Bank of the Future: Quo Vadis?

History is littered with examples of derided radical thinkers, revolutionaries and heretics who challenged the status quo. One of the best known examples is the Roman Inquisition’s denial of heliocentricism. The concept of the earth moving around the sun…

WHAT DOES THE STATUS QUO MEAN FOR BANKS?

“Status quo, you know, is Latin for ‘the mess we’re in.” – Ronald Reagan

 

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Source: http://gettingsmart.com

History is littered with examples of derided radical thinkers, revolutionaries and heretics who challenged the status quo. One of the best known examples is the Roman Inquisition’s denial of heliocentricism. The concept of the earth moving around the sun contradicted the Roman Catholic Church at a time when the rivalling ideology of Protestantism heightened the need to defend the status quo. Consequently, in 1616, Galileo was instructed by Pope Paul V to abandon his opinion that heliocentricism was a physical truth even though the well-educated of society at the time accepted the heliocentric view as fact.

While the Catholic Church’s confrontation of heliocentricism was rooted in religious dogma, incumbent financial service providers are arguably stymied by systemic and architectural impediments that make shifting the status quo a near impossible undertaking. The existing conditions in banking are defined by siloed structures built around deep functional specialisation, legacy systems embedded in spaghetti architecture, unwieldy cost bases and a product-centric market-orientation.

Source: http://banknxt.com/wp-content/uploads/2015/10/Banks-vs-fintech-will-the-confrontation-continue.jpg

The elements of the status quo described here have a profound influence on our approach to dealing with the future. It is extremely difficult for incumbents to deal with the changes brought about by the proliferation of advances in digital technology that enable Fintech startups to challenge one of the world’s most established, tightly regulated, and mature industries.

The financial services industry is awash with more than 1,300 Fintech startups, across over 54 countries, that have attracted in excess of $80bn in funding since 2010 and they are attacking incumbent business models on the three fronts:

  • Pricing transparency through disintermediation of traditional service providers;
  • Democratisation of products and services previously reserved for exclusive market segments; and
  • Provision of a streamlined, intuitive customer experience that make the traditional service providers look like a shoddy alternative.

While the Fintech disruption has so far been more pronounced in the retail space, it would be naïve not to see this as an omen of a fire that will surely spread to corporate and investment banking.

THE ROADBLOCKS WE ENCOUNTER ALONG THE WAY

“Those things which I am saying now may be obscure, yet they will be made clearer in their proper place.” – Nicolaus Copernicus

 

Source: https://marketoonist.com/2013/03/where-complacent-brands-go.html

As clear as the threat and need to respond may be, the status quo can never be anything other than a feeble and flawed attempt of yesteryear to prepare for our future, fraught with uncertainty.

Our attempts to corporatise innovation and disruption are often informed by aspirations to emulate Silicon Valley. We all want to be more like Amazon, Google, Uber or Airbnb, so we strive to imbue our organisations with the same dynamism, appetite for failure and creative culture we regard as the panacea for deficiencies in our ability to innovate and disrupt.

What we forget is that as noble as our intentions may be, any disruptive play will face the resistance of the status quo in all its varied manifestations. Roadblocks to challenging existing conditions emanate from the vested interests of its custodians, their emotional attachments, outdated heuristics, the fear of lost revenues, cannibalization and obsolesce. These obstacles are not easily overcome.

BREAKING THROUGH TO THE OTHER SIDE

“The riskiest thing we can do is just maintain the status quo.” – Bob Iger

 

To be successful in transforming the status quo, you need to begin by planting a seed at the heart of the organisation and nurture it. That seed is recognising the palpable risk implicit with defending the status quo at all costs. This recognition must occur at the highest levels of leadership, the custodians of the status quo who have the power to shape it. It’s well documented that the most common reason for failed initiatives is the lack of executive support. Solve this problem up front, and you have already won half the battle.

A word of caution though, recognising the risk of maintaining the status quo is only part of the solution as it does not address the systemic challenges faced by banks. For an innovation and disruption unit to be truly successful it must, as far as possible, operate within its own governance framework, unconstrained by the parent organisation’s existing circumstances. Furthermore, banks must be prepared to embrace open innovation principles and collaborate with their would-be fintech challengers. The growing trend towards collaboration between fintechs and banks is well noted and is most prominent in the corporate and investment banking domain.

These pieces of the puzzle are far more difficult to solve but are nevertheless the only way banks can break the shackles of the status quo, innovate freely and keep up with the pace of digital disruption determined by their agile couterparrts.

