Where would you place your Financial Institution on the imaginary line between the empty booth and the person talking on his mobile phone if this line was a digital adoption scale?
When discussion comes to “digital”, this is how I try to get people from financial institutions to realize where they stand. Most people think about the technology their organization has already adopted and deployed and consider the analogy meaningless. Maybe you would to. Initially that is, because later in the discussion things change.
For people like me, that have spent more than 20 years working in banking and insurance, it may not be easy to accept, but Moven (www.moven.com) and Kabbage (www.kabbage.com) rank closer to the person with the mobile phone while the traditional financial institutions rank closer to the empty booth. It’s hard to accept. However, the sooner we get it, the sooner we’ll have the chance to reorder our position on this line.
In order to understand that, we have to grasp that what has evolved in telecoms industry is not just technology. The evolution from the phone booth to the Nokia 6210 and then to oneplus (https://oneplus.net/gr/one) is based on industry-wide disintegration and reframing beliefs in order to build new approaches in creating value. It is fundamental for people in traditional Financial Institutions to embrace these concepts in order to start the digital journey that customers and fintech firms have already embarked on. (Fintech, is a line of business providing financial services based on innovative technology solutions)
So what does disintegration and reframing beliefs mean in the context of FIs and how can we break it down to simple steps? How can the “operating system” of a financial institution evolve from monolithic to modular? What is the landscape, where do we start from and what are the first steps down this journey?
No one would argue that strategy definition should be the first step. Unfortunately, most strategic initiatives become zombies of ideas haunting board rooms without any chance of incarnation. Instead, organizations end up operating based on reactive incrementalism that can easily be mapped to a –by definition- broad mission statement while thinking that they are implementing corporate strategy. On top of that, the typical -board room designed- 5 year strategy plan doesn’t seem to work anymore.
So let’s take a look to see who the new players are and how are they moving down this digital journey. This is an indicative list compiled after going through lists like the biggest fintech investments in 2015, the Finovate unicorn list etc. and devoting time navigating around the site of each firm.
|http://www.algomi.com/||Bond market social network|
|http://www.nutmeg.com/||Retail investment management services|
|https://blockchain.info/||Bitcoin wallet provider|
|https://www.currencycloud.com/||Cloud based money transfer|
|https://azimo.com/en/||International mobile money transfer|
|https://transferwise.com/||p2p international money transfer|
|https://www.worldremit.com||International money transfer to mobile wallets|
|https://www.crowdcube.com/||Online equity crowdfunding|
|https://www.iwoca.co.uk/||Small business lending|
|https://www.kabbage.com/||Online small business loans|
|https://www.shoeboxed.com/||Helps small businesses to manage and process receipts.|
|https://www.fundingcircle.com/uk/||p2p business loans|
|https://www.duedil.com/||b2b lead generation and risk management|
|https://www.marketinvoice.com/||Online p2p borrowing against unpaid invoices|
Ahh! So these are the competition for traditional financial institutions!
Well … not actually. These are teams that you might as well work with tomorrow.
You see this is the main difference between the empty phone booth and the mobile phone being used in the picture. The evolution of the communication infrastructure from a monolithic application with the operating system and the applications tightly coupled together, to a platform designed to enable applications plugging in it -built from an ecosystem of partners-, reveals the design pattern.
If we worked in a team with carte blanche to design and implement the infrastructure for a financial institution today, we should select to put the emphasis on app mesh and service infrastructure. We should prepare the organization to either plug in to one or more of the offerings mentioned above or use one or more of the platforms listed (indicative list) below:
|http://www.avoka.com/||Customer acquisition for financial services|
|http://www.grobanking.com/||Mobile account opening|
|http://www.leadfusion.com/||Omni channel experience|
|https://www.mambu.com/||Digital banking SaaS platform|
|https://ripple.com/||Low settlement cost international payments|
|http://www.biocatch.com/||e-banking & e-commerce fraud detection|
|https://www.feedzai.com/||Fraud prevention with big data|
|http://www.fenergo.com/||Regulatory data and onboarding solutions for financial institutions|
|http://www.trunomi.com/||KYC capture/review to rapidly finalize due diligence for client onboarding|
Even for the business capabilities that would have to be developed and operated in-house, we would select to work with teams like Backbase and Infosys based on tools and infrastructure from forward looking pure cloud offerings. I know that the recent EMC & Dell deal is the biggest pure tech acquisition ever, however betting on this deal reminds me of the controversy in Jules Verne’s from the Earth to the Moon : Should the seats in the projectile to be shot to the moon be facing the origin or the destination? Well you know how it worked out. The moon in our case is not EMC & Dell, it is Pure Storage and Amazon, Google or Azure cloud infrastructure.
