Chris Skinner, the author of Digital Bank: „Previous senior leaders knew that they had to change but didn’t know what to do or how to do it. That’s the problem with most people in banking.”

Banking Circle interviews Chris Skinner (photo), author of the bestselling books Digital Bank, about how banks are approaching digitalisation, the risks for those that fail to keep up, and the impact of COVID-19 on the industry.

Banking Circle: In Doing Digital: Lessons from Leaders, you talk about the need for businesses to completely rewire their culture and mindset for the digital age, rather than treating digital technologies as something that can be added on. Why is this bottom-up approach vital in today’s world?

Chris: Think about what we’re going through right now with COVID-19, and the ways in which we’re behaving. My best illustration is the bank that I deal with in Britain, which has its call centre offshore. When its call centre had to close with just a few hours’ notice due to the pandemic, and everybody in Britain was also locked down in their houses, the bank had no way to deal with the crisis.

I decided to try out a challenger bank, and I was able open an account within ten minutes – that’s because they were born on the internet. That’s the big difference: if as a company you were born on the internet or you converted the foundation of your business to the internet, then during lockdown you would have had no issues with continuity of service. Whereas if you were born in the industrial revolution and your business was based around physical distribution, then your buildings were your rock, and overnight they had to close.

For many incumbents, the idea of radical digital transformation may seem daunting. What are some of the first steps and considerations that need to be taken?

The issue for most traditional financial institutions is that because they were born in the industrial era, their foundations were built on an analogue principle, to which they have been adding digital capabilities. But the analogue piece is now broken. What they have to do is start with digital, and then add any analogue to the digital pieces that they feel are relevant within the new business model. The best way to start is by doing the conversion one piece at a time, not by trying to do the whole thing in one go.

In Doing Digital – and this is probably one of the most important points in the book – I interviewed a Chief Financial Officer at a major bank. He told me that the previous senior leaders knew that they had to change but didn’t know what to do or how to do it. That might sound ridiculous, but that’s the problem with most people in banking – they’re not technologists, they don’t know what to do or how to do it.

I always use the quote from Charles Darwin: ‘It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change’. The question is, are you changing in the right way? Nearly every bank I meet views digital as being a project, or a function, or a channel, to which they can appoint a digital officer and apply budget against, rather than thinking of it as a complete mindset and cultural change to transform the way in which the bank thinks and operates.

Many of the industrial era, traditional players still have this mindset of pushing product through channels via media, typically traditional media, to get customers’ share of wallet. Whereas actually in the digital world, you need to turn that on its head: it’s the customer experience and the customer need that’s the starting point.

What are the risks for those traditional companies who fail to innovate and keep up with the rapid pace of change?

Most of the traditional banks have relied on customer apathy because customers don’t want to change unless they really have to, and they tend to think that all banks are the same. Switching banks as a consumer is actually now very easy, particularly in Britain, but people still don’t do it in large numbers.

I think the COVID-19 pandemic is going to create a big switch, because it has exposed the weaknesses of the physicality of most banks. If I can open a new account with a challenger bank in ten minutes, it’s easy and I get great service to go with it, then why would I stay with my old bank? It will force a big change. People are really seeing the distinct difference between the companies that perform well, and the companies that perform badly, and that will leave a lasting impression.

Can the traditional players really keep up with newer, more agile companies that were born in the digital age?

I don’t think it’s so much about keeping up with the FinTechs, but instead trying to do the right things. FinTechs thought that they could destroy banks after the 2008 financial crisis, and they didn’t – now they’re trying to partner with banks. Banks don’t need to compete with FinTechs, what they need to do is work with them and mentor them.

What’s the next project you’re working on?

The next topic I’m looking at is purpose-driven banking, which says that you need to have a clear sense of being good for the community, for the customer, for society and for the planet. If you don’t, then I think millennials, Gen-Z and beyond are going to reject your principles and your values. Customers and employees in the next generation will want to see purpose-driven, responsible banking with a stakeholder focus.

You may also find interesting this Banking Circle webinar hosted by The Paypers „How do payment companies adapt to Covid-19?”; Chris Skinner is one of the participant experts.

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Chris Skinner is known as an independent commentator on the financial markets and fintech through his blog, the Finanser.com, as author of the bestselling books Digital Bank, ValueWeb and its new sequel Digital Human. He is Chair of the European networking forum The Financial Services Club and Nordic Finance Innovation, as well as being a Non-Executive Director of the Fintech consultancy firm 11:FS.