The Bank of the Future

March 2018 Citi GPS: Global Perspectives & Solutions © 2018 Citigroup 7 The Bank of the Future "I still remember my first day at DBS. When I told the Singapore taxi (driver) where I was going and he said, "DBS - Damn, Bloody, Slow." There's no doubt that in 2009 DBS had a well-earned reputation for being a bureaucratic, unimaginative and unresponsive bank." − Digital Innovations in a Singapore Bank: 10 lessons learnt when DBS came out of the Stone Age, by Paul Cobban, Chief Data and Transformation Office, DBS Bank, April 2017) DBS in Singaporean culture was called damn bloody slow and worse. But it wasn't the only bank living in "the Stone Age" relative to efficiency and speed levels in best-in-class manufacturing or technology companies. As the Great Financial Crisis pushed banks, especially in Europe and the U.S., into a period of conservatism, introspection, and de-risking, a tsunami of technological change was shaking up the rest of the world, especially the mobile consumer world. Client experience in banks is still "Stone Age". Opening a small business account at a major U.K. “high street” bank can take over a month. At a U.K. neo-bank, the same process can take minutes. And client experience at banks is often lousy, as incumbent banks are built on "Stone Age" technology. Combined with bureaucratic and siloed organizational structures and regulatory burdens, it is no surprise that banks have very slow metabolic rates. Product cycles in banks take a long time. One U.K. bank we know has a three-fold approach: (1) 8-12 weeks is its fastest rollout; (2) 6-10 months for large product changes, such as mortgage agreements in principle; and (3) 3-5 years+ for large waterfall programs. The best-in-class Emerging Market financial company moves at a speed 5x-10x that of a typical larger bank. And BigTechs and FinTechs move even faster still. We recently discussed the topic of speed with the technology chief of one of the leading Emerging Market financial firms. In his view, the difference in metabolic rates between his current tech-geared employer and his previous long-established bank employer was due to "soft factors," such as clear ownership of decision making, accountability for results, and a speed-imbued culture as well as "hard factors," such as automation, agile development, and Cloud-ready deployment. Bill Gates famously said over two decades ago, "Banks are dinosaurs, they can be bypassed" ( American Banker , January 9, 1995). Yes, the banking dinosaurs still exist. But a technological meteor hit the industry, especially in consumer financial services, with the arrival of the mobile-first smartphone era from around 2008 and the growth of Internet platform conglomerates. The Bank of the Future is emerging in front of us. Amazon isn't the Bank of the Future, nor is WeChat. These companies have goals bigger than banking. But they are already part of finance. And they and their peers will be part of the financial services ecosystem of the future. To quote Bill Gates again from 1994-95, "we need banking, not banks." The future of finance is an increasingly converged ecosystem where consumer and small and medium enterprise (SME) financial services are provided by banks and by platform companies with roots in e-commerce/social media. So how do incumbent banks stay relevant? They have to become faster. They have to become smarter. They have to become more efficient.

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