The future of finance is all about shaping a better world

When I asked my brilliant friend Peter Vander Auwera, the co-founder of Swift Innotribe and one of the curators of my company nexxworks’ Mission NXT, about phoenix examples in the banking and finance industry, he suggested that we talk to fintech expert and “Doing Digital” (his 16th book) author Chris Skinner, who’s a real treasure trove of information about how financial organizations can reinvent themselves.

Chris Skinner Horiz

So read on if you want to understand where the industry is heading and who’s doing a great job at understanding these evolutions. 

Challenged but not doomed

Though it might be true that traditional banking is under a lot of strain (which industry isn’t, of course?), Chris explained that many of its biggest players still have “millions of customers, billions in capital and centuries of history” which gives them a huge advantage over the new disruptors like Chime, Revolut and Monzo. Yes, there’s friction, but banks that are nimble enough to reinvent themselves like phoenixes are doing a really good job at keeping up.

Take investment bank Goldman Sachs, for instance, which launched Marcus five years ago as a Greenfield operation to provide no-fee personal loans and high-yield online savings for individuals. Today, it has a hundred billion dollars in deposits and ten billion dollars in loans and card operations. They partnered with Apple. They have 8 million customers and they had 1.2 billion in revenues last year. So when you have a bank with so many assets, it can obviously experiment much more than a startup with its series A funding round at $5 million.

This scale offers them another advantage, of course: access to a massive amount of customer data. However, in the case of most financial firms, this rich data ecosystem is fragmented, built around product sales and silo-based. The problem here, according to Chris, is that these silos are often owned by individuals who get bonuses based on that data,  with the result that they often won’t share it with the rest of the organization. This is one of the many reasons why he thinks that digital transformation has a lot less to do with technologies than with culture, mindset, remuneration and reward.

It’s about culture

“Traditional incumbents still tend to think that digital is either adding something to the old physical structures”, he told me. “Or that it’s all about technology. Or that it’s just a project within a function that you can assign a leader to and a chief digital officer and then give them a budget and a team. But what it really is, is a cultural change program that’s adapting the mindset of the organization: to help them recognize that technology is business and business is technology. At the banks featured in Doing Digital, for instance, every team - be it in treasury, audit, compliance, credits, mortgages, loans, deposits, etc. - has a designer and a developer sitting in with them, owning their piece of the technology. Teams are small and empowered, the size of two pizzas: 10 people structures. Because you can't say to a developer, "you've got to wait for a sign off by five managers before this will be deployed". It doesn't work.

Another important characteristic of phoenixes in banking is that they are stepping back to ask: “how do we build and play our role in the ecosystem of open banking”. Where do they want to apply their strengths? Where do they want to have others apply their strengths? And do they buy those others or do they partner with them? It’s about building a proper relationship, not one where the bigger player feels superior (which unfortunately still happens a lot), because that approach is doomed to fail.

Chris’s favorite phoenix is DBS: a Singaporean multinational banking and financial services corporation founded in 1968. They were able to completely turn themselves around in the last 10 years.  They really understood that digital has become the core and that the physical is ‘just’ sprinkled on the top, not the other way around. Among other things, they spent five years rationalizing their platform into a single platform across Southeast Asia region, and then they started to reinvent that platform, moving to cloud. They now have 85% of their operations in the cloud, while most banks are struggling to get to 20%. The Apple store can't even keep up with the number of times they update their app.” They developed Singapore’s favourite mobile wallet, India’s first paperless, branchless and signatureless mobile only bank, a social network for SMEs and many more innovations that are reimagining banking.

What makes them so great at leveraging technology to better “Make Banking Joyful” (their words), however, is their deep understanding of the cultural facet of change, as Chris also explained above. To quote Piyush Gupta, CEO and Director of DBS Group: “At DBS, innovation is not limited to the technology we use; it’s embedded in our DNA. It’s reflected in the way we work and the customised solutions we create for our clients.” Digital transformation truly pervades every part of their organization: from people and processes to their products and services for individuals and communities.

Ebbs and flows

Chris believes that it’s critical for any Phoenix operation that they have the right mix of visionaries or passionate change agents on the one hand and practical guys who keep business and finances running on the other. Like the visionary Walt Disney had his practical brother Roy to keep things afloat.

Often, these two forces aren’t a constant in a phoenix but move like ebbs and flows, depending on the context and the leadership. ING and BBVA are examples of this where at one moment innovation is on the top of the agenda - where the disruptors annoy all of middle management - and on the other they're keeping the business stable while the visionaries leave because they're frustrated.

Not so long ago, BBVA seemed to be at a high point and an important part of that was the balance in leadership, according to Chris: “half the executive leadership team - not the board or the management, but the actual leadership team within the bank - were qualified in telecommunications and technology. And that's my litmus test for a good phoenix organization: a good type of balance.”

Purposeful banking

As to the direction where the challengers in banking and finance are heading, Chris believes that purpose and transparency will be playing a major role. “We're seeing a whole wave of FinTech start-ups and banks starting to think differently about how to use technology to improve the world. I think the Milton Friedman model of economics which I summarize as "make profit as long as it's legal", is dead.”

Chris gave many fantastic examples of purposeful banking during our conversation. Ant Financial, for instance, has the Ant Forest tree-planting mini program in the Alipay app that enables users to earn virtual points for making low-carbon lifestyle choices (like riding a bicycle or taking the bus). And they've already planted more than a hundred million trees in China, all because of this one application. HSBC, then, has a functionality for family members of people with declining mental health (suffering from Alzheimer's or Parkinson's for instance) so that they get an alert every time money is going out of the account. It doesn't say exactly how much money or to whom but if they suddenly notice that mom or dad is opening 10 credit cards in a week, they will know something is wrong.

Another great example is the Discovery Group from South Africa which wants money to be used to improve health. They offer lower insurance rates if you can prove - with a Fitbit or the Apple app - that you worked out at the gym. And the newer challengers are just as much heading in that direction. Monzo has a functionality, where customers can switch off access to gambling sites within the bank account which can only be switched on again after a cooling period. Nubank in Latin America and Mpesa in Kenya, too, are very focused on inclusion. Many of their customers were previously completely off the network, not served by any financial institution. Now they can access the network and therefore they are banked.

A big part of this purpose driven banking is transparency. You can’t talk about the environment and at the same time invest in fossil fuel firms. Chris’s favourite how-not-to example was BlackRock investments’ Larry Fink's shareholder letter: every year he’s talking about being environmentally responsibility, but the company’s investments go 97.5% into unsustainable companies that are destroying the planet. He won’t be able to keep this up in the current context.

Above all, I think that this new direction of combining new services and business models with a higher societal and environmental purpose is a really exciting one, full of opportunities. It’s crystal clear that we will need to do better in many ways if we want to keep humanity relevant and thriving and it’s great to see hopeful signs in that direction from more traditional industries like banking and finance.

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