The 2016 Digital Banking Club Power 50, the annual listing of the most innovative and powerful people in European digital financial services has been revealed. Douglas Blakey speaks with 15 prominent members of the Power 50 to canvass their expert opinions on their firms’ digital culture, strategy and future priorities
“Intelligent Environments are delighted to have been the sponsors of the Power 50 since its inception. Recognition for the key players shaping this fast moving and disruptive part of the industry was long overdue and we wholehartedly congratulate those both nominated and selected,” says Simon Cadbury, Director of Strategy and Innovation, Intelligent Environments.
The digital banking revolution is well underway. Customers and regulators both demand it.
But to what extent are board and C-level executives driving digital strategy? What is driving that strategy: is it revenue, customer retention, or competitive pressure?
What is the risk appetite to innovate? How should financial institutions measure the success of their digital strategy? And who will be the winners?
There is a broad consensus among the Power 50 members canvassed for this paper that there is an acute need for banks to accelerate their efforts to become digitally proficient.
There is also agreement that if the incumbent banks fail to act, they will be punished by a combination of new entrants, the financial markets and regulators and especially, customers.
Can banks ever develop the culture of digitally native outfits?
“In the UK it has been difficult for senior managers, perhaps because they are older, to understand the value of digital,” says Oliwia Berdak of Forrester.
“They thought about it as fluffy stuff that may improve the customer experience, but customers were not switching, so some saw digital investment as just another cost.
“There has been a change in attitude in the UK about the opportunity that digital has created.
“From having been seen as the minimum you have to do – so you had to offer some online banking and a mobile banking app in order to be on par with competitors – banks such as Barclays and Lloyds realised that this could be a way for them to become more profitable. And develop better customer journeys.
“It is like a self perpetuating cycle. Once one bank starts to be more innovative it propels other banks to do the same. I would not be surprised if the UK is at beginning of such a cycle and that impetus comes from banks such as Barclays and Lloyds as well as the challenger banks.”
Berdak argues that while culture is changing for the better, banks should not per se have a digital strategy but should instead digitise their business strategy.
Daryl Wilkinson agrees with Berdak and says there has been a big change in attitude at C-level.
“If you had asked me a few years ago I would have said a flat no-they do not get it,” Wilkinson says.
“Now, they intellectually grasp what they need to do and are taking action against plans to get things done but there is still a huge amount of conservatism and reservation to move things at the pace they really should be moving at.
“There is still a lot of procrastination around getting the right talent in at senior level because that is tough.”
Kevin Hanley at Royal Bank of Scotland (RBS) echoes the view that there has been a marked, albeit recent, change in cultural outlook at the highest level.
“At the very top of house the amount of airtime focus and attention has increased significantly over the past couple of years.
“Every quarter, Simon McNamara (group chief administrative officer at RBS) and I are required to sit in front of the board and give an update on all things innovative.
“It is not just an intellectual thought leadership discussion. The Board of Directors is interested in how new technology is changing the business of banking and more importantly, they want me to explain how we as a bank how we are responding.
“There is a noticeable difference now compared with even 18 months or two years ago. It was a technology led conversation two years ago.
“Since then, all of the franchise business leads have been out to Silicon Valley; this comes from the very top and CEO Ross McEwan has also been over a couple of times.”
At Lloyds, Terry Cordeiro says: “We are very fortunate, still to be the only major UK bank that has a digital director on the executive board.
“That reaffirms our commitment to digital and how important it is.”
David Urbano of CaixaBank says there has been a profound reshaping of the group’s business culture at all levels.
“In 2013, Caixa developed the Innova website to encourage an innovative attitude among CaixaBank staff, and to establish instruments and tools that support idea and knowledge sharing.
“The drive and change in culture within the bank came from the very top. The aims were to accelerate and generate new ideas, stimulate innovative attitudes within the organisation and encourage engagement and partnership among employees.
“By 2015 more than 85% of the workforce used the system, with over 1,500 employees submitting ideas and comments. The ideas submitted to Innova have helped to improve products prior to launch, enhance communications with customers and support access to credit.
Meanwhile, our Conecta tool is used to improve relations and communication between employees. It supports teamwork and knowledge sharing.
“The platform has more than 20,000 users, 23% of whom submit posts or comments.”
