Banking in times of change – Where are we headed?

If you expected this article to name the next big disruptive Banking business model, or to provide you with a simple set of instructions to define how you should position your business in 2, 3 or 5 years to be ahead of your competitors, I’m afraid I have to disappoint you. Even though there is much talk about AI, Blockchain, Smart Contracts and many other new ideas and technologies, we are only at the beginning of a new journey leading us to a Banking future that will surpass anything we might imagine today.

So if we can’t predict what will be, let’s see what we know. And then, let’s see in which direction we should take our next steps.

We know, that our environment is getting more complex, and we know that the complexity is growing exponentially. Not that long ago, a new business model, organization structure or client approach was valid and working for decades. Then with the appearance of computers and internet, changes have been necessary every five to seven years - those are cycle durations for major updates to current core banking infrastructures. Today’s technological development, though, brings major changes every year which impact all aspects of our business. And this acceleration is just the beginning.

We also know that our business is driven by ever new expectations of our clients, the regulators, our employees. They are expecting transparency, permanent accessibility, robust infrastructures, data security and privacy, at the same time individualisation and a personal customer experience. They expect a working environment where they will find fulfilment, that will make an impact, but that will still allow for a comfortable work-life-balance. And those expectations are not changing from generation to generation any more, but rather between releases of new iPhone models.

And we know that in the future, we will not only be competing against our peers in the industry, but against many other players like Technology firms (FinTech), Social Media companies or who knows, maybe even with your favourite fast food chain, if they come up with some new exciting business idea – after all, they already have all information they might need, incl. their client’s travel habits and credit card details.

Finally, we know the effects of this increased pressure and competition, of this unpredictability and complexity: Margins that are more and more under pressure, increasing risks, and in Switzerland, in the last 10 years, the disappearance of almost 1/3 or the Banks – a trend that is expected to continue.

Fortunately, Banks are not helpless in the face of those developments. Don’t take me wrong, the necessary changes will be dramatic, sometimes radical, and often painful, but many banks will come out stronger and more competitive out of it. The challenge is making sure yours is one of them.

Let’s now talk about where to start, or, as described above, what the next steps into the right direction could be.

The backbone of all current and future technological development is and will be Data. Therefore, it cannot be emphasised enough how important a state of the art data management is. This doesn’t only mean a robust technical basis, but also a deep understanding of data value and an optimal use by all banking functions, especially by compliance, business and marketing.

Another important aspect in terms of technology are flexible systems, allowing to quickly react to new requirements or business models. As most banks have legacy systems that do not provide this kind of flexibility, this must be implemented through a smart IT architecture supporting real time integrated functions and digital ecosystems including 3rd party services and technology providers.

Both measures mentioned above already show that a stronger integration of the different banking functions is necessary. Only this way an institute can react quickly and efficiently enough. This integration brings another major benefit: It allows to set common targets and define common KPIs to quantify and measure success, also being a foundation for strategic decisions. This way, business improvement is integral part of any change, no matter if driven by IT, risk mgmt., compliance or business itself.

This again will result in new organisation structures, less defined by the traditional units, and more by goals and tasks ahead.

Those changes won’t be quick and easy, but they are necessary. They will require a steep learning curve, especially from current management, as well as bold decisions, and of course, initially, financial investments. But I do not doubt that a good execution will take much of the worries about the future.