All hail the saviour!

Purpose of this blog

Little over a year back, I left Metro Bank to join ING in Netherlands, predominantly because I was fairly disillusioned with the way most banks work and unlike most banks, ING was actually trying to do something about it by implementing the Agile way of working in the entire organisation.

Since then, it has been an education – to see Agile working but also seeing its limitations. I now see that more and more banks are trying to implement the Agile methodology and this blog is meant to be a collection of best practices on what works and what doesn’t, especially in the banking context but it is also applicable to any large organisation.

Banking in a crisis?

Why should banks look at new model like Agile anyway? For those who work in Banking or follow it, it is painfully clear that Banking in the midst of an unprecedented change cycle. The reasons for the disruption are diverse, but the most important ones are,

• Changing customer experience expectations  Banking was always a means to get to something – a house, a holiday, a wedding. However, Banks deluded themselves into thinking that they were selling a product that customers wanted. The likes of Uber and Amazon demonstrated that in reality, hiding the role of the Bank could actually improve the overall customer experience. Customers accustomed to those experiences expect their bank to offer similar experiences, however for a variety of reasons Banks have not been able to deliver that experience, and it is the Fintechs who are hoping to plug that gap.
• Regulatory Pressures  Regulators in US, UK and EU have all done their bit in forcing the banks to open up their closed environments. Regulators took a multi-pronged approach – making account switching and payments easier on one hand and backing open APIs (PSD2 , OpenAPIs) on the other to enable intermediaries to essentially hide the underlying banking services. Similarly, new players like Curve Card enable customers to link credit and debit cards from multiple banks to one physical card (By the way, I think Curve’s business model is fundamentally flawed but they are almost certainly solving a big customer problem, which one day electronic wallets might solve). This again diminishes the role of Banks in customer’s minds.

What makes the change unprecedented is that in the typical disruption model seen in most industries, value driven incumbent to focus on the lower end of the market initially, which in turn results in the incumbents focusing on higher end segments. Over time though, the new player broadens its offering thus squeezing the incumbents, until the new players capture the bulk of the value in the market. What makes banking distinct is that it is a reverse disruption model – newer players are focusing on the high value add activities first. Be it Transferwise for money transfer, Nutmeg for investments or Quicken Loans for mortgages, the Fintechs are demonstrating that they can take increasingly larger share of the market, leaving the incumbents to deal the labour intensive banking activities. No wonder then that McKinsey thinks that up to 25% of Retail Banking profits may get eroded by 2025.

In this environment, there are essentially two strategies that banks can adopt

• Bank as Innovator  Out innovate the new entrants, giving customers a compelling reason to use their existing provider
• Bank as a Utility  Take as much cost out of providing basic banking services as possible and offer customers best financial value (higher interest, cashbacks etc)

Most banks I come across are trying to be innovators – partially because true innovators do indeed generate more value for their shareholders. However, if you take a macro view and look broader than just banking, it is painfully apparent that most “Innovators” are doomed to fail and only a handful will actually deliver true innovation. Yet I don’t see many banks brave enough to admit that they want to be utilities, which in turn may also allow other operating models like the ability to offer white labelled services to other banks and Fintechs. Anyway, that’s a topic for another day but suffice to say that most banks believe that working Agile can make them an innovator, while cutting costs at the same time. Oh how disappointed they will be!

In the next post, we will get into what most banks think Agile working means and what it actually means.