Says Simon Cadbury: “The new entrants are coming into banking with not just new technology but more importantly a digital mindest. They are developing their products more quickly than the traditional players and, without any historic revenue streams to protect, have a more open mind as to what is a good return on investment.”
What is driving digital strategy?
If there is broad agreement that there has been a cultural change – and for the better – views differ as to what is actually driving digital strategy.
Says Wilkinson, there has been a mix of revenue concerns, competitive and cost pressures but he argues it was skewed.
“First off, we saw competitive pressure. What got everyone standing to attention and thinking was a mood of ‘we need to do something here it was competitive threat,’” he adds.
“The fintech hype was quite mobilising for the incumbent banks. That has cooled now a little and I think that senior management now realise there was a bit of hype from the fintechs and commentators – but what it served to do was to awaken people to things that previously they were not looking at.
“Examples include things such as the user experience and design or alternative ways of delivering services and outcomes.
“There is a cost play now but we are also starting to see more serious movement to create sales opportunities and revenue in particular from mobile banking experiences.
“Before that, it was not discussed.”
Says Jakub Grzechnik at PKO: “We saw the iceberg on the horizon. Usually it takes ages to turn the ship and avoid the iceberg but because of the digital start-ups on the market we had to react quicker.
“We had the conditions and the infrastructure to turn this Titanic when we saw the iceberg on the horizon.
“We are pulling it off – we are maintaining market share and gaining new customers – and launching new products that are innovative.”
Shashi Bhat says that at the heart of Citi’s digital strategy is operating efficiency, driving the customer experience and potentially attracting new business that will then drive revenue.
Lloyds’ Cordeiro has the bluntest answer as to digital drivers: “The customer is driving the digital strategy at Lloyds. Our customers are demanding that we serve them in their channel of their choice and that drives the digital agenda.
“Five years ago that situation did not exist. The proof is in the pudding in that five years on we have seven million mobile banking customers, over 8-9 million online banking customers and these figures suggests that that was the right thing to do.
“If you look across all the banks, most of them are pretty good at digital.
“We have made a concerted effort and Lloyds Banking Group is the biggest digital franchise in the UK.
“At our busiest we have more log-ons in the UK than Amazon have check outs.”
And what of the oft-repeated claim by commentators that banks lack the risk appetite to innovate?
Bhat argues: “At Citi there is definitely a risk appetite to innovate but there are challenges around legacy although legacy is an umbrella phrase.
“Some hard legacy issues relate to technology and some soft legacy issues are cultural that can hold us back.
“So there can be processes that demand multiple stakeholders to sign off but risk appetite in itself is not a problem at Citi.”
Wilkinson is not entirely convinced.
“The incumbents are following slowly but they are not leading. I see a bit of experimentation but the culture is still conservative and understandably so. The incumbents are taking a slowly catchy monkey approach,” he says.
On budgets and dedicating sufficient resource to invest in new digital hires and technology, there is broad agreement.
“There is enough resource in terms of quantity of spend; I’d say there is enough being committed and on staffing, I think some banks probably hired too many folks,” says Wilkinson.
“One of the largest banks had a bit of a hiring spree and you will probably start to see some changes later this year and paring back of staff hires.
“I think some banks have too many people in the digital teams and I question if some of them are the right people?
“We witnessed droves of people hired at the more junior level s and senior appointments coming from outside the banking industry.
“Some banks now realise it does not work; hotshots from Silicon Valley or someone who has founded a start-up may now find they are struggling to get things done.
“Suddenly finding yourself in a highly regulated conservative institution: it can be extremely difficult to operate and a number of hires have not worked out because they cannot fit into the culture.”
Says Hanley: “The whole HR recruitment game is massively different to the world that I imagined.
“I do not need to recruit to gain access to the calibre of talent that we need but I do need access to different talent tools than ones I have accessed historically.
“It is also a statement of fact that the very smartest people in the world will not necessarily want to work for you on a full-time basis.”
Argues Bhat: “Budget is not an issue – the bigger issue is prioritising the investment.
“We have to be a little more careful where we spend. Fail fast is not core for our model. We do have innovation labs and we have a huge number of innovations we are looking at but if we spend six months doing something it had better have a reasonable chance of being a success.”
Cordeiro also has no budget issues: “We originally invested £750m ($996m) in digital and then about 18 months we announced a further £1bn investment.”