These principles, apply to cases like the one of TSB that bases its operation on Lloyds infrastructure as well as to the ones like Williams & Glyn that will be building the infrastructure more or less from scratch. It is up to the Enterprise Architecture team to deliver the Service Architecture and coordinate a portfolio of initiatives that do not wander off to hazy “innovative” pet projects. There are frameworks that can deliver methodologies to keep these initiatives backwards traceable to the business capabilities and plugging in to the infrastructure available.
Mentioning Enterprise Architecture frameworks and methodologies may sound out of place when discussing groundbreaking ways of cooperation (or should I say co-opetition?). Well they are not out of place. You see whoever has implemented innovative projects knows that innovation is not only jeans, scarfs and couches at workplace. Well it’s that too, but more than that, innovation is a process. It demands a different way of managing things so it’s a different process.
When embracing innovation there are no silos. Collaboration across functions is imperative. Speed in trying and failing is essential. Sorry about your hockey stick budget planning, but it doesn’t work in cases where if you are going to fail you have to fail fast. I know how proud you are about knowing your IRR but –and I don’t know how to sugarcoat this one- you cannot judge something that has never been tried before with financial performance metrics based on hypothesis fueled from past experience. The approach here is budget tied to progress. That initiative might have sounded good and everybody got along but if it doesn’t deliver then it’s dead and you move on.
When Moven decided to introduce the Impulse Savings feature addressing the untold truth that most people hate budgeting and are lousy savers, would you ever think that it compared that initiative to another project using IRR?
Easier said than done right? Definitely! Especially if in parallel to the need for innovation and while reframing the implicit beliefs of how financial institutions make money you have to operate a financial institution with millions of customers, under the scrutiny of regulators and shareholders.
Again Enterprise Architecture has to design and maintain an architecture coordinating a 2 speed infrastructure. A lot of disruption, a lot of bruised egos, that is why Enterprise Architects and CDOs have to have a lot of patience and exceptional stakeholder management skills.
I’ve developed this line of thinking a few times in conversations regarding the outlook of Financial Institutions only to find that around this point in the discussion the greatest doubt is revealed: What if we cannot change? What if we go on relying on the ever diminishing commissions and spreads, ignoring digital currency? What If the pure plays and the P2Ps without the regulatory burdens have already won?
Well there’s no fight therefore nobody’s winning. We’re lucky to live another revolution like the 1995-2000 one. Are you aware of any commercial financial institution that has not adopted internet as a mainstream technology? Do you remember the endless discussions on security and the advantages of X.25 over TCP/IP? Who benefited from the opportunities that we were presented with back then? Customers and innovators won. It’s no time for doubting capabilities. There’s no time for doubt.
Regulation is here for a reason and we will have to devise new more effective ways of complying. Meanwhile 25% of new P2P applications have been withdrawn due to new UK P2P regulations. KYC is here for a reason and we will figure out ways to do it more efficiently. Blockchain technology will reduce costs regardless of the bitcoin adoption. Small businesses will prefer Kabbage instead of a time consuming traditional loan application process. It’s up to each team that is challenged to deal with it and offer a better experience combined with the management of accounts and financial advice. Probably this will be achieved working with a “white label” service from Kabbage or through plugging in to an equivalent platform. Two thirds of the Finovate unicorn list are offering solutions either in lending or in payment. No matter how innovative they are they remain just lending or payments or digital wallets or… On the other hand, financial institutions who dare will be able to use “and” instead of “or”.
Tomorrow, in some organizations, there will be meetings about Adaptive Security Architecture about evolving from Agile to DevOps, about killing an initiative that did not deliver as promised and proceeding with the next one. I bet you that these are the organizations that will be delivering value during the next very interesting years. These are the organizations evolving away from the empty phone booth.