Do banks still exist as we knew them?
[Our] journey began more than 15 years ago with a vision of a digitally transformed banking industry. At the recent Money20/20 conference Where The Future of Money is Invented, it was clear that this dream has become a reality.
Banking and technology are now so integrated that it was hard to tell whether the event was about financial institutions or tech. The answer, of course, was “both,” because technology has finally come to be an integral part of finance, bringing us close to the digital banking nirvana we envisioned all those years ago. Back then we thought, a little humorously, in culinary terms. We wanted to take a “spaghetti” model, in which multiple systems, people, data, and processes ran independently in silos, and transform them into “lasagna:” layered, integrated, seamless. Our CEO … extended the metaphor to describe our role: we wanted, he would say, to be the crispy cheese on top of the lasagna.
Because while layering and integration are essential, they’re not enough. The future is all about connecting disconnected layers and people within new financial ecosystems. But the new ecosystems also have to be opened up to new partnerships and business models; the benefits of automated and streamlined clerical workflows have to be passed on to the end-user; and compliance and risk-management have to be ensured throughout. That’s [our] role: the crispy layer of these things on top of the lasagna of fully integrated banking and technology.
“Open” is the new black
Open architecture, open platforms, open innovation, open banking: a key topic and the word currently on everybody’s lips, “open” is the new black.
The importance of open platforms has been obvious for a number of years. But now we are increasingly clear on how to achieve that openness, and to profit from it. As David Grundy, Group Head of Blockchain/DLT at Danske Bank, explained at the Money20/20 conference, “The first thing is to create a digital backbone by decoupling so that banks can switch systems on and off. But then we also need to digitize processes to allow banks to build APIs with an open partnerships architecture.”
At the same conference, ING Group CEO Ralph Hamers also emphasized that the bank of the future will need to be based on platforms. “A bank should be able to grow business at zero marginal costs,” he said. “A platform is essential in that it creates a network effect and supports open innovation.” He went on to outline three possible approaches a bank can follow:
1) Become a platform itself (this is the main strategy of ING)
2) Create independent platforms (YOLT, owned by ING and which in the UK has reached 1 million registered users, is an example of this)
3) Connect to other platforms and become more like a factory for others.
Totally essential across these models, according to Hamers, is that a touchpoint (modular) architecture be implemented, so that the best and most relevant FinTech can be connected with different bank platforms and finally with the customer.
It’s not only about systems but about people and data
Once the spaghetti mess has been turned into a structured lasagna – once banks have open platforms in open architectures – is the transformation over? Not according to David M. Break, CEO at 11:FS. In his view, digital processes have often become simply a new distribution channel for old analogue problems, and the digital banking revolution has hardly begun.
Olga Zoutendijk, Board Dierector at Julius Bär Group, stressed that all system changes and optimizations ultimately need to reach the customer in the form of streamlined and user-friendly service. She asked the audience at the Money20/20 conference: “Does a customer want to deal with a thousand pieces of FinTech or one bank?” But while the answer may be obvious, how to implement it is not. Once an open innovation framework is in place, the next goal must be to provide customers with the best experience by gluing together in a consistent, developing and responsive way all the innovative tools that continuously appear and evolve in the fast-changing FinTech universe.
Here at … we think of this process as “connecting the disconnected.”
Connecting the disconnected is not only about systems but also about people and data. When banks started digitizing end-to-end processes, they began by connecting banking departments, then moving on to outsourced services, and finally thinking of the customer. But what’s missing? As ING’s Ralph Hamers reminded us, “The bank of the future is, first of all, purpose driven,” and that this purpose must be to give people (he insists on “people” rather than “customers”) a competitive edge in life and business. Revealing that out of ING’s four billion transactions over the last year 26% were not with direct customers, Hamers emphasized that for ING it is not only about financial services, but about playing an active role in a wider digitally-connected society.
If such a society is ING’s goal, Kakaobank CEO Hoyoung Yun used the provocative example of a Starbucks-set dating scene, in which people messaged rather than speaking, to suggest that it is already a reality. Banks are a step behind in developments that have already taken effect in society as a whole, that is, and according to Yun we in FinTech need to remember that “customers (or people) don’t want a bank to sell them a product. They want them to solve a problem.”
Every bank is now partially a tech company, and as an industry we’re still evolving and finding the best ways to manage and benefit from that fact. But although that’s an important and fascinating process, Yun and others remind us, in the end the purpose of bank and tech firm alike is to provide value to people. For that we need to put ourselves in their shoes, ensuring that all our efforts at “openness” (it’s the new black, after all) in the end result in increased openness and ease in the end-user experience.