The problem with global banks and how they stifle true innovation
By Jonathan Farina, Chief Technology Officer, WCKD RZR
I’ve spent my career in the financial services sector but don’t be fooled that the following exposé is unique to banks. I have come across the attitudes, behaviours and misguided logic across different companies in different sectors, in various guises.
A large bank, or any other organisation, struggles with a lack of product leadership, accountability, and responsibility.
As part of a small company, everything you do has an impact, good or bad. Even salary is a drain on its limited resources and it’s a function of whether you are adding more value that you cost?
So, it’s very important in the small company that everyone has clear direction, outcomes, accountability and responsibility. Fundamentally – can I fire you if you don’t deliver a tangible outcome (defined as moving our company forward)?
Therefore, small companies are very clearly set up. As head of X you are responsible for delivery of X. There are (generally) no cross vertical dependencies, there is clear budget control and clear responsibility for creation and delivery. The company is small, so processes are less bureaucratic, and you often hold the authority to execute.
You’ll have noticed the same words cropping up – accountability, responsibility, and authority. These are key for success, and this is where large companies, such as banks, fall down badly.
I work in Technology with a focus on Software Engineering. To build a successful team, a hiring manager must hire the right people and get them through the door asap to enable them to deliver. Simple? Wrong! This almost never happens, and here’s an egregious example from my past….
Our HR partners decided that we in the ‘business’ weren’t hiring properly and, in an effort, to ‘speed up’ our processes decided to centralise it all. So, a new policy was instigated. From then on, only HR could hire. We the hiring managers would do all the admin, raise the Job Request, create the job description and (once approved by HR obviously) would be ‘allowed’ to have the role go live.
HR did the screening for candidates. So we found ourselves in a laughable state where we were being fed candidates who were deemed suitable for our role by a central team who knew nothing of what we did nor the technology requirements we had.
Obviously, this didn’t work. Candidates were terribly suited and rejection rates went off the charts. When the policy was introduced, average hiring times were 6-8 weeks (plus approx. 4 weeks’ notice) so that’s about 3 months end to end. That’s tough when you must commit to delivery of something, and it takes ¼ of a year to hire to meet the demand!
However, after 12 weeks of the policy, hiring rates had fallen so far that almost no one was being hired in Technology. No hiring into £2bn part of your organisation. So, what happened? After 12 weeks, the “hiring project” was deemed such a complete “success” that it was cancelled with immediate effect and the previous processes reinstated.
What do we learn from this example? The person who created this process had a misguided belief they were going to make things better. They demonstrably failed. They didn’t get fired nor sanctioned yet the reputational damage to the organisation was massive and the ability for teams like mine to meet our deliverables were derailed by ¼ of a year.
This brings me back to my three words – accountability, responsibility, and authority.
HR had no responsibility but had taken the accountability and authority to perform the process.
I challenge you to think of some crazy policy or idea in your organisation. I bet it lacks one or more of these 3 key attributes? And this is the fundamental point.
Companies that succeed are set up in the right way to encourage people to deliver and to ensure they hold these three attributes. This was what Steve Jobs did when he returned to Apple. I suspect this is what Elon Musk thinks he is currently doing at Twitter. And it’s what all small companies naturally do due to their size. Some call it “giving you enough rope” but when you hold the keys and the levers, you can either stand or fall without any excuses.
Large financial organisations are a matrix of responsibility, accountability, and authority (often for perceived good reasons) and this stifles the creativity and risk taking and instead promotes safety and risk avoidance.
So, what to do? It’s very simple. Rip it all up. Break up cartels, central teams, streamline and hand power to those you expect to deliver your product. Give them the authority, accountability, and responsibility – exactly as you would in a small company.
Remove cross vertical dependencies, align your verticals with the customer – it’s the reason you’re in business in the first place! Ensure you are focused on the customer, not the financials, board, market analysts or the shareholders. Again, Steve Jobs famously said: “If I build the best products, customers will buy them or they won’t, and the profits will follow”.
Innovation is key to creating something amazing. By giving your product people the accountability, responsibility, and authority, you will encourage innovation, or at the very least be able to fire those who aren’t delivering.
However, people cannot innovate without a vision. This is final piece missing from large organisations, so focused on protecting existing profits, they are scared to deliver the “new”. This is how disruption happens.
Its why companies like Monzo, Revolute and Starling exist. If the banks were truly innovating, these companies wouldn’t. So, part of driving a true delivery organisation is to provide the signposts for where you are going. If your vision includes the words “billion pounds” and “grow market share” then it’s not a vision, try again.
