A Cautionary Fish Tale for Bankers

Last September I was lucky enough to have been invited to give a presentation in Bali, Indonesia.It’s a beautiful island.As I was walking along the beach, enjoying the views and soaking up the atmosphere, I stumbled across a large, dead fish.The fish looked very healthy, apart from being dead.I imagine it had spent the last few days and months feeding around the coral reef off the shore, gradually swimming closer and closer to the shore and oblivious to the fact that the waves and tides were strong.It was fat, happy and finding lots more to eat.Then, on the day I was there, a great big wave washed this poor sucker onto the shore.Once on the beach, it probably wriggled a bit.It would have been desperate to get back into the sea, but _ too late.The beached fish had had its day and now it was a goner.

This may sound like a sad thing to share on a blog.It doesn’t cheer you up much does it?But the reason I’m sharing this is that I feel many of the large banks I deal with are like this fish.They’re bloated with capital. They have millions of customers. They have decades and, in some cases, even centuries of history. Their profits are reliable. Customers don’t leave. The internal structure is challenged, but it works. The products and services aren’t great, but they’re good enough.And they have a management team that is complacent.You get the idea.

Then some kind of disruptive technology comes along.Today we talk about digital. Five years ago we talked about mobile. Ten years ago we talked about the internet, and 20 years ago call centers.So what?For bankers, these are just just technologies they absorb and apply.

And yet I would argue to disagree. Twenty years ago I was presenting technology change to banks and explaining how it fundamentally challenged their core structures.This was when internet banking was first emerging and the challenge was that most banks had systems in place dating back to the 1960s and 1970s that were inflexible and hard to adapt to the internet era.They were ledger systems used for tracking debits and credits and designed for access via internal staff in branches.They were updated overnight through batch processing and had no real-time access.

The people I talked to knew this was a problem but didn’t want to touch or change their core ledger systems and ducked the issue.They did the same thing when mobile came around, which is why most mobile bank apps look like a debit and credit ledger, and they’re still ducking the issue today as we talk about digital.

But this is why I am so assertive that digital structures require digital foundations.If we live in an open sourced economy of APIs and apps, where anything and everything can plug and play, how can an old batch system interact?If we see digital as a key part of the fabric of finance, how can an organization with technologies built for physical distribution compete?If we have customers who want real-time access to cash flow forecasts, how can a system that keeps track of past transactions meet that demand?

This last point is illustrated well by a young chap in the U.K. named Ollie Purdue.Ollie is a 23-year-old university dropout who has raised millions of pounds to launch a new bank app calledLoot.When I asked Ollie how he thought he could launch a bank when he’s just a student, his reply was clear: “Because they didn’t give me or my friends what we wanted or needed.” He then told me that bank mobile apps all show what money has come into and out of the account, but he wanted to know what would come in and out of the account in the future.As a student, that’s important as it makes the difference between party night and study night.And the only reason banks have been offering these old transactional apps is because their core systems are built that way.

Bottom line?They say it takes 30 years for a technology to mature.For the past 20 years, digital technology has been evolving in banking.In another decade, it will have matured.It is a technology wave we have seen coming for a long time, and now that wave is building into a breaking wall on the shore as fintech, insurtech, regtech and digital hits home.That means the clever banks will feed further out to sea to avoid getting beached when the technology wave hits.Those banks are redesigning their systems for the open sourced networked age.Meantime, the banks resisting that change are the ones that are happily sitting with millions of customers, billions of capital and years of history.Like a happy fish feeding too close to shore, they don’t see the wave. And they will be a dead fish if they don’t change direction in time.That is why I shared my story of my fish in the opening.You still have time to see the wave and change course.Please do so now.