It’s like Facebook without all those annoying “friends”. Instead of having to look at what weird things other people are interested in, like their babies, Google shows me the weird things I’m interested in, like Legend Of Zelda and Elon Musk. It’s a fundamental shift in content consumption from curation based on our explicit choices to curation based on our… Read More
This popular narrative paints an overly simplistic picture of the market dynamic in financial services. Disruption is underway, led by market entrants with new business models and no technical debt. But the “old” market is responding – copying, buying and partnering with fintechs as they adapt to market changes.
Yes, there will be casualties – the institutions that don’t adapt fast enough. And the process of adapting is urgent for those that wish to survive and thrive, and it will be painful. This was the message that came over loud and clear from a recent gathering we held for digital leaders from financial services organisations, both established institutions and fintech usurpers. What we also heard – that may surprise the champions of change – is that many of the challenges faced by fintechs and the old guard are the same.
Culture versus tech
The fintech technical arms-race is often a distraction: features are mostly copyable or buyable. Culture – the messy, human dimension of digital transformation – is much harder to create and sustain. And culture is key to sustaining an organisation that can thrive in constantly changing conditions. The fastest-moving, whether large institutions or start-ups, share common traits in culture and capability:
* Transparency and latitude within clear limits for their people
* Agile business methods not just tech delivery
* Workflow tools that create visibility across the organisation
* Organised to deliver the Target Customer Experience not slavishly follow the target operating model.
These characteristics are deep rooted. You don’t get them by giving staff iPads. It’s harder than that.
Perfect is the enemy of good
A culture of “measure twice, cut once” is prevalent, partly driven by desire for predictability, partly by the regulator. “Failing” is still career-damaging. Lip service is paid to “fail-fast, learn-faster” but pivots are rare. Certainty is preferred. So a desire for rigorous perfection is still largely dominant over small experimental iteration.
Regulation, regulation, regulation
Compliance is costly, time consuming, complex, in a state of near-constant flux, and utterly indispensable. The competency and pockets deep enough to manage compliance are a competitive moat for big banks, and a massive barrier to entry for smaller players. Regulation may well be the reason we are yet to see a real breakout fintech company.
Regulation is also one of the biggest inhibitors of small-scale innovation. It’s rare to integrate product development with regulatory compliance, so products are developed with regulatory knowledge and engagement, rather than ticked-off against a regulatory checklist. So much of the output of “innovation” teams fails to become business-as-usual because it falls at the compliance fence.
Many fintechs fetishise ingenious technology but fail to articulate a proposition that resonates with customers. And older financial institutions are often oriented around (in order): share price, senior executive compensation packages, avoiding fines from regulators, bonus mechanics and, lastly, customers.
Design thinking hasn’t penetrated deeply enough yet. Maybe, even with fintech upstarts, there still isn’t enough choice and switching is too difficult for conservative safety-first customers. These challenges impede the progress of dusty old stalwarts and hip young fintechs alike. They suggest that the popular narrative – agile, digitally native fintechs unseating the old guard – is too simplistic. That doesn’t mean established banks can kick back and rely on the old rules. Butthe new kids on the block aren’t certain winners either.
The C programming language is terrible. I mean, magnificent, too. Much of the world in which we live was built atop C. It is foundational to almost all computer programming, both historically and practically; there’s a reason that the curriculum for Xavier Niel’s revolutionary “42” schools begins with students learning how to rewrite standard C library functions from… Read More
I have long been fascinated by the promise of the world of autonomous transport. However, as the conversation at a recent event turned to the complexities that autonomous cars might introduce to the urban thoroughfare, I had an insight: We need to think of people not just as consumers but collectively as the society that shapes technology just as much as technology shapes society. Read More
Brexit Disruption…”This is single handedly the biggest, most disruptive thing to hit UK commerce in my lifetime. We’ve already seen the effects of simply thinking about leaving. The European Investment fund (EIF) which underpins Horizon 2020 and other UK innovation projects is set to finish. Regional Development Funding is also set to stop. So the areas with the greatest depravation and need now don’t have access to some €9 billion of investment funding every year all things included. The drop in the pound, which has stayed at that low for over 12 months, had a limited, short-term beneficial effect on exports, which of course, is great for exporters. The ONS data consistently show that we export around £300 billion every year to the EU, yet import £500 billion, which is where our £200 billion trade deficit comes from and this money is to the net advantage of the EU.
The problem with Brexit is that now, export businesses are very likely to pay import duty on the goods and services imported into the UK and exported to the EU. Whilst this is paid by the company up to the border, the UK distributor purchases this at post-tariff prices and sells it on to UK consumers maintaining their margin. This ultimately means UK consumers pay that extra cost, especially since the selling company will also increase their prices to compensate for the tariff. There are of course, two outcomes:
Soft Brexit – Assumption of a symmetric fixed trade tariff. We don’t’ know yet what this would be, but let’s assume this is 10%. This means our £300 billion of exports are now costing the EU £330 billion and their £500 billion are costing us £550 billion. This makes the trade deficit £220 billion outwards. Which is an increase in outgoing money flow to the EU of £20 billion a year. More than dwarfing our membership fee.
In the case of no deal, WTO rules apply, and the tariffs range from 40% to 160% depending on the types of good, with foodstuffs incurring the highest tariff rates. Farmers in the UK are already going to suffer hugely with the loss of the Common Agricultural Policy (CAP), which funds some 55% of UK farming. That has now gone. Most farming margins are some 10% when selling to the UK’s big supermarkets. So this cannot be absorbed by the profit margin. Farming has to cut costs. But in this arena, they also have a problem. “cheap” foreign labour has now left and won’t be returning longer term, which leaves them in the position of having to pay higher to attract local staff and this isn’t happening. Even in the ready supply of student like we had in my student days, as the debts the students themselves have to pay are simply too high. So UK farming is basically dead. Even financial investment in robotics and automation won’t likely see that level of value being generated, when payment for those capital items has been accounted for. It will take so long to repay that investment, most farms will fold in the interim.
Then there is the financial services industry. Personally, I’m not convinced there will be as big an impact on the trading aspects of the FS industry. Mainly because we already trade globally and all currency fluctuations are securitised. Given the number of people working in London’s FS industry, 70,000 people expected to leave or be made redundant as passporting and other functions move to Europe, is still quite small. That said, it won’t survive unscathed. Startup funding from European sources is already being pulled. Many organisations initially expecting to grow in the UK are now growing European operations significantly more, halting UK recruitment and growth until they see what happens overall. We ourselves have chosen to go one better. As a digital business, we can work anywhere in the world. Our own aim is to move most operations out of the UK and EU altogether.
We are now seriously investing in Canadian operations. Company boards have a duty to safeguard the company and its operations. It is the board’s remit. We made the decision that we don’t have to present ourselves to that level of risk and as such, we won’t. Our team has included EU workers, simply on the skill levels and value for money they present with that, since they are a very highly educated staff base. We need analytical staff and the UK market simply isn’t producing them in high enough numbers to cover the shortfall. Include in that the loss of innovation funding, we simply have to go elsewhere.”
When Facebook removed messages from the main app, I swore that I would never download Messenger. That’s been a pretty easy promise to keep, especially since they introduced the idea of huge ads that take up half your screen while you try to use the service. Today Facebook redesigned them as part of a larger rollout — but fixed none of the reasons these ads are bad and should be… Read More