We begin my blog with a few thoughts on inclusion and how important it is that as we rebuild from the Pandemic that we do so in an inclusive way to share the benefits of our work better than in the past.
I am very pleased to be working with Dr Grace Lordan of The London School of Economics and Political Science in the creation of a major new research and training initiative designed to improve inclusion and diversity in our organizations. The “Inclusion Initiative at The London School of Economics and Political Science” research agenda has three main aims.
1. To propose a viable proxy measure of inclusion.
2. To quantify the direct link between inclusion and the core business outcomes it should theoretically improve, such as innovation, creativity and risk assessment both within and across firms.
3. To propose to firms a menu of cost effective interventions that could improve inclusion of all talent from pipeline to boardroom.
This very important work, that we started last year, has now grown beyond London to North America and Asia. We need industry support and participation in this work so we encourage you to contact TII if you would like to be personally involved or to have your company work with us.
In our recent book “ The Technological Revolution in Financial Services- How Banks, Fintechs and Customers Win Together” (UTP 2020) Professor Michael King and I discuss the major impact that technology is having on the financial services industry. It is clear that financial services are going through a global transformation. These changes are structural and are being driven by three forces:
- regulation,
- technology,
- and demographics.
These new developments are changing the competitive landscape by lowering barriers to entry and increasing competition from outside the industry.
Rather than being threatened by Fintech startups, our conclusion is that banks will be more threatened by global technology companies like the Chinese Techfins -Alibaba and Tencent and the bigtech companies - Amazon, Apple, Facebook, and Google. These tech companies have platform ecosystems that embed financial services, including payments, lending, investing, and insurance. We believe these technology companies will prove to be the real threats to incumbents over the next decade.
In the concluding chapter we draw on the views of our contributors, as well as discussions with industry thought leaders, and our own views on the strategic direction of this industry. To whet your appetite, I am only going to share 4 of them with you today…
Technology is not a strategy. It is a tool to help achieve strategic goals.
Technology does provide a sustainable competitive advantage; it is widely available and can be copied by competitors who are fast-followers. The biggest barrier to entry in banking is not technology or even regulation, but access to customers. Technology is a key enabler for bank strategies to manage risks and face these competitive forces.
Trust in financial services is paramount, supported by data security and privacy.
The most enduring impact of Global Financial Crisis was the damage it caused to trust in banks and other incumbents. This loss of trust opened the door to new entrants from outside the industry. Trust in financial services is intertwined with cybersecurity and data privacy. Cybersecurity has become the biggest operational risk for financial institutions. Their mind-set must shift from “if we are hacked” to “when we are hacked”. Finding it fast, disclosing it & dealing with it immediately, and minimizing the impact on customers will be critical.
Regulation and risk management remain pillars of financial services.
Regulation is not going away, nor should we want it to. Leading banks actually support higher regulatory requirements to weed out bad actors.
Partnerships between banks and Fintechs will be the winning combination, delivering a superior experience to end-customers.
Ultimately, we believe that banks and Fintechs are not rivals. The ones that combine their respective strengths will be the most successful in the coming decade.
Banks have large numbers of customers, expertise in risk management and compliance, funding and scale. But these incumbents have been too product-centric. They view the world in terms of deposits, loans, payments, and investments. They are using technology as a tool to reduce costs and to increase profitability, while meeting increased regulatory requirements.
Fintechs are better at understanding the customer’s needs and their journey. They are using the latest technologies and design thinking to develop innovative solutions. They employ agile teams and run disruptive business models. The leading Fintechs are customer-centric, not product-centric. They are leveraging technology to solve customer pain points and offer consumers an experience that is simpler, faster, cheaper, and better.
The most successful strategy is for incumbents to partner with Fintechs, combining these strengths to provide a better user experience. We believe that The Technological Revolution in Financial Services will benefit end-customers by providing a better, financial service when and where they need it at a lower cost.
So where does this leave us as we consider rebuilding back from the Pandemic in a better way. In our book Brenda Trenowden (Partner at PWC and former Chair of the 30% Club) contributed a chapter directly on this point titled “The Business Case for Gender Diversity in Financial Services”. Brenda poses several common sense management actions that will lead us to more diverse and better performing organizations. These recommendations are described in more detail in the chapter. While specifically discussing gender diversity the same management actions would include developing more inclusive organizations broadly across many groups. Here are the recommended management actions:
1. Recognize Hidden Biases
2. Diagnose the Problem
3. Provide Gender Neutral Job Descriptions
4. Change Hiring Practises
5. Match Women with Senior Sponsors
6. Provide Female Role Models
These practises are entirely achievable within our organizations with leaders that care as most certainly do.
Technology changes everything but it does not change human nature. Change to the way we work with each other will be both helped and hindered by new technology. Leadership in rolling out new technologies with a fresh approach to inclusiveness is a winning strategy that will positively rebuild our organizations and our communities.
About the author
Richard Nesbitt, former COO of CIBC; former CEO of Toronto Stock Exchange; Professor, Rotman School of Management, University of Toronto and Chair of the Advisory Board for The Inclusion Initiative at LSE. Read more here.
Posted April 27th, 2021