Counterintuitively, running an innovation and disruption unit such as RMB’s Foundery is less risky than sitting back and taking a wait-and-see approach. The Foundery is a bold declaration of RMB’s intent to challenge the status quo, at both an organisational and industry level.

by David Krawitz

Blockchain: The Beginning

The advent of the Information Age in the 1970s allowed humanity to evolve to a point where information flowed freely, unhindered by national borders, and without the need for intermediaries such as post offices, libraries and universities. We’re now moving into an age where not only information, but value can flow freely without the need for trusted intermediaries…

HOW IT ALL STARTED

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Source: http://dribble.com

The advent of the Information Age in the 1970s allowed humanity to evolve to a point where information flowed freely, unhindered by national borders, and without the need for intermediaries such as post offices, libraries and universities. We’re now moving into an age where not only information, but value can flow freely without the need for trusted intermediaries such as banks, deeds offices and central securities depositories (CSDs). The technology that has allowed this digital peer-to-peer value transfer revolution is called Distributed Ledger Technology (DLT) or, as it’s more commonly known, blockchain technology.

WHAT IS BLOCKCHAIN?

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Source: http://strategy-business.com

Blockchain initially emerged as the technology that allowed Bitcoin, the cryptocurrency, to operate without a trusted intermediary but through a network of participant computers (or nodes as they’re called), working together to validate peer-to-peer transactions. These transactions are time-stamped in a distributed ledger that all the nodes have access to and collaborate on. While blockchains are relatively new (the first was the Bitcoin blockchain in 2009), they are a product of technologies that have been developing over the last half century in the fields of computer science and cryptography. In essence, a blockchain solves the problem of “double-spending” – the ability to spend digital value more than once – without resorting to a trusted intermediary model.

WHY IS BLOCKCHAIN IMPORTANT?

The transfer of value – or payments – earns the global banking industry ~USD1.7 trillion , which is roughly 40% of total global banking revenues. Much of this revenue is earned due to the need to send payment instructions and reconcile ledgers where exceptions occur. To be sure, the cost of conducting payment transactions is a fraction of global banking revenues; however, many costly resources are still involved with clearing and settlement, exceptions and reconciliations. Blockchain technology portends to bring the marginal cost of transactions to almost zero, while eliminating many of the inefficiencies involved in the payment process, resulting in almost instantaneous and automated clearing and settlement.
Beyond payments, blockchain technology promises to revolutionise the transfer of any kind of value – from equities and bonds in a CSD, to title deeds managed by a government department, to currencies held in banks. Indeed, many trusted intermediaries understand that their roles are changing and are actively engaged in understanding what the new financial services ecosystem will look like.

WHAT ARE WE DOING ABOUT BLOCKCHAIN?

Our team is engaged in three main avenues of work:

  1. Understanding and education: As blockchain technology is nascent, we’re tracking all the latest developments and collating these learnings into a format that makes the content accessible to everyone. Our biggest obstacle right now is ignorance.
  2. In-house research: We have built our own blockchain prototypes, issuing mock assets (such as NCDs and a digital currency), trading these assets and deploying smart contracts. While most discussions about blockchain technology these days revolve around “use cases”, we prefer to focus on the platform that will allow a myriad use cases to emerge.
  3. Collaboration with other institutions: A blockchain is like a fax machine – if no one else has one, it’s not much use. So, we’ve taken an inclusive approach and share our learnings and engage with other institutions to progress South Africa’s collective understanding of this technology. We believe that by being inclusive and collaborative, a collective vision for a future financial markets infrastructure will emerge.

WHAT’S NEXT?

Blockchain technology is in its infancy and there is much work and learning to be done before it can be widely adopted and yield the tremendous benefits that have been promised for society. However, this technology is a double-edged sword for the banking industry (and the financial services industry overall). While it heralds a new age in the “value transfer business”, from a cost and efficiency perspective, it threatens some business lines that have up to now been lucrative for the banking industry. At the same time, other streams for value creation will emerge. What is important at this juncture is to understand the developments in this space and ensure we bring the benefits of blockchain to a broad range of stakeholders – customers and shareholders alike.

by Farzam Ehsani

5 simple steps to turning ideas into reality

Fintechs — and start-ups in general — are many and varied and, although we are definitely leaps ahead of the banking of the past, we still have work to do in creating sustainable change in the banking ecosystem. Here are 5 simple steps we believe can get you to meaningful banking transformation.

aeroplane-boyFintechs — and start-ups in general — are many and varied and, although we are definitely leaps ahead of the banking of the past, we still have work to do in creating sustainable change in the banking ecosystem. Here are 5 simple steps we believe can get you to meaningful banking transformation.

