In this video, Thomas Jankovich, a principal at Deloitte Consulting LLP, outlines four aspects of a successful approach to innovation, including bold leaders who can make the decisions required to transform the bank and shepherd the organization through the process. He also explains the key mistake that institutions too often make.
I was chairing a conference recently at which a Gartner Group consultant talked about the firm’s annual bank survey. Gartner found that of the senior bankers it surveyed, 76 percent don’t believe that digitalization will affect their business model.
I can tell you that 76 percent of those survey respondents were wrong. Of course digitalization is affecting the business model, and if you don’t think it is then you need to read my blogs about platformification; back office overhaul through the cloud and machine learning; the impact of shared databases through blockchain; the rapid cycle change of microservices organizations; and the rise of innovation economies in Africa and growth economies like China’s.
In fact, I would be amazed if any banker who reads my blog could honestly say that digitalization doesn’t change their business model. After all, the business model of traditional banks was built for face-to-face interactions backed up by paper documentation; the business model of digital banks is for device-to-device interactions backed up by data. The two are completely different.
It doesn’t worry me that bankers think their banks business models don’t need to change—after all, banks are run by bankers and it’s their problem if they believe otherwise—but it does worry me that people in charge of systemically important institutions that are so important to so many aspects of our lives could be so ignorant. I think it reflects the lack of insight into how digital transformation is impacting the world, and also the lack of balance in bank boardrooms.
This was evidenced by a recent Accenture analysisof the boardrooms of the 100 biggest banks in the world, which shows that:
Banks are led by bankers even though banks are actually fintech companies—even if they don’t yet realize that. That is the fatal flaw here, as fintech firms are led by a combination of technologists and bankers. Most fintech firms I meet have a healthy balance of young, bright technology experts and seasoned financial people.
That is why it’s interesting to see that the biggest banks are gradually reconstructing their boardrooms for more balance, or sothis year’s trendspredicted. When I think of a bank boardroom, I picture a lot ofold menin suits (andthe numbersprove this). When I think of a fintech firm’s boardroom, I see something that is young, diverse and visionary. It does have some old hands on board, but it’s balanced. So what I really expect in the next decade is to see a bank boardroom become just a little bit more awesome. Still a bit grey, but also a little younger, more diverse and a healthy mix and balance of financial acumen and technology vision. Please.
One of my key forecasts for 2017 is that the fintech buzz will continue, but not in the United States. We need to look to China instead. This is fairly obvious as that country saw the biggest rise in fintech investments in 2016, while investments in the U.S. cooled off. This is pretty well summed up in Citigroup’s Digital Disruption report. The second edition just appeared, and opens with:
The rise of the Chinese dragons reflects a unique combination over the past decade of incredibly rapid digitization and the simultaneous rise of the Chinese mass middle class, along with poorly prepared incumbent financial institutions facing off against entrepreneurial e-commerce and social media ecosystems. It is no surprise to us that China accounted for over 50 percent of total fintech investments globally in the first nine months of 2016 and was the only major region where fintech investments increased in 2016–in fact doubling in China in the first nine months of 2016 versus the same period in 2015.
Most notably, China saw one of its fintech giants emerge on the world stage as Alibaba—the country’s largest online e-commerce company—went global. Payments powerhouse Ant Financial (once a subsidiary if Alibaba just as PayPal was once a unit of Ebay) announced that it seeks European and American clients using its AliPay service. And Alibaba founder and Executive Chairman Jack Ma has risen to the same heady heights as Amazon founder Jeff Bezos, or even higher if this year’s World Economic Forum in Davos, Switzerland is anything to go by. Ant is already growing at a phenomenal rate, having gained about 100 million new users in 2016, which took its total above 500 million—or nearly 10 times larger than the world’s biggest banks. Its ambitions don’t stop there. In an interview with CNBC at Davos, Ant Financial CEO Eric Jing said that “we have an ambition to be a global company. My vision (is) that we want to serve 2 billion people in the next 10 years by using technology, by working together with partners _ to serve those underserved.”
The company has never been understated in its ambitions—but to its credit has realized most of them. This is because Chinese internet giants like Tencent, Baidu and Alibaba started in a very different place compared to American internet giants like Facebook, Amazon and Google. The American companies formed to replace old institutions like bookshops. They had a strong, integrated financial system in place, and a well ordered commercial structure. When the Chinese firms began, there was nothing in place to replace. Sure, there were big banks, but these were state owned and had little focus upon customer service or innovation. That has all changed in the last 20 years.
