Many banking executives believe that 'going digital' begins and ends with a mobile app – but it involves much more fundamental change, writes Chris Skinner.
While more and more people are starting to understand that digital is a transformation project, not just an adjunct to business as usual, not enough think like this.
We can liken most people’s thinking about digital in banking (for example) to the thinking by the media when the first digital magazines were launched. A page flicker was added to the top of each online page, so that the user could flick through the magazine as though reading it in print.
We digitised printed media by moving it online. That is not digital content or digitalisation, but just a faster horse – and therein is the rub. Mostly, banks are just producing faster horses.
Underdone?
This struck home when one of the big consulting groups told me about its worldwide global survey of big banking executives and how 77% thought they had 'done' digital. “They think they’ve done digital?” I queried. “But digital is just 1% done, so how come they think they’ve done it?”
The consulting firm’s people said the banking survey had found most banking executives believed they had done digital because they had a mobile app. That is digital, they declared. Oh, and they have a chief digital officer or, rather, several of them, and they made a big point of talking about their digital investments and journey in their annual report and investor briefings. So yes, they have done digital.
Oh dear. These bank executives had changed nothing. There was no rethinking of product and service. No new ideas about how to structure the bank. No fundamental redesign of core systems structures. Effectively, nothing had changed, except they had stuck an app on the front end of the banking process.
This is a fatal error, and will prove the downfall of some big – and by big, I mean systemically important – banks in the next decade. I confidently predict one will be acquired or broken up due to its inability to keep up.
If a bank is just sticking apps on the front end, how is it meant to keep up with its competitors’ deep learning projects? If it has not changed anything 'under the hood', how can it leverage internet technologies for the 21st century? If the management team have zero digital experience, how can they lead the bank through a digital transformation journey?
Fundamental change
Between the hordes of start-ups that want to challenge banks, along with their peers who want to reinvent financial services for the internet age, a bank rooted in last-century technologies is clearly not going to survive in the long term.
What I truly believe by 'digital' is that a bank reinvents itself to place a digital structure at its core. That structure is based on front-office apps for sure, but it is deployed in a marketplace of middle-office application programming interfaces and back-office analytics that are open sourced and collaborative.
The banks that just do the front-office app have fundamentally changed nothing. They are not ready to collaborate and co-create, but sit rigidly in their old command-and-control structures like King Canute on the beach trying to stop the waves. Eventually, unless they move, they will drown.
Chris Skinner is an independent financial commentator and chairman of the London-based Financial Services Club.
