Banking: The Real and Present Danger

The future of banking is problematic. Certainly the future landscape when it comes to banking is one that we know will not resemble that already travelled. In most industries this is true but for financial institutions this reality seems to be one that whilst understood is yet to be acted on.

Crystal BallTomorrowToday has been tasked with writing a white paper on the future of banking and in particular on the impact of fintech. It is to be presented in Switzerland mid-2016 and an executive summary of the paper was the topic of conversation for our most recent Insights breakfast in Johannesburg. Present was a clutch of senior figures from the financial sector representing different interest groups both in and that serve the sector. It made for some interesting discussion, discussion that served to confirm that our initial findings were on the mark.

‘Looking out the window’ for senior leaders / organisations is simply a non-negotiable in today’s exponentially changing and complex business environment. A casualty of this contextual sea of change are the formulae and mindsets best described as the ‘way things were done’ as these simply don’t work in the face of the new challenges. New mind-sets driven by age or culture; faster and smarter technology; shifts in customer expectations and the channels needed to deliver on those expectations; new threats and security risks and challenges are but some of the more obvious forces reshaping our view of the future and rendering redundant past ‘wins’ and ways of doing things.

Banking is under major assault from all of these forces. The impact of more nimble, more effective and cheaper ways to carryout select aspects of banking is being felt by the larger institutions. However, weighed down by legacy issues such as unwieldy IT platforms and shackled by restrictive regulations and internal bureaucracy, banks are simply unable to respond. The threat is known, it is real and yet there are many within decision-making roles within the establishment that refuse to meaningfully engage with the challenges that pose a very real and present danger.

We asked several senior bankers the question, ‘what keeps you awake at night?’ Their answers make for interesting reading: Virtual and/ or borderless currency; the current model of traditional banking becomes redundant; Non-banks doing banking…and doing it better than us; Free banking; The convergence between banking and telecoms; The wrong people in the right jobs; The regulatory environment strangling our ability to respond to the challenges we face, were some of the answers received and replicated in different ways over and over again.

On a business school programme in which I was presenting – the client being a large bank, one answer I received from a participant to this insomnia question (what keeps you awake at night?), was revealing: ‘Why does the leadership not practice what they send us to learn?’ Herein is the rub: there seems to be a disconnect between what the executive leaders see (or are willing to see) and what their own senior leaders are seeing and experiencing. When such a dislocation happens in any organisation there is cause for serious concern. An easy detection of such a dislocation is usually captured in the all too familiar question, ‘Have our bosses heard this?’

Banking as we know it is changing or going to change. New ways of thinking, new demands and enabling technology will ensure it does. One option for the established banks is simply to buy the smaller, nimbler companies that are eating at their table and this isn’t a bad strategy at all.  It is often more cost effective than developing the channel from scratch within the existing structure and so this, the buying of the ‘start-up,’ might well be what takes place. It is after all hardly new when it comes to strategy. However, this often ‘kills’ the incorporated offering as it (the new business model) suddenly now has to meet all the internal regulatory requirements that caused the problem in the first place. The cynic might make the point that this might have been the intention all along – to eliminate the ‘threat’ but, at best, that is a very short-sighted and limited approach when it means holding back progress.

The stirring of the giants is evident in that over the past 24 hours I have had notice of three different international strategic banking conferences in my inbox. In TomorrowToday we don’t have the technical answers that will be required – that is not what we do, but we do know how to help the industry or sector ask the right questions and frame the broader context that gives rise to those questions. If you are asking the right questions, developing the right strategy is a natural follow-through. But, ask the wrong questions or keep your head buried in the sand, then finding an appropriate response to a changing world, well…that is near impossible!


Fintech and the Disruption of Banking 

We recently hosted an informal breakfast on the ‘Future of Financial Services’, where we invited clients from the Financial services industry to join us for a discussion on this topic.

The discussion was based on our latest research report on this pertinent topic, if you would like to download the executive summary of this report you can do so here.

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