Straight Talk Special Issue: Financial Services - 15

banks have a tremendously large customer base. That's
why, in the U.S. at least, so many of the Fintech startups
have looked to become partners with banks.

It used to be that consumer preferences
almost didn't enter into banking. Maybe
you could entice consumers with a set of
steak knives -
Or a toaster.

Right! Let's not forget the toaster. But
now you need to do more. How well are
banks doing in attracting customers?
It's a major challenge. A colleague of mine came to me
the other day and said he had just bought an exchange
traded fund through a company called Robin Hood. It's a
Silicon Valley start-up and the notion is you don't pay any
commissions on trades. That sounds enticing, so he made
his ﬁrst trade, liked it, and didn't have to pay a
commission. But I told him, somewhere along the way
you're paying for that, and it turns out Robin Hood makes
its money on the ﬂoat. Now, he's a sophisticated guy, and
he still bought their pitch. If you're Schwab or Fidelity,
you've got to be out there positioning yourself against
these kinds of oﬀers.

Are Silicon Valley's "Merry Men" the only
threat?
No, they're only part of the challenge. A Wall Street
brokerage ﬁrm with a very large team of wealth
management brokers recently started doing some
robo-advisory work with Kensho, the machine learning
ﬁrm, and they tried to straddle the marketing and say,
"Hey, if you want high-touch service, we have that, but
we also have a robo-advisory service." It's a tricky place
to be - these guys not only have to appeal to the
consumer, but they also have to reassure their human
rainmakers that there can be some peaceful coexistence
between those two business models.

What tend to be the biggest internal
obstacles that financial services
companies face in making this digital
transition?
Number one is being able to move fast enough. It's one
thing to put up a mobile app that's at the outer edge, it's
another to build a digital transformation that reaches to
the middle and the back end of the system. Doing that
and doing that quickly is diﬃcult.
The second thing is handling legacy IT. Institutions often
have thousands of applications, and those applications
cost money to run - companies talk about their

"technology debt." The applications are not all digitally
enabled, and most are not in the cloud yet. Trying to
spend the money to make that conversion while you're
trying to build brand-new capabilities isn't easy.
The last obstacle is just having enough enterprise agility -
making sure that you've got the right technology people
coupled with the right product people - so you can bring
oﬀerings to market very, very quickly. Each one of these is
a considerable challenge.

Are the banks able to get the right
people?
You see them hiring from Silicon Valley and other places
to get the skills they need. They're also trying to make
the work seem more enticing - setting up innovation labs
that are focused on products, technology, and new
oﬀerings, that are insulated from the parent bank and the
chore of trying to rationalize the legacy systems. I think
they're starting to succeed.

It's a tricky place to be - these guys not
only have to appeal to the consumer, but
they also have to reassure their human
rainmakers.
Is compliance the big barrier?
The barrier is not so much compliance for banks as
coming up with a deeper vision of where they want to go.
We see that often companies go down a road of focusing
purely on automation of ﬁxed and predictable processes.
That yields some good results initially, but when you start
looking at processes that are more complex, like
underwriting a mortgage loan, or claims processes, or
anti-money laundering measures, you run into a
roadblock. We just did a study looking at where 360
companies are with respect to automation, and we found
that less than 10% are building automation all the way
through their enterprise. If you begin with a view that
says, let's look at this entire set of technologies as one
process, then you don't run into roadblocks once you get
running.
Of course, getting people to change isn't easy. There's an
old Buddhist saying that in the beginner's mind there are
lots of possibilities, but in an expert's mind, there are
very few alternatives. A lot of these companies have
people who are experts in various areas. And they are
bound to think, "Okay, I need large teams of people to
execute a complex transaction," as opposed to saying,

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Straight Talk Special Issue: Financial Services

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