When it comes to reinventing banking, digital investment is almost a sideshow
Banks have been locked in a digital arms race for many years, investing in tens of billions in their digital capabilities. So why hasn’t the dollar deluge managed to reshape how people and companies engage with financial services, the way it has in many other industries?
To reinvent banking, we need to go beyond throwing money in the future, hoping it will appear in shape and form that is agreeable.
To stay relevant, banks need to support and connect whole communities for success, blurring the lines between ‘partners’, ‘vendors’, ‘clients’ and ‘competitors’ on shared platforms.
This is potentially bad news for legacy bankers used to bespoke wealth management and capitalising on flows with platforms unique to their institutions. But for early movers who recognise the need to change – the disruptors – the opportunity is enormous.
In China, for example, banks have a chance to connect with some of the world’s leading tech companies, creative talent and fintechs to co-create the next generation of financial products and services. That’s the reason we have launched our China eXellerator in Shanghai, as part of our global network of innovation labs.
The platforms and tools that are making banking easier and more accessible will continue to require significant tech spend. But it must be complemented with a rewiring of relationships, transforming the way banks engage with their clients, both individuals and businesses.
First, building partnerships is critical: bringing in outsiders to help the behemoth become more agile and nimble and even take over some parts of it.
Until recently, fintechs were perceived as one of the biggest threats to banking.
Now they are becoming part of a shared future with incumbent players. Big banks (teeming with suits and ties) still have a distinct advantage in the scale and trust they offer. As challengers, the entrepreneurial (hoodie-wearing) “hipsters” in fintechs offer new ideas more relevant to changing realities and the ability to execute them at speed.
Perhaps a clash of cultures.
But disruptive ideas that work best come from clubbing together. These different strengths and early successes from this approach offer a preview into how the financial system of the future could be built.
For successful banks, it means establishing partnerships with the right fintechs, helping innovative ideas come to life by funding potential unicorns in win-win agreements and coming together to build new products and platforms.
That means offering ways to connects start-ups, investors and accelerators to the bank and its intrapreneurs.
Second, innovation is everywhere, so we need to allow for ideas from inside as well as outside the bank. A more entrepreneurial culture – beyond replacing suits with hoodies – can help capitalise on our knowledge. There is growing hunger and ability to innovate: companies can harness it by offering the platforms to ideate towards a purpose.
Third, and perhaps the most disruptive variable will be about creating more options.
Partnerships make for solid steps in the right direction for remaining relevant in a digital future. But we must also consider a complete rethink and look at alternative realities for financial services.
We need to think outside the bounded reality of a bank and meet the client needs of the future. Virtual banks, for instance, have a dual role to play: they are a defence by banks against disruptors, while also winning market share from other incumbents.
What does the future hold?
The way banks use technology will evolve, from a ‘do it yourself’ to a much more open model. Their architecture will become modular and connected via APIs, making it faster and easier to integrate new technology.
Banking could then emerge as ‘plug and play’ options where the nuts and bolts might be bank-built, but customers will engage with different services through different ‘skins’.
For individuals, we also need to fit into the future lives of digital natives as they move into greater wealth, careers and make more significant decisions. The same digital shopping cart could hold your breakfast eggs as well as a unit trust to invest for a comfortable retirement. This is already a reality in China.
For corporates, a company can access a single portal for all their needs: trade solutions; insurance; connections with new business avenues and perhaps even the ability to connect with independent experts to help them face challenges as they grow.
Standard Chartered’s new digital platform for SMEs in India, already offers a glimpse into this future.
The future of banking is bright, if we are brave enough to build it.