Before we get into the details, a small spoiler alert is necessary…simple does not mean easy. In many cases, simple means quite the opposite of easy…you need to lose weight? (Don’t we all?) The solution is simple — quit sugar, kill the complex carbs, eat small meals and exercise at least 3-4 times a week — you see it’s simple!

But, we all know it’s not that easy. When that alarm goes off at 5am on a winter’s morning, how easy is it to drag yourself, your internal maniac kicking and screaming, from your delicious, cosy warm cocoon? Or when that 3pm slump hits and the vending machine choccies lure you closer with promises of joy and comfort and everlasting fulfilment, how easy is it to keep the craving at bay? You get the point.

In creating the necessary change for the banking ecosystem, we can apply 5 simple (but not easy) steps:

STEP 1: BELIEVE IN POSSIBILITY

Boy in boxIf you believe that change is an imperative, and if you know that you need to create an impact in the banking space, then believe that you can change your world — and you will. A person who believes deeply is infectious — the stronger your belief, the more infectious your ideas, and the more profound the impact you can make.

Shifts always begin with a great idea and a great passion — if you have the idea or passion, trust that you can make it happen. Note to self: if you could believe in Santa Claus for like 8 years, you can believe in yourself for like 5 minutes…you’ve got this!

We have a massive amount of data in our heads that gets drowned out in the daily hubbub. We don’t need to hire a consultant or an expert to solve the problem for us…“they” or “the head of” or “the consultant” don’t know the answer that you already know — you know your business better than anyone else, you know your client better than anyone else, and you know the dissatisfaction better than anyone else — you just need the time to figure it out.

STEP 2: BUILD A TEAM THAT BELIEVES WITH YOU

There is something magical in the power of a pack. “For the strength of the pack is the wolf, and the strength of the wolf is the pack.” ― Rudyard Kipling, The Jungle Book.

Once you begin the disruption conversation, you will realise the overwhelming number of others who believe that change is an imperative and who are looking for a place to make a difference.

Influence can be as powerful as the individual, but impact can be exponentially improved as a small team. Disruption in banking requires significant influence and (by definition) uncomfortable change by challenging assumptions. You will need a powerful pack with you in this journey. That may mean partnering differently or with players you have not considered allies in the past.

STEP 3: UNDERSTAND THE DIARY OF DISSATISFACTION

boxing-with-robotInnovation always stems from need. We identify needs most easily when they aren’t met. We need to be better at recording, and then challenging, our daily dissatisfactions.

Very few ideas actually happen in a flash of blinding clarity. All big solutions start with just a hunch. We circle around them for a long time before we finally hit the mark (and most often, a whole group of people hit the mark at the same time) and it’s the bravest who get the glory — think Darwin.

So what dissatisfaction exists in delivering the needs for banking as we define them? And, be brutally honest about what this dissatisfaction is — don’t just pick the easy answer. Opportunity exists when there is a frustration or a barrier to entry. What people want doesn’t change — how they get it does.

STEP 4: FEEDBACK IS YOUR FRIEND

As a leader of change, you really need to know who you are leading. To create sustainable disruption, you need to test your thinking — widely, and repeatedly! Feedback is a powerful tool in honing the product you have and the language that will be appropriate for your organisation. You’ve probably heard the rule of mathematics: if it feels easy, you’re doing it wrong.

In the rest of life, if it feels too difficult you are doing it wrong, especially when it comes to creating change. Each organisation will require its own language and its own solutions. If it feels too difficult, get feedback and tweak the strategy until it begins to feel right for you.

To make an impact, we have to accept that we will fail in some way. So, what are you waiting for? The only way to get to an answer is to experiment. Experimentation in a highly regulated industry sounds pretty frightening – but remember that if the frustration or barrier to entry make delivering the need too difficult — there will be disruption — you are going to have to experiment with how to do that yourself. We are taught from tiny that failure really isn’t a great idea, and in banking even more so, but if you are going to be a really disruptive, you need to create an environment where good and bad ideas are embraced…simple….not easy.

STEP 5: KEEP ON KEEPING ON

Rocket boyThere will be failures and mistakes and difficult conversations, but each of these acts as an opportunity to adjust the strategy and to refocus on the end goal. In these moments, remember the steps: believe in possibility, the pack is bigger than the wolf, get into conversation, seek feedback and just keep on keeping on.

We said at the outset that these steps may not be easy. So, how do you start? It’s a simple case of ready, steady, GO! Just like quitting sugar, if you know your end goal and the reason you need to achieve it, you can access the power within you and then just start. Drag off those warm winter covers, say no to the vending machine and take the first step. The beginning may not be easy, but once you’re on the road it feels pretty great, and the satisfaction as you see the change happen is well worth the effort.

by Liesl Bebb-McKay