Recently, Vikram Dewan, former CIO of Deutsche Bank’s Corporate Bank division, and I had the chance to share our thoughts in an American Banker webinar on three topics that are top of mind for banking leaders: digital, cloud and open banking. You’d be hard-pressed to have a conversation about transformation in the banking space without including any of these topics. For those of you who missed this online event, I’ll use this opportunity to summarise a few key points made.
Fintechs are here to stay. They’re digital natives and they’re fast changing the way the world banks. How can banks best determine the right relationship to establish with fintechs?
Vikram: Fintechs fulfil three roles in the banking industry. There’s no choosing just one of those roles if you want to be successful in working with them. First, they are customers. These firms have done so well over the past few years that no bank can afford to lose them as clients. They represent too much revenue and opportunity.
Banks also need to look at them as partners. Because fintechs start without legacy constraints, they are so much leaner and nimbler than traditional banks. For instance, during my time at Deutsche Bank, we partnered with a fintech for e-wallets. It was a capability we needed, but building it in-house would have taken too much time and required specialised skills.
In addition to their role as customer and partner, fintechs are also banks’ competitors. They have moved into banks’ traditional space; you see it in the way challenger banks are coming in lean, mean and fast.
Wynn: I think it’s also important to note that the fintechs who are most successful partnering with banks are those who have a proper knowledge of the industry, its processes and the frameworks banks work within. Some fintechs are mainly filled with academic types – but I’ve found those organisations are generally good in theory and less so in knowing “real-world” implications. Fintechs should come with proven industry experience; they need to understand your value chain and add to it.
What are the top enablers to digital transformation and what are the most common barriers?
Wynn: What enables digital transformation most is also what blocks many transformations when not addressed properly: data. You have to have the ability to access and understand data – and that means the right data strategy along with building data and analytics capabilities into your operations. I see firms with “clean data” accelerating to create truly engaging digital experiences for their customers and clients.
Vikram: You also can’t discount the people element. People can enable your digital transformation, or they can hinder it. I’ve found that middle managers can be so worried about job loss due to digitalisation that they become roadblocks. But, in reality, in the US there are 10 million jobs open and not enough talent to go around. The solution is not layoffs – it is reskilling your existing talent. That’s not only the right thing to do; it’s the sensible thing to do during a war for talent such as the one we’re living through now. Firms who invest in their people’s digital skilling are moving ahead faster.
A lift-and-shift approach to cloud is so much faster and easier than mapping out a cloud strategy and architecture. What makes the latter worth it?
Vikram: You’re not maximising utilisation of all the capabilities cloud provides unless you’re working from a comprehensive cloud architecture strategy. Lift-and-shift will give you partial value – some components and capabilities of cloud – but in the long run, competitors who take the time to create a strategy up front will reap more than a firm who took the quick lift-and-shift route.
Wynn: I see why lift-and-shift is tempting. You can scale up immediately when you are running out of data centre capacity and need more processing power right away. But what will happen in the long run? You’ll end up with a mix of things in the cloud, and they may not be the right things. In the end, that costs you more time and money because you’re creating a patchwork quilt architecture versus one that builds upon itself seamlessly. Put another way, saving money shouldn’t be the reason you go to cloud. It’s an advantage but shouldn’t be the primary driver. It should be innovation – infrastructure as code supports an entirely new level of innovation.
How soon will open banking become the global norm?
Wynn: Europe has taken the lead due to regulation. During the webinar, our co-panellist Dan Cobley, former managing director of Google UK and Ireland, talked about 3 million people in the UK using open banking today, with around 300 organisations providing those services. Asia and the US, while not obligated to follow, are moving in this direction because they need to serve their clients in a better, more comprehensive way. Digital banking is about giving someone an experience in which they get out more than they put in – open banking allows that.
Vikram: Think of a simple example: any medium-sized corporation in Europe has multiple bank accounts with multiple banks. But company leaders need a single, holistic view of balances and activity across all accounts and banking institutions. Open banking is the only way to get there. Or, say, you are a bank in Asia, and you want to do business with a large technology firm. That tech firm’s preference for communication with its partners is APIs because they’re more secure and can carry more information than traditional methods. During my time at Deutsche Bank, I saw APIs explode in number as we serviced more large tech companies.
Wynn: Dan used the example of ClearScore in the UK, which is similar to Credit Karma in the States. Banks who ensure their APIs work with ClearScore’s are seeing lots of volume from people who are pre-approved for credit cards and such on the platform. Open banking is here to stay and likely to become the default globally.
Any closing thoughts on the future of banking?
Wynn: The banks that are investing heavily in their digital journey will continue to have the right resources in place and lead the pack – I’m thinking JPMorganChase and others, like Goldman Sachs, who are literally reinventing themselves digitally. But I think we’ll also see a group of successful regional and tier-2 banks, niche players who have built an incredibly strong franchise through the correct adoption of fintech, open banking and integrated retail, corporate and insurance products.
Vikram: I think we’ll see banks having to reinvent themselves not just digitally but as an employer of choice. The top tech talent they’ll need to succeed have many options. Retaining staff will be a key focus – keeping employees happy and helping them grow.
For more on these topics, watch the webinar on demand on the American banker homepage.