About 10 years from now, are we going to look back and realize that banks had already missed the massive market change and were already on their way out?
Recently, I have been having a number of conversations with friends and clients (all experts) about digital transformation and banks built for the future. On more than a few occasions, we’ve stared down the rabbit hole of tactical topics like building the best product development shop, becoming a better acquisition target or attracting millennial depositors.
In every case, they had lost the narrative about banking and I’ve had to reset the conversation. We had to get back to the first principles – a topic worthy of its own discussion.
In resetting these conversations, the following four posits are good starting points I’ve used:
Posit 1: Banking Products Not From Banks
A variety of people have written at length about the rise and success of organizations like Rocket Mortgage, SoFi, and others. Many banks partner with FinTechs for ancillary products and services in lieu of being able to build and deploy them internally. This limits growth and introduces a variety of alternative competitors not burdened by traditional banking mores and norms. It is now significantly more likely that we get banking products from non-banks.
Posit 2: Bank’s Changing Customer Landscape
Gone are the days of <20 transactions per month oriented around the branch. I had 209 transactions in September and not a single one involved a check or a branch. The last time I went into a branch was to close an account.
We’ve gone from mobile-first to mobile-only in a remarkably short amount of time. That trend is expanding and extending across the financial services landscape.
Posit 3: Dissatisfaction Drift
If you look at the wave of dissatisfactions roiling around the world, a massive one comes out of banking. While the 2008 financial crisis might seem far away to those in the industry, it had a massive – and lasting – impact on the average person. Not since the great depression, I think, do people speak of banks in as negative a way.
Also consider drops in mortgages, the glut in car loans, and the dominant role consumer payments have begun to play via touchless payment platforms and peer-to-peer payments.
Add to that a massive increase in competition in traditional FinServ markets, like financial advisors vis-a-vis robo-advisors, with price wars and subsequent drops in customer satisfaction. In the political spectrum, these waves brought Chavez, Duterte, Trump, and Sanders to the forefront; in the banking space, it has opened a massive wedge for organizations like Square (and their new charter) and others to ride the wave.
Posit 4: The Wildcards of AI & Blockchain
Having spent over 25 years in and around AI, I know it will not cure all the world's ills; and it certainly will not be a panacea to solve banking challenges for anyone – be they a banker, a consumer, a regulator or a banking solution provider. AI is just one category of algorithms that can be wielded – sometimes well, oftentimes not well – as part of large problems being solved.
Blockchain is evolving in much the same way enterprise data storage has evolved – except, in this case, we are not going to witness a 20-year evolution, but a 5-year one. At the end of it, we will be able to store and share information just a bit more securely than we do today. Blockchain is the realization that information alone, without context & isolated, has almost no value. Blockchain will fulfill the dreams, desires, and promises of all of those who promised that databases will solve your problem in the ‘80s and ‘90s, how the cloud would solve all your problems in the 2000s, and how Big Data would solve all the woes of the last decade.
In both cases, try to ignore the hype machine.
Get Back to First Principles
Grab a cup of coffee, turn off your phone, and write these four posits down on a piece of paper (yes, paper). Now, just think about the future for an hour. Get back to first principles:
- If you’re a bank, focus on running the best bank at the lowest expense with the highest customer satisfaction you can.
- If you are a consumer, understand all your options, do some research, and pick & choose your solutions thoughtfully.
- If you’re a banking solutions provider, maybe get an espresso and figure out how to survive the next 10 years intact.
Here’s what I’ve been thinking about: I was having a conversation with a friend (formerly of a big bank) and we were discussing common themes amongst a certain category of banks – how their financials just looked bleak: not enough deposits, costs were too high, and new products were hard and expensive. We broke down the common solution banks use to solve these problems – consultants to renegotiate core contracts, FinTech partners sticking their head in the sand. We hypothesized the ‘bank of the future’ when all core services would be outsourced – from the core bank, to all banking products, to regulatory compliance. A core business operation and marketing/sales organization would be the only non-outsourced functions. We concluded that in 10 years, this kind of completely outsourced bank will be the ‘best in the class bank.’ I shuddered imaging being in the boardroom of any competing bank then, or now.