The danger of sticking to ancient technology by financial institutions
By Elvis Dvene
If a bank is stuck in last century thinking with last century leadership such cultural strategy will lead to eventual failure.
I was in a hotel for lunch with a friend, when he asked me: “What do you think about sticking to use of old technological systems?” I said it was stupid and it’s digging your own grave. He then added that the major bank he is working with is proud that this is their cultural practices.
Now, here’s the funny thing. That cultural strategy used to work. It doesn’t anymore. Digitisation of financial institutions, specifically banks, is the only way to go. It’s choice of whether to go digital or burst.
In the past, banks could adapt and change when they saw things working. They had the luxury of time. Regulatory and capital requirements meant that new competitions were slow to make an impact and, if they did, the banks could just stick to what they were doing because participants were very few.
Today, regulatory and capital requirements have been lowered so that almost anyone can launch a bank in many countries, and the things they are doing with their banks are hard to copy if you have old and fragmented systems.
Take my favourite example: Barclays and FBC Bank. The difference between Barclays Bank, Agri Bank to mention a few and other new banks is that- new banks began in today’s world FBC, NMB to mention a few. Their core systems and their data are designed to be leveraged. They can provide proactive and personalised service through algorithms.
Now, take my good old bank. Their core system is designed to be a historical snapshot of transactions. They provide zero analysis or personalisation and the data gives no knowledge of customer’s financial lifestyle. The same issue affects micro-finance institutions as well as insurance companies who are using old systems.
That’s why, as I blogged the other day, challenger banks (those that make use of advanced technology) are getting the lifestyle banking whilst old banks keep the utility transactions.
Returning to that theme of fast track death of ancient banks due to sticking to old cultural practices of doing things, the old bank then needs to think about how to create a data structure that can be proactive, personalised and rich with informational analytics. There is no way the old bank can ever achieve that with a core system designed for branch operations, as most of them are. Their systems were designed for an offline world of the 1970s, and to follow new challengers fast, with their real-time analytics, is impossible with such out-dated back office structures.
That leads to slow following. The traditional bank has to restructure and rationalise its old systems structures, refresh them and renew them, and then add the analytics and personalised capabilities to their apps and services. That will take about five years, if they’re lucky. That’s not a fast follower.
The fact is that if a bank is stuck in last century thinking with last century leadership, then they will think a fast follower structure and reputation still works. Today’s customers go where there is convenience. Instead, the reality is that such a strategy will lead to final failure, as the bank is not fit to compete with the Big Tech and FinTech firms who really get the data. Today’s customers go to a bank where there is convenience.
Bottom-line: the world of 2025 and beyond will be dominated by firms that can analyse and leverage data for customer intelligent marketing and service. Any existing bank that has customer data in a static, fragmented, silo structure will fail in that world.