Banks and digital - still debating the 'why', rather than the 'how'

Director, Head of Financial Services - UK
Valtech UK
Alex Hammond

August 03, 2015

I am drawn to the opinion that the Financial Services industry has little idea what it is doing when it comes to 'digital'.

I try to make a point of speaking to as many people as possible from across Financial Services in the course of my role (and often outside of it) - attending conferences, gatecrashing start-up accelerators, reading articles, pestering 'leaders' in the field for their take on things. In short, a general conscious endeavour to keep up to date with the latest thinking in the industry.

Based on the last few years of musing, I am drawn to the opinion that the Financial Services industry has little idea what it is doing when it comes to 'digital'.

That view in itself is nothing particularly groundbreaking – even the most devout of FS stalwarts has to acknowledge that, when it comes to the 'digital revolution' that we've been going through in the past decade or so, their industry is a long way behind other industry sectors. There are a number of reasons for this, some of them valid (and some less so…), but we are where we are.

All of the above notwithstanding, I found myself at the Digital Banking Club last week – a conference/forum held every few weeks which debates various topics related to digital and how banking can improve in this space. The topic was "How Can Financial Services Innovate Digitally Within the Constraints of their Legacy Infrastructure?" - a pretty reasonable question if you know how much investment is being poured into this area, and one which I thought might spark some interesting debate around what the future of banking looks like.

What staggered me, however, was that very little of the event actually focused on this question at all.

What staggered me, however, was that very little of the event actually focused on this question at all. In fact, what was actually debated was not 'how' to innovate digitally, but rather 'why'? So I found myself in the bizarre situation where a panel of digital banking 'experts', ably assisted by members of the audience, spent the best part of an hour and a half debating whether banks should even bother with digital. The argument being that incumbent banks are so big, and have such huge market share, that digital isn't really going to make any impact on their standing. And even if they do fail, the government will just bail them out anyway!

Blockbuster, Jessops, Borders, Kodak, Nokia, Polaroid, Woolworths… the list goes on. I would be surprised if this wasn't the sort of blinkered thinking that went on at these companies, and probably continued long into their decline. What do they have in common? A lack of meaningful innovation – resting on their laurels and assuming that their standing in the world would remain the status quo, regardless of whether customer needs and wants changed, or someone came along with a better proposition.

What do these failed brands have in common? A lack of meaningful innovation

Banks have probably all heard it all before, and yet the arrogance prevails. And that's what was so surprising. You would expect the dialogue to be more about the 'how?' - what should banks be doing next, what technologies should they be investing in, how can they use digital to provide a more compelling proposition for their customers? Digital is a way for banks to provide customers with significantly better products and services than they receive today, and yet they don't see the need to bother because, frankly, why should they?

Frankly, that attitude makes a little angry… Not as someone in the industry, but as a customer. They have the means to make life better for me, as a customer, but decline to do so because no-one else is doing it better so why should they?!

There are so many analogies for how their fall will come, but fundamentally it comes down to the fact that the barriers to entry for financial services are falling. It is still extremely difficult to launch a bank account in the traditional sense, but not for long, and in the meantime everything else is up for grabs. Technology allows new entrants to access every customer on the planet with a computer or phone, with relative ease, and to scale dramatically in a matter of months.

If the banks don't see how dangerous this is to their futures, then I think we will be adding some new names to the graveyard of businesses that thought they were immune. My bet is that day is coming a lot sooner than we think.