people who were profitable in that structure. In a digital world, we can deal with changes in a microsecond for anyone and everyone.

Fifth, that’s why players such as Ant Financial are changing the game, because they understand open banking and platforms and are operating on that basis. It is why they can deal with billions of people making millions of transactions every second. It is why they have created new ways of thinking about financial products and services, placing the technology first and the finance second. It is why they can provide fund management within a wallet for someone who only has a dollar to save and can get 50 million people to take out health insurance just six weeks after launching the product.

Sixth, it is more than that. It is about using technology for the good of society and the planet. We have been killing the planet for a profit and screwing our customers to make a buck. The singular focus on shareholder returns to get our management bonuses has led to a morally bankrupt and socially useless banking industry. That must change. We need to use this gift of digital transformation for good: to create a new, sustainable financial model, in other words.

This is best illustrated by Ant Financial’s Ant Forest, where 500 million people play a philanthropic challenge within a super app that has changed their behaviour to be eco-friendlier. The result is 100 million trees planted across China in just three years, which cover 1000 square kilometres and are expected to reduce carbon emissions by up to 5% a year by the end of 2020. That’s a radical way of making change happen.

Wake up!

Finally, you may think ‘disruption’ is a yawn, but if you ignore big tech and 12,000 start-ups who all want to redefine finance for the digital age through apps, APIs and analytics, then you’re sleep-walking your way into the future and this probably will mark the death-knell for your bank. The bank won’t go bankrupt but will be acquired and merged into the future firms that ‘get’ digital transformation. Therefore, at the very least, accept that you need to start doing something.

The question, then, is what to do? It is interesting that so many financial executives I’ve met in the firms that are digitally transforming say to me that the previous management felt the same way, that they had to transform to this new internet-based world of open banking. They just didn’t know what to do or how to do it.

In my new book (coming out in early 2020), I’ve gathered 30 lessons from leading banks around the world about how to make digital transformation happen in their institutions – and it is not rocket science. It just takes commitment, leadership, a different mindset and a change of culture, not just an investment in a project.

Chris Skinner is an independent financial commentator and chairman of the London-based Financial Services Club.

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