Turning your bank of today into the bank of tomorrow
What does the disruption journey look like to those who can think ahead of the curve and transform their successful traditional businesses ahead of time? I covered this topic here last week, and received many requests to show the roadmap for banks in particular. It seems many of you are worried about the future of banking. So here goes.
Before we begin, here’s a way of looking at the problem: past, present and future. Which part of our bank do we want to protect and keep? Which part must we shed and leave behind? What is excellent about what we do today, and what is really wanting? And what must we become in order to stay relevant and ahead of the pack? This yesterday-today-tomorrow thinking framework has been developed by Vijay Govindarajan, strategy professor and author.
Consider the poster-child of digital banking transformation: BBVA of Spain, now operating in more than 30 countries. This bank has undergone a top-down, bottom-up exercise in changing from an analogue bank to a digital-first one. In July this year, the bank burst through the one million worldwide digital-sales-per-month barrier, and is experiencing very rapid growth in digital usage. 4 out of 5 loans are now made through digital channels. The bank was recently voted as having the best mobile banking app in the world.
How was this done?
First, BBVA started early. Very early. This journey is ten years old for the bank. So as you sit down with your team to worry about digital transformation in 2017, please realise that those who were really serious about this began in 2007.
Start always with the customer. What do the typical customers, especially younger ones, of the digital era want from their banks? They want everything to be really quick and really simple; they want 24/7 access to their bank, through a multiplicity of channels of their choosing; they want pretty much everything to be possible on their devices; and they want the bank to become an invisible enabler in their lives, not an irritating distraction. Demanding, much? Live with it, bankers: that’s how it is now.
In 2007 that was the future, not the present. So having the sharp vision to see through the mist is a pre-requisite.
Second, know what cards you already hold. Sure, a bunch of usurpers – fintechs, telcos and the like – are milling around you. But what do you have that they wish they did? Data. BBVA realised early it held a huge asset: the information it already had about its customers. And as customers use more and more digital channels, that data would only grow, exponentially. But data is useless when it’s just data; BBVA needed to invest massively in data analytics to assemble the knowledge it needed to understand its customers’ behaviour patterns and become truly embedded in their lives.
Next, be ready to burn things. In BBVA’s case, it realised two things were not fit for purpose: its legacy IT systems; and a culture which emphasised risk-aversion over innovation, hierarchy over creativity, boss experience over customer experience. Both legacies were fit for the 20th century, not the 21st. Both were overhauled, systematically and doggedly.
Lastly, please realize you will not pull this off alone. You will need to refresh the ranks, from board of directors downwards. You will need to collaborate with a whole spectrum of fintechs, vendors, and advisors. You may even need to buy your own: BBVA was an early investor in digital-only banks like Simple and Atom, and in many tech startups.
You see what happened here? An early realization; followed by proper analysis of what needed to happen; long-term commitment to a transformation plan; and the guts to shed the bad old things and leap into the new. Notice also that ‘digital-first’ does not at all mean ‘digital-only’. As I wrote here recently, the future is digital and analogue. BBVA did not, for example, shed its branch network; it merely changed it. It has lots of small self-help branches, with a few large hubs that provide person-to-person contact and advisory services.
Please don’t imagine any of this is easy. Remember, you can’t just park your analogue bank on the side as you go digital. Francisco González, BBVA’s visionary chairman, likened it to “changing the tyres of a truck while still in motion.” Apt indeed.
Can your bank pull this off? Some may make it; many will not. Vested interests and old habits both die hard. Killing them needs vision, insight and determination, and those are scarce leadership assets.