Cadbury adds: “A recent survey from Intelligent Environments found that 86% of respondents said that digital banking is the method they use most to stay in touch with their bank balances.
While over half (53%) said a computer or PC is their preferred method of checking their balance, a quarter (25%) said smartphone banking is the method they use the most to check their bank balance.
“Given smartphone banking was used by as little as 10% of consumers just five years ago, the momentum implies it will become the most powerful channel very soon.
Legacy and Technology
Cordeiro of Lloyds says that traditionally, because of the nature of banking and the security you need to put around it, ‘a lot of our stuff has been built in-house’.
But that is changing.
“We are now leaning towards the view that storage is getting cheaper, the cloud is getting more secure and therefore, there will be a shift in IT strategy” says Cordeiro.
Over at RBS, Hanley says that his team have had contact with as many as 1,500 tech companies.
At Fidor Bank, Sophie Guibaud argues that you can have any amount of budget but that is not enough.
“Customer needs have increased significantly – they want better customer service – but traditional banks have not been able to deliver because of legacy banking systems and implementation of new regulations arising from the crisis,” she describes.
Tom Blomfield agrees and is blunt.
He says: “60 million people in the UK are being forced to use such a crap banking service. It should be so much better.
“What we are trying to do is to take a generational leap in product and functionality.
“Established banks have taken existing core banking software and deployed it to the cloud but Monzo will probably be the first to have it written from scratch and deployed to the cloud.
“You’ve got the combination of really, really old systems that no one understands anymore, and a total lack of technical capability in the banks, and really complex operations.
“The existing high street banks are spending billions of pounds a year on their IT infrastructure.
“What we’re building is fundamentally a data platform. This sort of balance-sheet lending is crucial to our business in the short to medium term. The long term for us is a data platform.”
Wilkinson has some sympathy for the incumbents.
“Every time you have a project that requires a new a new integration path to be developed you suddenly have a multimillion pound project because you need to mobilise resources to figure out the architecture that embeds that new system and that process in the existing IT estate.
“And while doing that you are probably taking resources away from other things.
“It has become very difficult for banks to do development work that is truly innovative because of the strain and the cost of just maintaining what they have got and ensuring that the lights stay on and compliance is checked.”
Intelligent Environments’ Simon Cadbury notes: “It has been interesting to see how Fidor has developed from a B2C brand to one that is also offering new entrants banking infrastructure. Following their recent acquisition by French bank, BPCE, they announced a new structure, separating its own banking business from a white label service enabling other. A new bank from O2 Germany will be their first customer.”
Measuring the success of digital investment
Typical metrics deployed by banks include adoption of digital touchpoints, customer engagement with digital assets, or acquisition through digital channels but Berdak argues these are not always correlated with business results.
She adds:”For example, customers who spend a huge amount of time on a bank’s mobile app could mean great customer engagement or it could be a sign of a frustrated customer who was unable to get help in another way and is about to leave.
“Digital-only metrics can also drive internal competition and channel conflict. Digital customer acquisition might not take into consideration the subsequent cost of serving these customers or show the impact of online research on offline sales.
“Basic metrics like time spent on site, page views, and conversion rates should really just be the starting point.”
She argues that banks also need metrics that are much more difficult to gather but should hopefully say more about the contribution of digital touchpoints to the overall customer experience and business results.
Examples include customer acquisition and service costs, number of transactions or wallet share, customer satisfaction measured on the level of a customer journey (rather than just by channel), and customer retention or lifetime value.
“These are essentially customer-centric business metrics that don’t treat digital channels in isolation but look at them in the context of a cross-touchpoint customer journey,” concludes Berdak.
Caixa’s Urbano rattles off some impressive figures as examples of the success of the bank’s digital strategy: “In 2015, digital use among our clients rose to five million online and 2.9 million active mobile banking customers with three million downloads of our 69 available apps.
“We see one billion transactions every month via our internal cloud architecture with 4,505 transactions per second at peak times.”
At Lloyds, Cordeiro says that log-ins per month is a good measurement because it gives you a sign about levels of engagement
But he agrees with Berdak: “You need to look into the reasons why people are logging in so much.
“You need to understand the reasons why people log in frequently – it is because they want to manage their money better.
“There are proactive ways we can help customers manage their money better which might mean they do not log in so often and so you might see a decrease in log-ins and that does not necessarily mean we have been unsuccessful.
