I had an interesting comment the other day from a friend who said he had worked with incumbents and start-ups. The big difference is that the incumbent sees digital as a cost-cutting exercise, while the startup sees it as a customer-enhancing opportunity.
He rang a bell with me. Having spent so much time dealing with incumbent banks, I have hardly come across any that see technology as a customer service tool. They see it as a cost-cutting structure. If the customer serves himself, we don’t need to serve.
— Mario DeCristofano (@mariodc) April 18, 2022
Most traditionalists focus on digital as a driver of cost and efficiency versus the start-up that sees digital as a way to create value and powerful customer propositions with digital. The start-up uses digital to differentiate itself and generate rapid growth in customers and market share as its main objective. In doing so, they benefit from all the savings and efficiencies of digital-only processes. as a by-product.
“What I’ve seen in the UK is this incredible moment to weed out bad practice from Europe and write regulations that keep in mind that the strongest force is the customer.”
Klarna CEO, Sebastian Siemiatkowskihttps://t.co/HOaVIxqFAP
— Chris Skinner (@Chris_Skinner) April 11, 2022
This is a critical point. If you only view technology as a cost-cutting process, you will never get the market opportunities. If you view technology as a market opportunity, you naturally get cost savings as a by-product.
When you think about it this way, you can see why so many fintech startups have achieved unicorn status. Why? Because they use technology to provide customers with a better experience, and in doing so, they get the benefits of having more customers, more revenue, and more investment. There is no discussion of cost cutting in the majority of start-ups. The discussion is about the customer and the customer experience.
In fact, that’s been my biggest frustration throughout my life, that we spend months writing a business case for a bank management team that would show a clear cost-benefit analysis of why they should invest in technology. They would then tear it up and we would spend another six months redoing it. It was a waste of time.
When we talked about how technology would improve customer relations, generate more revenue and generate more profits, no one listened. If we could show they could lay off 1,000 people, they would listen. For example, one of my favorite stories is that JPMorgan could lay off 1,500 lawyers with AI doing the work:
I’m not sure they have, as they still employ a lot of people (over 250,000 last time I looked).
In fact, according to some like former Bank of England chief economist Andy Haldane, banks are the worst performers in getting a return on investment from their technology.
In fact, the financial markets of Rockefeller and JPMorgan a century ago were more efficient at a higher unit cost level than today’s markets.
No wonder fintech has become a huge market for change. It’s customer-driven, not cost-driven, and it delivers the return on investment that banks have been missing for decades.
Banks should be concerned…
—Dei (@Dei1985G) April 13, 2022
— Ian M Calvert (@IanMCalvert) April 12, 2022