Being Cool, Being Trendy, Being Hip--Rethinking Financial Services

Dangelo, Mark mark@mpdangelo.com 

June 14, 2016


(Mark Dangelo is president of MPD Organizations LLC, featuring books, industry reports and articles. He is a strategic management consultant, outsourcing advisor and analytics specialist with extensive process, technology and financial results and is a frequent contributor to MBA NewsLink. He can be reached at mark@mpdangelo.com or at 440/725-9402.)

A school of thought suggests with widespread, rapid advancements in digital and mobile solutions, the technological block-and-tackling needed for times of crisis are being pushed back in favor of expediency--think "screen-scraping" solutions on a huge regiment of steroids.

Looked at another way, all the diligence once found in time-tested legacy solutions can be put off as these "advanced" solutions are "different" and don't require detailed operating and contingency controls.

It should be no surprise that bankers believe their future rests on the incorporation of innovative technological advancements--it does. It should be no surprise that bankers want to exceed customer expectations, while anticipating the "next" trend when it comes to delivering products and services. It is also no surprise that banking as an industry is chasing a broad spectrum of new solutions from machine intelligence to big data analytics to cognitive solutions to virtual reality branches to securing patents to formulating a consumer digital identity that provides global transcendence--many are doing precisely this across all segments.

But in their passion to target profitable niche demographics, are bankers losing their way in capability to satisfy organizationally complex business models and operations? In an effort to provide Innovative Relevance, are bankers becoming "too cool" especially when regulations are written after negative impacts (i.e., the last recession is a prime example), political winds are purely along populist trends and future litigation and fines are likely to rise driven by unintended outcomes of current digital solutions?

Putting Actions in Context
Bankers seem to be blind against public reaction regarding discussions surrounding repealing recent regulations (which the public perceives as ensuring safeness and soundness of the financial supply chain) balanced against social indigestion brought forth by wage inequality, the underbanked, high-risk loans, credit availability, media coverage and a belief that there were material criminal activities against consumers and society that went unpunished.

If you doubt this, just look at some of the presidential campaign themes and which demographics support industry negative perceptions (e.g., Millennials, Gen X). The same demographics that are supporting liberal socialism values are the generally the same groups on which the bankers are hanging their future growth with rapidly expanded (and frequently retired) digital offerings.

Hence, before billions are somehow made to vanish in merger/acquisition actions, write-offs and set-aside provisions, bankers need to robustly check (and not just with regulators) on the business acumen and risks of "being cool" or offering the "fastest solution" or devising orchestrated solutions (i.e., cloud, layered, compartmentalized) that while "socially accepted" and not "financially" bulletproof.

Let's take a step back and examine some relevant fields and developments that have a material impact on financial services not only today, but as trends and implications for 2016-2020:

--Globally in 2015 $19 billion was invested in FinTech, with 2016 estimates approaching $26 billion.
--Since the start of the millennium, the U.S. has lost nearly 6 million manufacturing jobs representing more than 35% its workforce.
--Homeownership is at a 48-year low coming in at 63.5% of the U.S. population with projections pointing to further declines while at a full 2% below the 40-year moving average.
--Auto and personal loan delinquencies and defaults are climbing as the economy flattens and in boom-to-bust areas (such as oil) the rates are becoming alarming.
--Compliance expansion as a result of post-recessionary legislation has tripled the amount of industry guidance, while politicization and even demonization of banking enterprises has continued to rise (have you looked at Twitter lately?).
--Security breaches are rising in size and sophistication, while alternative payment and currencies expand consumer choices.
--Energy prices are finding their new equilibrium as the stock markets are topping out due to growth expectations for developed economies stalling-including China.
--Real (negative) interest rates while propping up equities markets are contributing to a global stagnation as governments fixate on the U.S. dollar as a reserve currency resulting in unproven economic policies.
--Yearly research and development within the U.S. easily exceeds $500 billion and represents nearly 30% of the global investment consuming an average of more than 5% topline revenue (and some industries exceed 25% of total revenue).
--Tech giants are piloting financial services-like offerings leveraging their huge data volumes compiled on consumers, businesses, and government segments (down to each individual with Amazon as a new-age bank?).