But there are vested interests everywhere. The organisational “blob” can’t feed itself and must protect itself, so you may be maligned, laughed at, and told you will fail. Until you don’t of course…then you will be told, it was so ‘obvious’ and everyone one would have done what you did…
Top banking trends of 2023 and global outlook of banking and fintech for the year ahead
Author: Professor Marco Mongiello, Pro Vice-Chancellor, The University of Law Business School
You’d be forgiven for assuming that the global outlook for banking and fintech will be dominated by the usual suspects:
Artificial Intelligence – AI plays an increasingly prominent role in banking and fintech by enabling personalised services, fraud detection, predictive analytics, use of chatbots and robo-advisors.
Blockchain and Cryptocurrency – the secure, decentralised and swift system for financial transactions that blockchain has brought to the fore a few years ago, is now becoming ubiquitous. An increasing number of transactions are recorded through blockchains technology, primarily in the cryptocurrency market.
Digital Banking and fintech – accelerated by COVID-19 pandemic, the adoption of digital banking is a trend that will persist as customers have become accustomed to the convenience and efficiency of digital banking. Moreover, fintech enables access to financial services for previously underserved populations in developing countries or less affluent social groups in more affluent societies. This includes mobile banking services, peer-to-peer lending platforms, and microfinance solutions.
Open Banking – another global trend is the use of open APIs (Application Programming Interfaces) that allow third-party developers to build apps to facilitate customers’ access to financial data and services from banks.
Nonetheless, the challenges posed by these rapid changes are reminders that banking, an industry that by its very nature needs to be conservative, risk averse and solid, wobbles on the unchartered grounds of fast and turbulent innovation, where entrepreneurship instead thrives. The underlying rationales of banking and fast digital innovation are not incompatible but do need solid operations and thought-through decision-making to avoid causing catastrophic collapses.
The recent examples of Silicon Valley Bank, Silvergate, FTX and Wirecard are stark reminders that digital entrepreneurship applied to banking doesn’t just bring to customers the visible transformation of valuable new services, but also dents (perhaps as an unexpected consequence) the rationale itself of the role of banks in the global economy. Moreover, the central banks’ ability to contain the effects of single banks’ defaults is no longer a certainty, as experienced just over a decade ago and more recently. The markets’ sentiments are hardly reassured by the commitments of even the most coveted players, such as the European Central Bank, the Federal Reserve, and the President of the United States himself.
Regulators are lagging behind and their attempts to catch up may cause further seismic shocks to the global banking system. For example, another trend that is emerging is one of artificial intelligence decision-centres (i.e., decentralised offices of banks which take autonomous decisions on behalf of investors) outside the most stringent regulatory environments, enabling banks to operate globally more efficiently and more competitively. And we can expect that regulators will close the gap either abruptly, as it is currently happening in China, where private banks are subject to an escalation of regulatory and monitoring restrictions, or more gradually as it is happening in Europe and in the US.
The questions we face, as individual or trade customers of our high street banks, as direct investors or clients of managed funds, are whether banking will become more user-friendly yet, for our daily use but riskier, too, or is it simply becoming more efficient, transparent and also safer.
I’m afraid that the answer is by no means an obvious one. Therefore, caution, level-headed decision- making and critical thinking have never been as important as these days. Whether you are looking after your family savings or growing your pension reserve, the imperative is that you keep updated about the providers of the financial services you rely upon as well as about the general regulations that apply to your financial transactions. This is where, for example, you need to be familiar with your rights in case of cyber fraud, as well as learning how to minimise the risk of becoming a victim thereof. Also, taking additional steps to evaluate the credibility, solidity and reliability of the online provider of that app that was recommended by a trusted friend, may prove a very good move.
Similarly, whether you are the CFO of a medium or large company, or are a sole trader wrestling with your own business’s finances, you need to reflect on what you really want from your bank in the first place. That is before you started to be swayed by the whirlpool of offers of ‘opportunities’ to multiply your financial investments. Chances are that your initial approach to your bank was dictated by either a need for financing your working capital, as per your budget and strategic plans, or to find a safe place for your temporarily idle liquidity. Perhaps you were also after some basic treasury services such as swift payments and debt collection. Maybe some other financial services closely related to your business operations, e.g. factoring. The advice is to give very careful consideration to services that are more remote from your business, because the trend for the next years is that more and more of those will be offered to you. But many new services will disappoint those who, sadly, cannot afford financial mishaps as they look to run and grow their business.
