“If the rate of change on the outside exceeds the rate of change on the inside, the end is near.” – Jack Welch
Our story begins here: “The corporate playing field has been changed irreversibly in recent years by a new generation of companies and leaders who have torn the rulebook to pieces, adopting new technology, new working practices, and serving customers whose lives are increasingly orientated around their mobile phones.”
The first paragraphs of Bye Bye Banks, coauthored by James Haycock and technology reporter Shane Richmond, describe the philosophical framework of this insightful book. Financial institutions are under attack by a growing number of fintech startups and digital companies, set to capture market share from traditional banks and credit unions. To succeed in the future, traditional financial institutions need to evolve quickly.
Calling upon extensive research, both authors argue that financial institutions need to change their cultures first and foremost in order to tackle the coming onslaught of change:
“It’s plain to see that a perfect storm of competition, technology, shifts in customer behavior and regulation looks set to wreak havoc on the businesses we trust with our money. It’s a matter of when, not if, banking will be reinvented.”
Displaced, Diminished, Disintermediated
Comparing financial institutions to the telecommunications companies of yesteryear, the authors believe that incumbent players are about to be displaced, diminished and disintermediated by software businesses and new technologies:
Displaced by superior customer experience and price offered by new entrants. New players have no legacy technology or cost base to affect the bottom line – and they’re much more in sync with needs of target customers.
Diminished as their business model gets attacked from all sides. As they stand, traditional financial institutions are set to become basic utilities as customers switch with ever higher frequency.
Disintermediated as new technologies or services challenge the core competency of the incumbents. Will your organization be left out?
Is this scenario likely?
“The generation coming of age today might not see a need for a traditional bank at all, just as they don’t see any reason to have a landline, send letters or buy newspapers,” Haycock says, arguing that the only reason people still have banks – which they no longer trust, in any case – is inertia. “With 2.5 billion unbanked people in the world, and a billion of those owning mobile, a digital disruption is now realigning the entire banking industry.”
The Beta Bank – The future of banking?
The reality is, credit unions need to eliminate many of their legacy processes, technology, and, in some cases, human capital. They need to accelerate digital transformation, advance a balanced multichannel delivery model, and find ways to become more integral to people’s lives.
Then again, the authors believe these changes are needed but they might not be enough to fight off the threat of new technology and culture changes. Instead, they propose the development of a “Beta Bank” – a standalone organization with separate leadership, personnel and physical location. Creating this kind of test case would allow credit unions to organize around customers rather than product, create a culture of experimentation and learning, and hire outsiders that would bring a new, agile mindset to the organization.
“We believe this approach is the best opportunity for a bank to design a proposition, servicing model and, critically, an organization built for a future where the pace of change is only set to increase, not an adapted version of a business model that hasn’t changed in hundreds of years,” claim the authors.
Startling? Yes. But it’s bold thinking that makes ‘Bye Bye Banks’ a can’t-miss for any credit union executive.