Banking ain’t what it used be – in some cases it’s getting even worse!

Written by on October 5, 2017 in Guest Blog with 0 Comments

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A banker asked me, do I really believe fintech can change the banking business. I told him, let’s think about a typical bank account, its user gets one salary payment, pays a few bills and handles some card transactions each month, do you really need one-billion-dollar IT systems, 10,000 people and hundreds of branches to handle that nowadays? He replied that he was scared.

Banks still need 200 people to handle regulatory compliance and some other things that are mandatory, but the reality is that basic services are very simple using current digital technology and there are many layers in financial institutions that are just sophisticated window dressing.

The fundamental problem of industry disruption for incumbent companies is that they think about services based on their existing organization, IT systems, and processes. They forget to consider what the customer really needs. When we talk about lessons from other industries like retail and media we hear that the finance industry is ‘special’ and what happened elsewhere cannot happen to them.

It has been said time and time again in fintech discussions that people don’t need a bank account, they need a place to keep their money and use it; they don’t need a credit card, they need credit to pay; and they don’t need investment advisors, but help to make investments. Now with ICOs (Initial Coin Offerings) we can probably add that people don’t need stock exchanges, but tools to buy and trade securities.

Many banks have now set up their own innovation or digital concept divisions. The have people that focus on developing and finding novel solutions, often working with innovative startups. Quite often we can anyway see that those innovation units live their own lives inside a bank, they appear to keep themselves so busy with their own processes and fancy events so they don’t have time to actually work with startups, and it seems that operative units couldn’t care less what these ‘innovative’ people actually do. They live inside the bank group but are, in effect, on life support.

I was recently in a meeting with a leading consulting firm. We talked about a totally new cloud based IT solution to build finance back office services for maybe 1/1000th of the cost of existing legacy systems. A senior management consultant said that this might be OK for tier 2 or 3 banks and some newcomers, but why would the big banks change anything when they have excellent existing solutions. It’s a very similar comment that someone would have said 15 years ago: why would a media company use internet publishing platforms, when they already have the best printing presses in the world?

A few weeks ago, I had to transfer money from country A to country B. Country A uses IBAN, but country B doesn’t. So, I only had their local bank account number and the SWIFT code. But banking system in country A didn’t recognize that SWIFT code for some reason. Those codes have variations and different formats, they are not really one standard. I could have tried using only the bank name and address, but it sounded risky.

Then I found out that my bank in country C recognized the bank codes of country B, and country C had also IBAN, so I was able to transfer from country A to C by IBAN and then with other codes from C to B. I wasted almost two hours to set up these transfers. I also had to estimate, when the money would be in country C that I could schedule a transfer to country B then for that day. This kind of money transfer with current technology should take one minute of my time and then one second to transfer the money. Instead, I used up two hours and the money was in the destination in four days.

All these banks I used were tier 1 banks in their countries or world leading banks. I would like to have another discussion with that management consultant, whether this is really state of the art in technology and models and those banks don’t need anything new. Of course, I would get many explanations, how this is not only about the technology and there are many other things that cause this user experience. I agree, there are many reasons. But now I’m talking about what are the users’ needs and wants, and what can be done with the current technology. It will shortly be relevant for these leading banks, when modern technology, models and users intersect.

I have seen banks really do new things and change their business and technology. But it needs a top management contribution. The top management must make it happen and follow its progress. Otherwise, it’s left to the innovation guys hanging around at conferences, internal brainstorming sessions without concrete actions, the operations team shooting down all new ideas all the while customers start to use services that actually do what they need – with others.

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About the Author

About the Author: Jouko Ahvenainen is a serial-entrepreneur and Co-Founder of Grow VC Group, a holding entity including over 10 companies, a pioneer in digital finance, fintech and data analytics solutions. Jouko started his work with digital finance and fintech models in 2008 and listed world-class influencer. He participated in changing US finance regulation, getting the Senate and President to allow JOBS Act and has worked with EU and Asian finance regulation. .


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