“So we can move from being reactive to proactive to being interactive.
He says that customers are not using as many apps as they used to so the aim must be to get the bank app onto their home page and within the first 20 apps on the device.
For his part, Wilkinson does not like measurements such as engagement or log ins.
“It is lazy and generic. You need to be clear about the business outcomes expected and which measures are used to gauge the success of the outcomes
“You might just make it easier for customers to tell you they are unhappy and they have just found an easier way of telling you they are unhappy.
“You need to measure why they are contacting you and ask is that the outcome you wanted?”
For Hanley: “The only thing we care about is getting things into production. The only thing we are measured on is what has progressed through the pipeline.
“50 things made it into production last year. My team was renamed from innovation team to solutions team in direct response to the question – how to measure success.
“The team has to be one that is in the business of delivering solutions.”
At CheBanca, Ferrari says that Net Promoter Scores and customer satisfaction analysis are key measures and help to identify areas for potential improvement.
“We do enjoy a very high NPS at +48 and this is the result of our ongoing effort in improving processes and streamlining interactions with customers using digital as key enabler.
“We do monitor app store reviews and have lots of social media interactions and we also focus on specific quantitative measures of some key processes such as onboarding conversions, home banking navigation and app usage.”
Citi’s Shashi Bhat deploys a wide range of metrics.
“We have near term, medium term and long term targets covering operating model simplicity and efficiency,” he explains.
“We have a number of metrics in play and targets set we want to achieve by the end of 2017 including mobile penetration rates, NPS, digital acquisition metrics. We are also tracking reducing the number of calls and looking carefully at call intensity.
“Medium term targets include how we improve around activation and payments while long term we are looking at innovation in areas such as Blockchain.”
Cadbury adds that the adoption of Big Data in banking has proven slow and somewhat challenging for the key players.
“However, examples are now emerging that leverage the depth and insight that for so long has been promised. One of the key applications has been the use of predictive intelligence to proactively help customers manage their finances more easily. Those without such capabilities are finding themselves at a competitive disadvantage.”
CaixaBank has been among the most enthusiastic investors in emerging technology in the sector. The aim: to cater to customer requirements, guarantee growth, adapt to business requirements and ensure the permanent availability of information.
Caixa has adopted internal cloud architecture, thus rendering the infrastructure fully adaptable to the financial management and service demands of its customers, while also ensuring maximum security guarantees.
Caixa’s Urbano also has big hopes for greater use of APIs and practical benefits deriving from big data.
Says Urbano: “Big data represents a key aspect of the CaixaBank 2015-2018 strategic plan. It offers an essential tool for personalising the bank’s commercial offering and establishing stronger ties with customers.
“We have more than 80 projects underway based on big data.”
At Masthaven, Jon Hall says: “We are already using APIs in the mortgage part of our business and we are looking for ways to expand this.
“API has become integral to financial services providers and I believe it will be the biggest opportunity for our digital strategy.”
At Tesco Bank, Kate Frankish is equally optimistic: “I think APIs will be a game changer, particularly when most banks in the UK have this capability and data movement becomes seamless.”
Mark Mullen of Atom says: “Artificial intelligence will continue to transform our lives (and our expectations of banks) in more ways than I could list.
“And I really believe in the potential of biometrics to revolutionise the way that people interact with machines and, through them, with the people around them.”
RBS’ Hanley is ‘excited about what we are doing with AI and data analytics and with biometrics in the security space’.
And Hanley is also particularly upbeat about the potential of blockchain.
“We are excited about we could do with Blockchain and within six to 12 months we may start to see first real use cases coming to life that better serve customers,” he says.
“Blockchain and IOT come together there is potential for disruption and opportunity.”
Guibaud concurs succinctly: “The opportunity is massive. API is the future of banking.”
Chebanca’s Ferrari agrees but sets out a longer timetable.
“In the short term, let’s say five years time, APIs, chatbot leading to messaging banking, biometrics identification and greater use of analytics will be probably the most impactful technologies.
“Then I think portability progression, blockchain, big data and the use of natural language incorporating industrial application of artificial intelligence will bring the most fundamental changes to banking.
“Right now, our architectural priorities right now lay on the development and population of an API layer, which we generated about 10 months ago and on the use of a cloud platform,” adds Ferrari.
Source for inspiration
CYBG’s Helen Page speaks for a number of her peers when she says that she tends to look outside of the banking sector for inspiration.”