Will ‘Britcoin’ change the way we bank?
The Treasury and Bank of England recently announced a state-backed digital pound is likely to be launched in the UK later this decade, following the popularity of cryptocurrencies. However, the ‘Britcoin’ will be backed by the central bank, ensuring the digital pound will be much less volatile than its sister, cryptocurrency. Could a digital pound backed by the central bank be the answer to utilising technological developments in the finance system for the better?
Ross Thompson, Accountancy and Finance Lecturer at Arden University, considers what we can expect from ‘Britcoin’, how this will impact consumers, businesses, and the economy, and whether ‘Britcoin’ could be the revolution to restore our confidence in the banking system.
Trust in our financial system hit an all-time low post the 2008 financial crash. Even ten years on from the collapse of Lehman Brothers, a survey found 66% of adults in Britain still don’t trust banks to work in the best interests of society.
This means there remains to be apprehension for people to sign up to and use a bank to help manage their money. The UK doesn’t seem to struggle too much in this arena, however, as according to the Financial Conduct Authority (FCA), most UK consumers (96%) have a current account from a bank or building society. Regardless, there is still a significant number of adults who do not have a bank account or are what is known as ‘unbanked’.
The lack of trust plays a big part here. More people want better control over their money and to cut out the middleman, hence why cryptocurrencies and blockchain became a tempting option, as it can potentially remove the need for banks for any transactions. However, the volatility of these currencies has been a cause for concern for many investors and regulators.
Blockchain and cryptocurrency are gaining more traction and are becoming more of a viable option for businesses, especially due to talks of regulations coming into fruition. This is especially true with cryptocurrency, with the government announcing crypto assets will be subject to FCA rules in line with the same high standards that other financial promotions such as stocks, shares, and insurance products are held to.
The “Britcoin” aims to solve the issues traditional Bitcoin presents. It would be backed by the central bank, which would ensure its stability and reduce its volatility, making it a more attractive option for investors and providing greater confidence in the stability of the financial system. Britcoin will be as stable as the inherent stability of the British economy and political system. It would also provide an opportunity for the UK to stay at the forefront of technological developments in the finance system – a system in which it can sometimes be slow to react.
One of the key benefits of a digital pound is that it would be much faster and more efficient than traditional banking systems. Transactions could be completed almost instantly, regardless of where the parties involved are located. This would make cross-border transactions much easier and could even help to boost international trade.
The Bank of England’s Governor, Andrew Bailey, stated: “a digital pound would provide a new way to pay, help businesses, maintain trust in money and better protect financial stability”, pointing toward the other advantage of a digital pound. It would offer more security as transactions would be recorded on a distributed ledger, which would make it much more difficult for hackers to tamper with the system. It would also provide greater transparency, as all transactions would be recorded on the ledger and could be easily traced if needed.
However, there are also some potential drawbacks. One concern is that it could lead to a reduction in the use of cash, which could have implications for those who do not have access to digital technologies or who prefer to use cash for privacy reasons. There are also concerns that a digital pound could be used for illicit activities, such as money laundering or terrorism financing. On top of this, more details are required in relation to the levels of personal account privacy; the potential to usher in ‘big brother’ banking systems is a growing a concern regarding state digital currencies.
Around 85 central banks are currently engaged in projects to create digital currencies, according to figures from the Bank for International Settlements. But as it stands, many feel there is probably little need for a digital pound; with a growing amount of people using their debit cards, phones and watches to fulfil the same function, a digital pound is deemed unnecessary. On top of this, many of the public fear that a government digital currency could potentially infringe on their privacy – despite the BoE stating the currency would be subject to rigorous standards of privacy and data protection.
And in countries where a digital currency has already been established, there has been little uptake – widely due to the lack of trust between central banks and citizens. It seems gaining users’ confidence should be the Bank’s first priority. The House of Lords economic affairs committee stated last year that a digital pound would pose “significant risks” such as state surveillance, financial instability as people convert bank deposits to CBDC during periods of economic stress, an increase in central bank power without sufficient scrutiny and could be exploited by hostile states and criminals; it is safe to say that the nation’s ‘Britcoin’ will need to be very well thought out.
It has the potential to revolutionize the finance system, however, and could provide significant benefits to investors and consumers alike. However, the potential risks and drawbacks must be carefully considered before any decision is made to launch such a currency. Having said that, if it is implemented correctly, a digital pound could be a powerful tool for utilising technological developments in the finance system for the better.
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