Alessandro Hatami, Managing Partner of Pacemakers.io elaborates on the ways the banks have lost touch with their roots and what they need to do to get back there.
One of the interesting things about digital is the fact that it actually allows banks to go back to the roots: focusing entirely on customer outcomes, rather than thinking about products.
Think about the banker in Genoa. In the 14th century the first banker was thinking entirely in terms of, 'How do I fulfil the need of this customer in a way that I'm profitable but also that this customer is happy so he sends me other customers'. So there was almost the concept of the banker thinking of creating a proposition, with a segment of one
As banking evolved with the Industrial Revolution, there started to be more and more demand for financial services. Bankers started realising they couldn't do this one to one relationship and they started creating financial products. And now one of the interesting challenges that big banks have is the fact that they have so many products. And these products are actually silos.
So you have the credit cards, as I mentioned, the overdraft, the current account, the mortgage, and so on and so forth. And what happens as a customer, you think you go to your bank, and you're buying a financial product, you think that they know who you are as an individual, and that they will be able to use the knowledge that they have about you on product x to go and buy a product, why that's not the case. Because these silos operate, by and large, autonomously.
You see all your holdings within the bank and you think you're interacting with bank x. While the bank is actually thinking that it is interacting with five customers via five different products, and the customer happens to have the same name and have products delivered to the same dress.
So a lot of banks are thinking of themselves as stores with products. And what the digital revolution is doing is actually allowing the banks to actually rethink themselves—as not a provider of products—but a provider of outcomes.
People don't think about a mortgage as a product, they think about the house. Again, they don't think about an overdraft, they think of their holiday, that dimension is something that could emerge again from the evolution of digital banking. Blurring the line between outcome and the financial product that has been provided.
What GAFA will do and what GAFA will try to aim to do, is to make these, the seamless integration of products much more explicit. And this is something that the banks can avoid by actually rethinking themselves and going against this concept—this legacy concept of the multi-product silos—into a single sign-on which is the customer signup and the products are actually cost centres that are providing a service. I think that issue of legacy is something that has to be very clearly understood by the big banks, and is potentially the biggest challenge that they currently have.
Alessandro is an entrepreneur, corporate executive and board member with an extensive background in general management in banking, financial services and payments, and a track record of delivering growth through digital innovation at companies including GE, PayPal and Lloyds.