Originally published in The Huffington Post, 05 November 2012.
Its been brewing inside me for a while and I need to shout it out; “BANKS ARE USELESS AT TECHNOLOGY”.
Its not the people that work there that are at fault – given the salaries paid to technologists, product managers, project managers and the like, banks probably do have some of the best and brightest talent. No, its not their fault, well, not directly anyway. It’s the incentives; conflicting objectives between teams and departments lead to bureaucracy, bureaucracy leads to inefficiency, inefficiency leads to costs and long delivery time frames leading to poor projected and actual returns…leads to anger, anger leads to hate, hate leads to suffering. Yoda kind of got it, I am sure you do too.
Please bear with my statement of the obvious – we live in a remarkable digital age. The evolution of technology, the invention and innovation, over the past 15 or so years has been astounding. Do you remember the computer you had as a child? A Commodore 64 or Amiga? An Amstrad CPC? Do you remember your brick of a first mobile? Do you recall sending your first ever email, MSN messaging someone for the first time, the introduction of Google, Facebook, Twitter and Skype?
It really is staggering when you think of how technology has moved forward at such lightening pace and the way that services you could not have dreamed of (and did not, or else you would be filthy rich) have been enabled to enhance our lives.
Today, our needs in relation to services are fundamentally shaped by technology. We explicitly and directly infer what is possible through innovation in analogous services. Implicitly, the way our lives have been re-structured as a result of technology enabled services gives rise to irritation and frustration when we are slowed down by core services that lag way behind in terms of usability. Technology enabled services have helped service providers reduce their costs, the benefits of which, in turn, are passed on to customers in terms of lower prices – we expect most apps/services to be low cost or even free.
If you haven’t got it yet, wake up – financial services, to a troubling degree, are dominated by banks, Banks, particularly commercial banks, don’t do technology at all well. We want user friendly, intuitive, low cost and value added technology enabled services. Pigs might indeed fly before I get an online solution from a leading bank that actually gets close to what it could and should do.
Let’s take international payments as an example. At present, 85% of all international payments are still conducted with a bank. Making a cross-border payment is complex and time consuming; the process lacks transparency on pricing and has unnecessarily high operational risk – over 30% of international payments run into “problems” that are costly to repair, both financially and reputationally.
The infrastructure designed to support the hundreds of thousands of transactions taking place each day is archaic – developed in the 1970’s. Shockingly a lot of the process is still manual. All of these inefficiencies are passed on to the customer as a cost; SMEs in particular often pay through the nose for a service that is far from satisfactory and consumes too much resource to manage. The most ridiculous thing? A bank cannot tell their customer when the payment is going to arrive in the beneficiaries bank account, nor tell the customer how much the full cost will be.
We have gotten used to lacklustre service, become apathetic to the status quo.
In contrast, non-bank cloud-based platforms – whether Software-as-a-Service (SaaS) or Platform-as-a-Service (PaaS) — connect businesses more effectively to a host of currency exchanges and deliver optimisation across and within international payment networks, delivering more transparency on fees and reducing the incidence of failed payments. The level of automation across processes and the use of cloud services, enables low cost operations and scalability, enabling them to lower their fees. It goes without saying that these technology led businesses make the lives of customers easier by delivering user friendly and intuitive solutions that significantly improve the customer’s workflow and reduce administration overheads.
We need banks, but the way in which use them has to change in order to receive better financial services.
I believe that the future of financial services has parallels to the evolution of the telecoms market or the way we use electrical power. There are utilities that deliver and manage the “plumbing” – the lines and power stations etc. On top, sit a plethora of service providers that can package these services in an effective way to meet the needs of their customer niche. Focusing on a core set of capabilities at each level such as this allows the operators of the pipes to benefit from massive economies of scale that they then pass on to their subscribers, who in turn share the benefits with their own customer base.
If banks focused on the “plumbing” – capital markets and their operations, deposit taking and making decisions on the allocation of capital – rather than trying and failing to compete in technology enabled customer services, they would unquestionably be more efficient. Customers can be better and more cost effectively serviced by the raft of “New Finance” firms focusing on packaging specific services, such as international payments, loans, asset finance, cash management etc, that are emerging and sit on top of the bank’s plumbing, These firms are principally technology businesses and marketing specialists. They are focused, they are agile and they are the right way to access financial services. Of course, just as in other industries, some of the banks will evolve exceptional capabilities in servicing customers, but only if they change their approach to product development and innovation; they need to stop focusing on delivering products that they think the customer needs and start delivering products that customers actually want – pull demand rather than push supply.
Imagine the benefits of logging-in to an independent personal finance application in a new world of financial services. The application connects directly to a host of banks. Aside from getting a better more useful view of your finances and budgets, you would, for example, be able to request a new loan and you would get the best rate for which you were eligible and qualified for, across all banks, click a button to accept, and its done. No forms, no applications, no bank names – you interface with financial services through the application provider, not the underlying institution. It doesn’t really matter where your money is held as long as its safe, it does not matter who is lending you money.
We need to re-wire our minds, re-think what is necessary and what is not. Better understand the pros and cons of one way over another. Actually, scratch that – we don’t have time to think. Just listen to me. New Finance services are here NOW. The more customers vote with their feet and switch to use these services, the more innovation will take place and the more customers will benefit. I am not talking about industry disruption. I am talking about industry evolution. The time is right, the stars are aligned, the writing is on the wall…yadda yadda yadda. Just go make the switch for goodness sake.