Article and front cover

1. FEATURE INDUSTRY INSIGHT LAUNCH
Scotiabank shores up its
defences by offering a
holistic premium package
There are around 1 billion
users of Tencent’s WeChat.
Banks should take note
The UK is packed with
digital banks. Can bunq
change the status quo?
US CHALLENGERS AND NEOBANKS FACE
BATTLE TO WIN RETAIL CUSTOMERS
issue 767 / November 2019www.retailbankerinternational.com
UPHILL STRUGGLE
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2. 6 | November 2019 | Retail Banker International
industry insight | backbase
A
2018 Boston Consulting Group
study of 40 digital transformations
found those companies that
focused on culture were five times
more likely to achieve breakthrough
performance than those that did not.
Establishing a truly digital-first culture
is, therefore, a priority if institutions are to
become dynamic digital banks ready for the
modern banking era. But what does a digital
culture look like, and how do you create one?
Business culture reflects the beliefs, values,
rituals, attitudes, behaviours and structures
that have built up among staff, and which
take shape in a set of formal and informal
rules. Culture can be tricky to define, but it is
enshrined as ‘the way things are done’.
Traditional banks’ long history, scale and
function in society are mirrored in their
cultures. While each has its own particular
ethos, on the whole they tend to be risk-
averse, hierarchical, rigid and slow to change.
Banks’ core business comes down to making
decisions about lending money, which
demands strong risk awareness. The result has
been a focus on control and avoiding failure.
Prioritising risk control and minimising
failure has also produced rigid delegation and
reporting structures. Decisions are deferred
up the management chain, limiting the
ability to innovate and respond to customer
demands, opportunities or market threats.
Banks’ adaptability and the speed with
which they can change is further constrained
by their large, discrete, siloed businesses.
Implementing IT and process changes is
complex and risky. Legacy systems and
workarounds are common, heightening
fears that any transformations could have
disastrous knock-on impacts. Incumbents
have little incentive to change in any case.
Regulatory barriers to entry and progressive
oligopolisation of markets have created a
moat around the biggest banks’ businesses.
The ‘endowment effect’, where revenues are
mostly generated by products sold in previous
years, such as loans and mortgages, has
further limited the perceived need to make
changes.
DIGITAL FIRST
The old mindsets and ways of operating
are ill suited to the digital world. Financial
institutions need to adopt the cultural
characteristics of dynamic, digital-first
businesses to remain relevant and profitable.
Digital-first businesses embrace more
action and less planning, promoting speed
and continuous iteration in the drive for
results. In successful tech businesses, authority
is delegated and teams have significant
autonomy. Oversight exists, but constraints
and controls are kept to a minimum.
This creates an environment in which
entrepreneurial ideas thrive. Small teams free
of multi-layered decision making also allow
for more agile execution.
Experimentation is encouraged. Fast-
moving digital markets demand constant
change, so businesses need to be in a state of
permanent beta – experimenting, learning,
refining and repeating continuously. And
because not all experiments will be successful,
failure is accepted, not punished.
With disruption spreading across all parts
of the banking industry, the greater risk
comes from not changing.
Collaboration is central to digital ways of
working, since no one person has the full
range of expertise needed to solve customer
problems. In digital-first cultures, teams have
designers, coders, developers and techies
integrated with product and service, business
and customer-focused staff. Collaboration
software then enables ideas to be refined
through many small interactions before they
reach formal sign-off.
Digital-first businesses also collaborate
with external parties. The spread of cloud
computing has fostered an API economy,
where specialist capabilities are easy and
relatively cheap to access. Taking advantage
of these often leads to quicker results than
building the equivalent functionality in-house
– although this may require the development
of new partner management skills.
Evolution is another core tenet of a digital
culture. Updates and upgrades are developed
quickly, continuously and iteratively, enabling
firms to respond to customers’ changing
expectations and deliver ongoing value.
Creating value for customers is paramount
for digital-first businesses. To do this, firms
study their end-users to discover what they
actually want and need. Every employee, no
matter their job, should hear directly from
customers. Employing constant testing with
actual customers and encouraging customer
feedback are key parts of the process.
Like it or not, every business is now a
tech business, and all employees should be
tech people. Part of banks’ culture change
focus therefore must be on helping develop
employees’ knowledge and understanding
of the digital world – for example, through
expert briefings, digital workshops and
hackathons. Monitoring digital developments
at other businesses, even in completely
different markets, also offers vital clues to
how customers and markets are evolving.
Changing engrained bank cultures is
not easy. Disruption is uncomfortable and
will likely breed fear and resistance. But if
incumbent banks are to instil the digital-first
culture that will help them survive and thrive,
they must push forward.
Change starts with a clear vision statement
that sets out exactly the culture the bank
wants. Messages have to be stark to overcome
residual organisational intransigence. Any
chance of successfully implementing that
vision will then depend on strong leadership.
Leaders’ behaviour cascades through an
organisation and its culture, so they must
walk the walk. Commitment to a digital-first
culture must be honest and unwavering.
Culture change is a never-ending project,
requiring constant refresh and self-disruption.
But it is crucial to becoming a truly digital-
first business. <
Banks’ old mindsets and ways of operating may have
served them in the past, but embracing a digital-first
culture is vital if they are to be successful organisations
of the future, writes Backbase CEO Jouk Pleiter
the core building
blocks of a new
digital culture
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