Thinking of appointing a chief innovation officer? That just won’t cut it …
Banks should not kid themselves that they can simply appoint a ‘chief innovation officer’ and that will be enough to combat the threat posed by new technologies and the non-bank companies that are using them to steal business, warned panellists at the recent BBA conference in London.
“It’s like trying to set up a candy store in a gymnasium,” said Nick Finegold, founder at Curation Corporation. “Innovation at banks is not an easy thing to do. When I was born there was no internet. When I was at university there was no mobile phone. The leaders of banks didn’t grow up with the technology. There is a generation gap between the people who run the business and the people who understand the technology.”
The effort to make banks more innovative has been a recurring theme of the last few years. Many attempts have been made and many initiatives have been set up. Swift runs an innovation project called Innotribe. At Level 39 in Canary Wharf, start-ups are encouraged to pitch their ideas and are mentored by banks. Start-up challenges and competitions are regularly held by banks like Barclays, Citi and others. Yet for all that, panellists at the event still expressed the sentiment that banks have not done enough – and the argument that banks face disintermediation by newer, more nimble companies and non-banks such as Apple, Google, Facebook, PayPal, Alibaba and others is frequently made.
“Typically if you’re in a bank and someone says you have to do innovation, the first thing you do is to get a head of digital,” said Anne Boden, chief executive at Starling Bank. “You make the decision that digital is something else – it’s outside your day-to-day lives. But you have to realise the world has changed. We shop differently, buy music differently. Banking has to fundamentally change and you don’t do that by appointing one person.”
“It doesn’t happen having a group of people doing innovation in a team either,” she added. “Banks often have small teams who tweet a lot about fintech, or work with start-ups. These are all peripheral. It doesn’t change the bank. Meanwhile there are people out there disaggregating the bank business model. In the future, we won’t necessarily have one group of people providing all the services a bank provides. True innovation comes when we slice that innovation up.”
The divide between how banks think about innovation and how some of the non-bank companies in the retail technology sector do so was highlighted by other speakers in the debate, who were concerned that the real problem may not so be so much about technology, as about mentality.
“The big companies like Apple who are the major threat to banks don’t think like that,” said Andrew Pinder, chairman at Digital Mobile Spectrum. “They think about changing the world. Apple has already changed the world, and it is set to do so again. It’s not about adapting to regulation – they are so far ahead of you, the regulation will never catch up. It’s not about cost saving, we all know new technology costs more. But it’s about changing the world and changing expectations. Banks don’t think in these terms. But they have to start thinking about millennials and they need to be iconoclastic.”
Delegates in the audience raised the issue of whether banks can simply buy up innovators, thereby neutralising the threat to their own business models. However, panellists were not impressed by this argument, pointing out that there is only so much banks can do to co-opt the competition. Sooner or later, ‘disruptive’ business models will find a way.
“If you look at the history, when banks bought up start-ups before, in the first wave of the internet the incumbents could buy their way out of trouble,” said Finegold. “In the second wave, that’s not really possible. Look at companies like Uber, valued at more than $50 billion. Go ask BMW if they can buy Tesla Motors on credit. You could buy your way out before. But you won’t be able to going forward.”
“There are a lot of people taking over parts of your business, disintermediating you from the customer,” he added. “You are in danger of becoming just a utility and being that is not a great position to be. I think most of them [the banks] will disappear. New structures will emerge. They will not necessarily be called banks, but they will do all the things banks do, in a different order.”
Overall, the prognosis was not looking good for banks – at least according to the session panellists. Warren Mead, banking partner and global head of fintech at KPMG, suggested that banks can be good at technology, but that many banks suffer from a lack of patience and an excessive focus on quarterly results that hampers their ability to look at the bigger picture and innovate. “Banks are not interested in technology,” he said. “They just want it to work.”