Banks need to rethink their purpose, embrace open banking and move to a process-structured business model that can be delivered through apps, APIs and analytics.

I have a mantra that I have developed over the past few years. While it doesn’t trip easily off the tongue, I think the phrase holds the key to the future of banking. It is purpose-driven, platform-based, process-structured banking.

‘Purpose-driven’ means standing for something. After the 2008 financial crisis, banks were accused of losing their moral compass and being socially useless. It has taken a long time to internalise what that means, but it is finally coming to the fore in the 2020s. What does banking stand for? How can it be socially useful? Is finance just for profit, investors and shareholders, or does it have a wider role in society, government and the economy?

Of course, banking has a role in both, but the balance between them had become skewed, with banks focused wholly on their investors and not on their stakeholders. That will change dramatically in the 2020s thanks to a combination of the Covid-19 pandemic crisis and the climate emergency. Regulators, investors, customers and staff will seek balance in a bank’s purpose that reflects all of their key stakeholders’ interests, not just those of the shareholders.

This is best exemplified by Business Roundtable, a group of leading US executives across all industries that is chaired by JPMorgan CEO Jamie Dimon. In August 2019, they signed up to a new “principles of corporate governance” statement declaring that stakeholder balance, not pure shareholder focus, is key to the future of business.

Open banking era

‘Platform-based’ is the new era of open banking to which I am obviously committed, and what digital banking is all about. The platform is the internet; it offers support for cloud, application programming interfaces (APIs) and apps.

Apps are the new front office, providing integrated and frictionless customer experiences across multiple digital access devices. APIs – plug-and-play code that performs specific, niche functions – allows anyone to offer a piece of financial processing through the cloud with unlimited scaleability, as illustrated by firms such as Stripe and PayPal. The cloud is the new middle office infrastructure and is the platform.

Meanwhile, the analytics in the back office around data are the crown jewels of banking that are currently neglected. Most banks completely underutilise their data, which is fragmented across lines of business and product focus. The future is all about data being leveraged for customer-focused service and marketing. This customer focus is enabled through apps, APIs and analytics.

Customer-focused business

Becoming ‘process-structured’ is the final change that banks need to undergo. Most are product-structured, as mentioned, but they now believe they should become customer-structured. Wrong. Customer-focused, yes, but customer-structured, no. The reason is that the market is moving to process structures and process-structured regulation.

It is moving to a niche and narrow level, where companies that offer plug-and-play code through APIs will only be offering a core process-level piece of functionality. These developments lead to a new market structure where few offer end-to-end processing; or, if they do, they offer this by integrating many specialised process-focused partners operating in the cloud platforms of the internet.

After the 2008 financial crisis, banks were accused of losing their moral compass and being socially useless. It has taken a long time to internalise what that means, but it is finally coming to the fore in the 2020s.

In other words, what I am describing is a radical departure from the past operations of banking. Past operations did everything end-to-end and focused upon pushing products through channels to customers via broadcast media. Today, we are moving rapidly to customers pulling services through digital devices where they believe they can relate to the businesses they are using due to their beliefs, values and purpose.

The structure is based upon businesses that are born for internet operations, which intimately understand apps, APIs and analytics. It is not for faint-hearted companies dedicated to physical operations, which have little ability to embrace open banking, platforms and processes.

Where does your institution sit? Do you have a clear purpose? Are your values clear internally and externally? Are you fit for the internet and digital age? Is your business structured around processes that can be delivered through apps, APIs and analytics?

If the answer to these questions is no, you might just want to change.

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

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