There are many reasons for a banker to lose sleep these days. The issues affecting banks year after year are myriad: increasing competition from traditional and non-traditional players, margin compression in the low interest rate environment playing havoc with bank income statements, ongoing saga of additional regulation means more work to an already stretched workforce.
When looking at these issues, is it different this time? Is it different because those “pesky” FinTech companies are trying to disrupt the industry with new business models and technology?
In a recent McKinsey study, “30% of bank jobs are at risk from tech.” How can this be?
“It isn’t a single technology poised to take over much of the work inside banks. McKinsey’s report focused on four of them:
- Smart workflows: Routing and integration of tasks such as client on-boarding and month-end reporting.
- Machine learning: Application of advanced algorithms to large data sets to identify patterns, helping make decisions in areas such as idea presentment, product control and trade surveillance.
- Natural language processing: Turning speech and text including legal documentation and client service queries into structured, searchable data.
- Cognitive agents: Computerized interaction with humans, used for example in employee service centers, on help desks and in other internal contact centers.”
What is the driving force behind banks adopting these technologies? It is the rapid “consumerization” of the digital experience expected by the banking customer. Everyone wants an “app” to do something for him or her. It can be risky at times to make what appears to be bold predictions, which seem way off the make in hindsight. Remember the 1943 famous quote from IBM's president, Thomas Watson, on computers, "I think there is a world market for maybe five computers." Needless to say, a few more than five are in our world market. Even though some might be far in the future or seem like science fiction, we need to remember the cliché that change leads to opportunity.
Back in the late 80’s and early 90’s, personal computers started to show up on bankers’ desks. Often PCs were “dust collectors” on presidents’ and executives’ credenzas. Presidents regularly lamented spending capital on PCs for others. Ultimately, everyone received the “cutting edge” technology of a PC to solve the problem of individual productivity. With the eventual advent of PC networks, Baker Hill pioneered the concept of “Lending as a Process.” Most banks wanted to automate their existing processes. The real lift in this automation came from a re-examination of where process change and technology change intersect. There clearly is a diminishing return of technology spend without process considerations. Focus targeted at inward improvements; making the bank and bankers more efficient.
Fast forward to today. Web technology is disrupting industries left and right. Self-service technology is descending on banks in larger and larger ways. Many of these new technologies are shiny objects that we should carefully explore. Ask yourself, how will this new technology help me help my customers? There is no question that we continue to move to a “self-service” world where everything is either done on your phone or is automated in the background, but we have to move to this new world with the intention of delivering more value to the customer. We can’t invest in technology just for technology sake.