The difficult mission of digitizing banks

Banks have long been considered the great power companies. Images of respectable bankers forged capitalism and development in the last century.

The crisis of 2008 with the shames that happened in banking internationally (Lehman brothers for example) or even what happened in the last years when some of the most powerful men in the country and big banks fell into disgrace. This sector, fundamental to the economy, has clearly seen better days. Fortunately, it is beginning to have several new ones trying to recover the situation.

These new managers, who are tasked with solving many of the previous problems, do not have an easy task. While they have to restore the financial health of the institutions (the famous liquidity and capital ratios, among others), they also have to compete against very different competitors, the famous FinTechs.

Companies that use technology to make financial services more efficient financial services. For those who have doubts, look at what some are doing in areas that traditionally belonged to banks: payments (square and PayPal), currency exchange (Revolut), business loans (Konfio), stockbrokers (Scottrade).

But how is it possible that “startup” companies are making an impact in an industry as regulated and controlled as banking? The laws that regulate the entry of new banks do not apply to these companies, which therefore find legal loopholes. This is not new to this sector, look again at what Uber has done, for example.

An excess of power and a lack of competition over many years has led to less innovation by the banks than would otherwise have been desirable.

We still have extensive branch networks that open until three in the afternoon (an extremely convenient time for whom?), labor laws that make banks uncompetitive, products and services that are difficult to understand, and so on. How many innovations have come out of the industry since the ATM? The online banking sites themselves lead us to experiences that seem to be taken from computer terminals from the 1990s.

The new companies are much more focused on the customer relationship, and banks, in order to compete, have to focus on this challenge as well. A bank’s digital experience doesn’t just compete with other banks, as has been the case until now, “we’re no good, but the others are no better”. No, consumers are used to having good experiences like Netflix or Amazon, Google, Facebook, or Apple, and this is the type of experience they have to compete with. By the way, these companies, with the number of customers and data they have, are already preparing to enter the sector (Apple pay and Google Wallet?). Uber itself is already finding, in the United States, new ways to pay salaries to its drivers, which do not go through banks.

However, in addition to the heavy regulations that banks must comply with, they also have archaic technological systems that must be transformed. We must start by designing the user experience and defining the so-called “customer journey”, which already includes all channels integrated between them (omnicanality). But this experience has to be supported by the rest of the organization, so a complete digitization is necessary. So, we have to develop all the other pillars of this complete digitalization: processes and operations, new products and services, all supported by culture, human resources and technology. Changing large organizations is not easy, and for all this takes time.

The solution, in part, may be, “if you can’t beat them join them.” These new companies need the backoffice and financial backing of the banks. At the same time, banks need the agility and user experience that these companies have. Several banks internationally (HypoVereinsbank, for example) have already started to create incubators to generate new businesses outside their traditional structure, have created venture capital funds, and have started to actively invest in these new companies.

These partnerships that combine startups with internal paradigm shifts can begin to generate the needed change.

There is no doubt that banking plays a fundamental role in society. As it always passes throughout history, it is time for change. And this is a clear case where Goliath has to be afraid of David. Or better yet, you can bet for peace and become his friend.

David Bernardo
David Bernardo
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