New technology, sustainability and disruption from FinTechs are some of the most recurring topics I am asked about when discussing the challenges of the banking industry. And indeed, these three areas definitely pose challenges. So, as we prepare to attend Sibos in London from 23-26 September, let’s explore these in more detail.
Adoption of new, groundbreaking technology in a traditionally slow-moving and low risk-focused industry carries an excruciating pain. How the financial industry finances sustainable solutions may truly influence and will have long-lasting effects on climate change and the way we do business going forward.
Finding the right balance between collaboration, competition and risk management while working together with FinTechs requires the realisation that we as banks are not the best at everything we do. This in turn requires us to brutally determine what our core strengths are, what our value-add is.
While I agree that the above-mentioned challenges indeed pose a threat to our industry and as such require thorough analysis, careful strategic planning and hard work, I believe there is another overarching challenge that will enable – or may not – the true transformation of the industry: leadership.
Our world is changing dramatically, but it is not the continuous change per se that we need to be mindful of, rather it is the pace. We are now, and have for some time, been experiencing change at an exponentially increasing pace. However, accelerating change in our market environment, technology adaptation and new business models is not necessarily translating into accelerated change in our own working environment. Rather the opposite, for the most part we have roughly the same tasks and duties at work as we always had. We have automated and increased efficiency but the fundamentals have changed very little, meanwhile complexity has increased as old products are kept alive while new products and processes are being introduced. Additional complications have been added by the disintegration of value chains seeking efficiency, multiple-channel digital access to platforms as well as the 24/7 environments. Process and IT insight, understanding is vital in this environment and being close to the business is no longer enough. Business and IT leadership need to become one.
The challenge is equally great regarding sustainability. It is easy to embrace the fact that it is not sustainable to facilitate banking for companies that pollute and to later finance other companies to ‘clean up’. However, to facilitate doing the ‘right thing’ from the start is easier said than done. It requires a definition and measurement of value creation and long-term profitability in the corporate space that includes a long-term sustainability factor. In order to stay relevant we need to develop products that take these aspects into consideration, and that help customers in this transition. It requires leadership that works very closely with customers, government and supranational institutions among others to develop methods of certification for easy adoption and usage. It also requires insight and skill sets in the supply chain areas, which are less common in banking.
The third topic is collaboration. How do we break up virtual value chains both internally and externally and get more output? FinTechs tend to do two main things differently from established banks. They have an uncompromised focus on the customer journey and interface and base their services on solving a specific customer issue. Banks, conversely, have focused less on this area and more on risk management, compliance, security, accessibility, global reach and infrastructure. On the surface, collaboration across these two industries should be an unprecedented perfect match. It has, however, turned out to be difficult, as cultural differences as well as diverging leadership philosophies often have posted insurmountable barriers.
I don’t think the answers to the above questions are rocket science. I think the answer has been in front of us all the time: a cross-disciplinary and diverse leadership.
Leaders need to be precise in determining the critical tasks at hand and whom to use to perform these in the most efficient way. This is best done in an open and divergent environment in order to be able to ponder a broad range of strategic options for later convergence and prioritisation. We need to improve the process of debating and choosing between different strategic alternatives. Once we have completed this process, the focus should be on the how – and its ruthless execution.
To do this well, without compromising on the intensity and pace, we need a diverse mix of people in our management teams; people with completely different strengths and capabilities as well as leaders who can thrive in this environment and have a passion for people. We need to constantly challenge our organisational structures to ensure that new competences are brought in and heard. Nothing is steady in an environment of exponential change. No matter how much effort was put in to building a team yesterday, it will not be enough today.
While it might sound like a cliché, we need leaders who focus not only on the what but on the how. Leaders who don’t only lead for result but who enjoy the ride. I know that this is not an easy task, but from experience, I certainly know it is a fun one.