Review by George Baily (Marketing Manager, CREALOGIX)
“Two years ago.. people talked… last year, they were still talking… This year, they are still talking… The question is: show me what you are doing here? show me your work… show me results.” So said Chen Long, Chief Strategist at Ant Financial, interviewed by Chris Skinner in his last (2018) book, “Digital Human“. In this new book, “Doing Digital” (available from April this year), Chris tackles this question of talk versus action in a strongly worded critique of the state of transformation and strategy in our industry.
While “Digital Human” took a wide angle view of “a revolution of humanity through digitalisation with technology”, “Doing Digital” adjusts the lens to examine the idiosyncratic world of banking. In fact, in this book it often feels like a magnifying glass is being held in the sun so as to burn a hole in an industry that clearly frustrates the author with its complacency and slow rate of change, despite being besieged by obvious and massive competitive forces. There is certainly no intent to offer comfort for bankers in this book: Chris demands no less than “a completely different business model from financial institutions”.
Outlining the competitive pressures from fintechs, challengers, big tech, regulation, and internal inertia, Chris calls for “drastic action, not an evolution” – and woe to anyone trying to get away with half measures: “any bank that has not embraced digital as a transformational process, but just as an evolutionary process, will sleepwalk into history.” As you can tell, Chris does not hold back – the book is packed with pithy indictments of the state of the industry: “the business model of the banking industry is completely broken”; “we need to rip that structure apart”; “the banking world and the Western world need to turn their thinking upside-down and stop trying to replicate the last-century world into this century’s world.”
Change in the industry is too often reactive: “banks do change, but most of it is stimulated by fear”. In Chris’s view, change must be strategic and proactive. Instead of being primarily led by the moves of regulators, competitors, or even their investors, banks should organise around a greater respect for their customers: “technology and digital change… is about customers and service. Technology has placed the customer in control.”
As this point about customer-centricity illustrates, despite his harsh words about banking leadership, in this book Chris sets out a positive, even idealistic call to action, including several sections organised like checklists, e.g. “seven new ways in which finance delivered by technology is changing the game”, “five areas of change”…”five clear areas that are forcing transformation”. The strongest sections of the book take aim at common corporate excuses, countered in a highly critical but also highly optimistic voice that will be familiar to regular readers of Chris’s blog The Finanser.
Chris quotes from a variety of industry leaders whom he feels are setting a good example: in fact, he considers there to be – “a mere nine large banks worldwide that I thought were making digital transformation happen”! Their success stories are contrasted with the all too common scenario of overspend and bureaucratic activity that fails to deliver: “76% of big bank execs believed they had done digital because they had a mobile app… in reality, these banks had changed nothing”.
Pure technology competitors do have an obvious head start: “if a bank is just sticking apps on the front end, how is it meant to keep up with its competitors’ deep learning projects?” Fintechs are unburdened by any technological legacy, whereas banks are too often “firmly rooted in last-century technologies”. Old technology creates its own vicious cycles. Readers who work within large financial institutions will no doubt read with a mixture of despair and amusement how “a big bank will often waste 20-30% of its investments on internal politics”, and if they are themselves change advocates will likely recognise this analogy for organisational resistance: “innovation was like a virus that had entered the organisation and challenged it. As with any virus, the white blood cells soon gathered to squeeze it out”! Technology work in the “spaghetti bank” is thus unrewarding, while “the innovators are already a mile down the road of taking out the banking system as we know it”.
And that, Chris explains, is the more fundamental issue than any specific technological change: the necessity to throw out a business model designed around banks and paper. Throughout this book we are reminded how the strengths of the past can hardly be relied on to take financial institutions into the future ahead: “banks have plenty of legacy: legacy systems, legacy vendors, legacy staff, legacy customers, and, worst of all, legacy leadership”. The answer in this book is to address the latter, with Chris pulling no punches: “most banks are led by bankers… with no technology experience or digital background” and “dealing with technology is very different to dealing with money”.
Using wide-ranging examples of innovation both from digitally-native startups and Chinese ‘techfin’, as well as the more progressive incumbents, Chris emphasises the existential challenge old-fashioned banks face: “in five years, banks will make no money from what they do today and will need to be competitive in [a] new, proactive, augmented world.”
With such an urgent challenge, it’s perhaps counter-intuitive to find that Chris asserts that leaders in financial institutions need “room to breathe”. A key observation arising from Chris’s look at digital success stories such as BBVA, ING, and DBS is that attempting major institution-wide change is not something achieved with normal management horizons but a considerably longer view. “The focus on quarterly shareholder returns and investor relations places inordinate pressure on most executives to purely manage numbers and ensure that financial objectives are met. This does not cut the ice when you are in a transformation process. During a transformational process, the focus has to be on the change, not the short-term results.” Shareholders themselves need to take a longer view: “protecting the leadership of the bank from worrying about those financials and giving them the mandate to focus on the change”. So, in one sense, boards being too risk averse about change in the digital era could prove to be the riskiest strategy. The world of banks “is built around maximum stability and minimal change. That is not a good recipe for digital transformation”.
Chris gets to the heart of the matter when commenting: “there is a huge difference between ‘doing digital’ and *being digital*” – the question being, can the incumbents change who they are, in order to revolutionise what they do?
This means, the book title notwithstanding, that “doing digital” is really the outcome of a more fundamental change of raison d’être, rather than superficially seeing how much technology the organisation can adopt. As Chris explains: “this is not really a technology book or a book about banking. It is a book about change. How to make dramatic change happen… how to turn an age-old institution into one that is nimble and refreshed for the digital age… how to make the elephant dance”. This image is certainly a more positive alternative to the two more common elephant metaphors I hear in conferences: eating elephants one bite at a time (incremental change) or there being elephants in the room (Bank of Amazon? Climate Crisis? #MeToo?).
To conclude, “The real question is… whether banks have recognised the real need to change.” Chris Skinner’s polemic book suggests that the answer is still too often ‘no’. So if you work in financial technology, particularly within or alongside incumbent institutions, buy two copies – one to leave on the boss’s desk, and the other for yourself to see what you can do to help “deal with the revolution”.