Maybe that’s why, when the chairman of one of the world’s biggest banks was asked recently how technology would change finance, he pointed to the rise of Ant Financial. The veteran chairman—who was not willing to be quoted by name—noted that the Chinese group had acquired a “huge amount of data” and “a great ability to make credit decisions.” The tone of jealousy was hard to miss.
This is because the Chinese internet giants began with a clean sheet of paper and have expanded across China and now the world with their innovative designs. That design began with commerce and communication—Alibaba started as a platform for mum and pop stores to sell their wares—and has expanded into a social and financial ecosystem that can serve all needs through a mobile app. Alibaba and Tencent run not just an internet service, but a payments platform, a social network and more. It is all embracing and fully networked, far more than anything seen outside China.
Between the data analytics that can be applied in that ecosystem, deep learning and contextual commerce capabilities, it’s no wonder the banks are jealous. They should also be concerned, as the Chinese payment model is bound to expand globally and then be copied by the likes of Facebook and Amazon. Happy Chinese New Year!
The concept of identity has not kept pace in a world of accelerated digitization and data. Nowhere is that more apparent than the cost and friction involved in answering three basic questions simply to engage in commerce:
Imagine a world where once these questions are answered the first time, no one else needs to ask them again, or only a subset or new information has to be provided. Archaic identity systems aren’t just frustrating—they’re holding back innovation. The full potential of financial technology and digital global finance, so close at hand, will come about only when a global standard for digital identity does. The technology to make that happen? Blockchain.
A blockchain is a record, or ledger, of digital events, one that’s “distributed” between many different parties. It can only be updated by consensus of a majority of the participants in the system. And, once entered, information can never be erased. With a certain and verifiable record of every single transaction ever made, Blockchain provides the underlying technology to give consumers control over their own portable digital identity.
Blockchain brings digital identity into 2016 (and beyond), opening the full potential of digital innovation to change how we buy and sell goods and services, manage health and wealth, and present our digital identity to the world.
BYO ID
Identity data is everywhere—on all types of devices, applications, private and public networks—but it’s disconnected and doesn’t present a complete, accurate profile of a customer. Plus, it’s personal information: Shouldn’t each person own their identity data and choose what they share and when?
Blockchain is a universal, distributed database that can make it easier for individuals to consolidate, access and reveal what they choose about their own identity data. It’s generally considered more secure, reliable and trustworthy than previous identity solutions because it’s controlled by the user and immutable—protected by a combination of cryptology, digital networks and time stamping on a decentralized network not controlled by any single entity.
Blockchain-based digital ID brings identity into a single record—a persona—that is effectively pre-notarized and authenticated and usable almost anywhere. Individuals control their own ID, adding references and third-party endorsements to verify authenticity, so customers and banks can trust that the content is accurate and secure. It offers an extremely efficient way to capture, share and verify information, and establishes a reliable, secure but relatively easy way for individuals to open a bank account, set up utilities, pay taxes, buy a car—nearly anything requiring personal ID.
Benefits of Blockchain Digital ID
The trust breakthrough: Most customers have a rich online record of what they do, who they know, buying habits, credit—but banks and customers both need better reasons to trust the accuracy, completeness and security of identity data. With customers in control of identity data and a framework for rapid verification, blockchain enables an environment more conducive to mutual trust.
New opportunities: Blockchain provides entry into an ecosystem that increases in value as it expands, providing multiple points of ID verification while creating a more complete description of personal identity. This enables banks to “know” each customer better and offer tailored products that are valued and appreciated.
More loyal customers: Customers typically bear the brunt of inefficiencies, wasting time filling out forms, repeating conversations and gathering documentation. By increasing efficiency, security and accuracy of customer data, next generation digital ID helps make banks more attractive to existing and potential customers.
Improved regulatory compliance: Financial firms spend up to $500 million a year on Know Your Customer and Customer Due Diligence compliance. Next generation digital ID can reduce compliance costs by providing a universal, secure platform for consolidated data collection and records management.
Transparency and better controls: With users controlling their ID and every action an immutable record, you’re less likely to have problems with ID management, theft, security and inconsistency. You can also reduce risks of paper documentation left on desks or digital information with insufficient tracking and controls.
Blockchain-based digital ID fundamentally strengthens identity security and can help ease the burden of regulatory compliance. At the same time, it can improve the customer experience and establish a more solid basis for trust between banks and customers. It also transforms identity data into a rich description of a person, so banks can anticipate customer needs and offer solutions that actually make sense for each customer.
Through blockchain, digital ID is poised to completely change the way we think about and manage identity. It can solve old problems and open new opportunities for banks that are ready to embrace the change.