Put these macro events into play around discrete bespoke digital banking offerings and the result usually is what defines to the general pubic the organizational brand or a major component of its future identity. Nonetheless, whereas offerings are often the source of buzz, failings will generate more notoriety (e.g., fraud committed within the SWIFT network after decades of proven success). No one talks about the cool of traditional checking, they talk about mobile deposits, easy of moving funds and electronic payments via Starbucks-like apps.

The amount of innovatively relevant technology advancements is indeed creating an "open" and layered series of interconnected banking systems spread across non-traditional partners, which is untested (and unpredictable) in times of crisis. Whereas the Fed's stress tests are getting more stringent and focused, regulators across every segment of the financial chain are suffering from uncertainty and a global lack of deep skill sets.

Don't Confuse Disrupted with Unbalanced
Disruption, transformation and blending are increasingly common future themes put forth regarding challenges facing all forms of financial services. The reality is that if financial institutions do not engage in continuous innovation they significantly risk being left behind traditional competitors or non-traditional startups or technology firms themselves seeking to reinvent financial offerings. These are all good ideals, but the principles and practices surrounding the "next cool thing" within a highly regulated and cross-border enforced set of industries demands much more than a marketplace reaction.

Whereas it may seem my tone is Luddite among all the would-be Steven Jobs, it is not. When I wrote my first book on Innovative Relevance more than a dozen years ago, I went beyond the period's efficiency and innovation were only to be found in India, China or the Philippines. Without relevance all innovations--be they ideas, processes, technology, geographic or educational--seem acceptable with enough study, R&D or even strong willed individuals.

Therefore, with any adopted innovation(s) be it point based, solution-based or (white) relabeled, the on-going and healthy rethinking of financial services needs to continually ask and continuously challenge the "cool" solution's principles, rationale and implications from concept to development to introduction to maintenance to retirement (likely within one to three years of introduction):

--How will introduction, or lack of, this relevant innovation impact our operational models?
--What are the financial, reputational, market, investor, regulatory and political exposures created? How can they be modeled and integrated with big data throughout the delivery?
--What will adaptation do to the safety and soundness of innovations, their operating scenarios or their co-existence with legacy infrastructures?
--Will this innovation allow for survival in an industry undergoing disruption, or will it result in operating segmentation that cannot be integrated or adapted beyond the introduction?
--With a strong correlation between "newness" and third-party partners, can utility-like operations be created to mitigate dependencies, while ensuring control along the life-cycle development, delivery and data?
--With machine intelligence growing non-linearly, what will be the likely disintermediation results along the financial services supply chain?
--Who possesses use cases for "cool" FinTech and with what experiential foundations are these projection and results bounded?

This is just the start of moving beyond the market or brand "coolness" into the reality that financial series delivery is not social media, a game or even a virtual reality solution--they are merely relevant innovations that must be folded into heavily-regulated and politicized industry segments.

I believe that the day of paper currencies is long past. I believe that T+0 is not a goal, it could be done much sooner but doing this would significantly decrease profits within major institutions. I firmly believe that credit cards, most brick and mortar branches and traditional loan processes will vanish in the next decade replaced by their digital equivalents for a mobile society. I even firmly believe the idea of offshore outsourcing's relevancy has passed for a multitude of business, security and privacy reasons.

Yet, the haste to rush to be "like(d)" a competitor, places extraordinary unforeseen risks within a globally interconnected financial system (and there are many, stacked layer upon layer). As an Ambassador, I can only bring my concerns and recommendations to the varied presidents--but there will be incidents in the absence of action.

This will be the fourth cycle I've gone through when technology investment becomes so commonplace where all new financial services solutions being touted or brought to market are "different." The solutions are definitely advanced regarding consumer technology and processes stacks. They are not when it comes to creating digital journey maps which bind brand, solutions, talent, investment and results into an innovatively relevant cohesive operating model.

For any banker rethinking what financial services is against all the changing behaviors it is easy to latch on to the "cool" as it is easy and expected. However, something about lemmings comes to mind...

(Views expressed in this article do not necessarily reflect the views or policies of the Mortgage Bankers Association. MBA NewsLink welcomes your contributions; articles or inquiries should be submitted to Mike Sorohan, editor, at msorohan@mba.org.)

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