Tech is turning the world of finance on its head
Cash has almost become a thing of the past and is making way for plastic and your telephone. Traditional banks are increasingly taking the form of apps, and crowdfunding is becoming more and more popular. Major financial players are finding it very difficult to keep up with the digital acceleration and, as a result, they are seeing their lead and market position weakening. However, it isn’t all gloom and doom. ‘We’re only at the beginning of the possibilities that smart technologies can give us.’
In recent years, digitalisation has turned the financial world very much on its head, and it will continue to do so in the years to come. Not only has the way services are provided completely changed, the number of people active within that world has declined significantly, and those who remain have to have new and often technological skills.
From oil tanker to speedboat
Ebbe Negenman, Chief Risk Officer and board member at Knab, knows all about it. When he, as a 'great believer in far-reaching digitalisation', exchanged the 'oil tanker' of ABN AMRO for the 'speedboat' that is Knab around ten years ago, he still had around 160,000 colleagues around the globe. Now, ABN AMRO only employs around 22,000 staff. All of that is down to the impact of digitalisation.
As far as Ebbe Negenman was concerned, the switch to Knab was a golden opportunity. Knab is an entirely IT-driven bank. The idea behind it is an app instead of offices. ‘I thought that standing in a queue at a counter in order to buy a financial product was an outdated concept. Surely, there was a quicker and simpler way of doing things.’ That turned out to be the case. Thanks to its digital-first strategy, Knab grew quickly, and the bank now has more than 300,000 customers.
Having said that, Knab still suffered the effects of a first-mover disadvantage as well as those of legacy. ‘We've only been around for ten years, and we're already talking about a heart and lung transplantation for our IT systems in order to be able to keep competing. You always have to be flexible in a world that's continuously changing.’
End of the IT department
Industry veteran Chris Martlew, who is now CTO at LoopinOne, has always kept a close eye on the changes as well. His view is that, for some time now, banking has no longer being purely the domain of the bank, just as technology is no longer purely the domain of the techie. Those two worlds are becoming more and more intertwined.
In the meantime, many a bank has reached the point of being ‘an IT company with a banking licence’. It is inevitable because what matters is survival of the fittest. These days, the most important thing in the world of finance is tech skills and only then knowledge of banking. As Chris Martlew explains, ‘IT know-how is permeating throughout all company departments, and that means the end of the IT department as we have known it in recent decades.’
Technology is the lifeline of the modern bank but, due to increasing complexity, it is becoming more and more difficult for directors and supervisors to comprehend. Chris Martlew recognises this, having fulfilled various fintech roles during his career, and jokingly describes himself as a 'tech nerd with an MBA'. According to Bart Deuss, CEO of YaWorks, there is now a huge need for a profile like this in the financial world. ‘In order to survive, there has to be a lot more tech representation, both on the shop floor and in the boardroom. You need people who really understand technology and can explain that in a relevant way to bankers. They have to be able to translate technical issues into understandable language, so that the board can take the right decisions. One wrong decision on the direction of your digital strategy can have a major impact. The most expensive mistake you can make is to take the wrong IT path.’
Given the scarcity of high-quality IT professionals, it is also advisable, according to Ebbe Negenman, for banks to look to cooperate a lot more and to start sharing things with each other which are not competition sensitive. Another approach would be to outsource certain IT issues to specialist and smarter companies. Ebbe Negenman continues, ‘This could mean, for example, Shared Sourcing Centres or Programming Houses. Current developments mean it's asking too much to keep everything inside the bank, and there's no need to do so anyway.’
Ebbe Negenman used to think that old-fashioned banks would soon be a thing of the past, but he has since changed his mind. The major players are still around, albeit in a much more slimmed-down form. The responsibility of banks is also considerable, and consumers have to have confidence that they are managing their money in a secure way. This means, they have to be checked from top to bottom. ‘Due to all the legislation and regulations the level of entrance for new parties is still very high, despite the possibilities that new technology offers. That makes it extra difficult for them to get a foothold in this market, and the result is that the major players remain firmly in the saddle.’ What is more, it is becoming increasingly important for regulators to understand the actual details of how technologies work so that they can keep performing proper checks.
On top of all this, the younger generation is made up of digital natives, in other words, a cash-less generation whose members select banks on the basis of the most convenient app and are critical when it comes to their attitude to the environment. This is yet another reason why a digital-first strategy has to be at the top of the agenda of any board meeting because this generation is growing rapidly, and you need to avoid becoming completely irrelevant in the future.
The new bank
The IT infrastructure in the Netherlands is above average. Plenty of fibre-optic cable has been laid, we have high-quality Internet hubs, and large sums are being invested in data centres. As Chris Martlew explains, ‘Basically, everything's in place to do things properly. If it can be done anywhere, then it's here.’
Ebbe Negenman also believes the future is bright. ‘I think banks and fintechs will continue to coexist. Your IT simply has to work, ease-of-use is paramount, and that's what you have to take care of at the back end. We're also investing a great deal in service because people and personal contact with each other are just as important. Ultimately, we have to adapt to the requirements that society imposes on us.’
According to Ebbe Negenman, we are only at the beginning of the possibilities that smart technologies can give us. ‘My dream is that you'll soon be able to take out a mortgage in a couple of seconds. You see your dream home, take a photo with your smartphone, immediately get to see the purchase price, check whether this is doable for you financially, and then get sent a smart contract in no time. It sounds good, doesn't it?’ He knows from experience that turning this into a practical reality is unfortunately slightly more difficult.
Bart Deuss recognises the issues addressed by Ebbe Negenman and Chris Martlew. ‘Security is subject to external stimuli which create momentum, and you can't open a newspaper without reading about it. Thinking in terms of architecture can be compared to the problem of climate change. Everyone knows something has to happen, but no one knows exactly what. Everyone looks at everyone else and continues to kick the can into the long grass so that – if we don't look out – we'll bring misery upon ourselves. Both IT and the boardroom will have to make an extra effort to start understanding each other properly.’
Chris Martlew is in full agreement. ‘IT is too important to be left up to the IT department. Every company is becoming an IT company. These days the automotive industry is making “iPads on wheels”. Once IT has permeated throughout your entire company, you'll no longer need a separate IT department. Certainly, the financial sector has to start living and breathing digital first.’