“I have looked at the likes of Apple, Google, Airbnb, and Uber. When we set up B Bank, the digital sub-brand, part of the brief to our agency was that we did not want it to look like a bank, speak like a bank or feel like a bank.”
Threats and Opportunities
All of the interviewees agree that security is potentially the biggest threat to digital goals being realised.
Says Jon Hall: “Banks should always be concerned with security for the benefit of their customers. We take the safekeeping of customers’ information extremely seriously and are building resilient systems to protect this.
Adds Cordeiro: “Talk to the digital director and he will say that one of the things that keep him up at night is cyber security.”
But Cordeiro speaks for the majority of his peers when he sums up the challenge thus:
“There is a 100% need to keep customers safe but at same time you cannot do that at the expense of the customer experience.
“You have to get the right balance: the right trade off between keeping customers’ safe and offering a great customer experience.”
Hanley adds another key point, echoing a number of his colleagues: “The biggest threat for us as an organisation is not responding to the world that is changing around us.
“I do not like to use the word ‘threat’ – the world of financial services is full of opportunities moving forward.”
Says Cadbury: “For too long financial institutions have relied on an “impermeable” perimeter to withstand attack. The cyber threat is more ever-present and ever-evolving. They need to expect the networks to be penetrated, and identify where this has occurred. Implementing security controls right inside the application server will give them capability to respond.”
Looking ahead: who will win?
Mullen argues that the real customer war is yet to kick off and will not do so until there are real credible alternatives to the incumbent banks offering current accounts.
“You have an industry that is full of potential but it has a way to go to realise that potential,” he explains.
Tom Blomfield is more bullish.
“A challenger bank started this decade can have a truly disruptive impact on the industry and become as significant as a Google or Facebook,” argues Blomfield.
Alessandro Hatami disagrees: “I group the contenders into four groups
“The incumbent banks have lots of cash and customers but they are bogged down by legacy platforms, outdated processes and huge fixed costs (e.g. branches). They are also terrified of change, short-term focussed and have a lot to lose if they get things wrong.
“The Neo Banks have modern platforms and business models but they have relatively little cash and they have no customers. There are a lot of them out there with various business models (some even want to partners with the fintechs and the incumbent) and the big question is whether customers will find them different enough from their existing banks to switch.
“Fintechs are carving our profitable product niches from the banks, often leveraging existing banking infrastructure. They are very efficient, can undercut the banks but also have relatively few customers and limited capital. Like neobanks their challenge is attracting customers.
“The most interesting player is the fourth group: Social Networks are huge organisations that have enormously deep pockets and billions of customers. They could offer banking services by outsourcing the regulated stuff to several firms from the three groups above.”
Concludes Hatami: “They would own the customer relationship, have access to the customer’s data and could seamlessly integrate the banking offering to the other social services they provide. Look at ApplePay, AndroidPay and WeChat as the first examples of this.
“This group would be very hard to beat.”
The last word goes to Roberto Ferrari and his conclusion is one with which all of the Power 50 would probably agree: “In 20 years from now banking will be tremendously different from 10 to 15 years ago. It is a fascinating inevitable journey.”
Oliwia Berdak, Senior Analyst, Serving eBusiness & Channel Strategy Professionals, Forrester
Shashi Bhat, Head EMEA Digital Banking, Citibank
Tom Blomfield, Co-Founder, Monzo Bank
Terry Cordeiro, Head of Proposition Development, Digital, Transformation, Lloyds Banking Group
Roberto Ferrari, General Manager, CheBanca, Board Member, Mediobanca Innovation Services
Kate Frankish, Head of Payment Strategy, Tesco Bank
Jakub Grzechnik, Head of Digital Channels, PKO Bank Polski
Sophie Guibaud, Vice President, European Expansion, Fidor Bank
Jon Hall, CEO/CFO, Masthaven Bank
Kevin Hanley, Head of Design, Royal Bank of Scotland
Alessandro Hatami, Founder, The Pacemakers, & ex-Innovation Director, Group Digital, LBG
Mark Mullen, CEO, Atom Bank
Helen Page, Propositions & Marketing Director, Clydesdale/Yorkshire Bank
David Urbano Director of Mobile Banking, CaixaBank
Daryl Wilkinson, Founder, DWC Ltd