By Simon Thompson FCBI, Chief Executive, Chartered Banker Institute
The digital era we are now in is both a hugely exciting and challenging one. So much so that the World Economic Forum (WEF) refers to it as “Industrial Revolution 4.0”. I believe this is a good description, as each of the previous industrial revolutions resulted in significant disruptions to industries and societies across the world.
During, and for a time after, each “revolution”, the balance of economic, industrial and military power was disrupted and took time to re-stabilize into a new form of “order”. My belief is that the digital era will perform in a similar fashion and that countries, trading blocs, industries and individual citizens/consumers will continue to see enormous changes, such as those currently taking place in Southeast Asia and India. As a consequence, the banking sector will not escape the impact of these changes.
In keeping with what happened in the past, banking will be at the forefront of dealing with the changes, as a key partner to the many impacted parties while coping with the changes within the banking sector itself. As with previous disruptions, there will be opportunities and challenges for existing banks—be they local, regional or global. However, in the digital era, what some banks today regard as their greatest strengths (size and scale) could become their greatest weaknesses.
The world of banking has changed a lot since the Chartered Banker Institute was established in 1875, and in recent times, some regard it as having changed almost beyond recognition, driven by greater competition, increasing globalization, significant socio-demographic changes and, of course, by the greater possibilities created by new technologies. We at the Chartered Banker Institute are determined to keep abreast of all of the latest developments in banking and digital and data-driven innovation, whilst retaining pride in our past history and achievements.
The “Future of Banking”, focused on the impact of digital transformation, is one of our current strategic imperatives—running through our qualifications, Continuous Professional Development courses and our investment in thought leadership. When we think about the “Future of Banking”, we reflect not only on the changing nature of the profession in the digital era but also on the skills, expertise and professional judgement that will be required by bankers of the future. The Institute’s view is that despite everything we hear and read—about artificial intelligence, bitcoin, blockchain, fintech, digital banking, electronic trading and robo-advising—the heart of banking remains the essential human capital that our sector depends on even more than financial or technological capital.
The UK Government’s Financial Services Skills Taskforce, of which I am a member, recently published its interim report, which states “that as our (financial services) sector digitises, our people will need new skills to deliver these services. The most successful, wherever they are in the business, will combine digital awareness with great people skills”. In such circumstances, we believe that highly qualified, knowledgeable, skilled, dedicated, customer-focused banking professionals will shape the future of banking, as much as the new technologies that are transforming the financial-services industry will. This will, inevitably, have an impact on the future knowledge and skills required by Chartered Bankers. Some parts of banking may become partly or fully de-skilled or become fully automated. But other aspects will require highly qualified banking professionals who are skilled in credit, risk, banking operations, regulation, technology and sustainable finance, and who are, of course, able to apply professional and ethical judgement shaped by their expertise, experience and commitment to the professional values set out in the Chartered Banker Code of Professional Conduct. In fact, in an era when bankers are ever more disintermediated from customers, and when both customers and money are data points rather than individuals or tangible coins and notes, it can be argued that a professional ethos has an even more important role to play.
While some argue that professionalism and professional bankers will have no place in a digital-banking future, I disagree. Our archives show that similar debates were held when mainframe computers and ATMs (automated teller machines) entered banking in the 1960s and 70s, when many aspects of wholesale banking and trading became automated in the 1980s and 90s, and most recently, when the dotcom boom in the 2000s led to the rapid growth of internet banking. In each situation, banks and bankers had to acquire new knowledge and skills, and in doing so, develop their own personal capabilities as well as further their career prospects. Core banking skills, though, coupled with an ethically professional mindset, always remained key elements to make sense of and take advantage of new technological innovations.
To put some of this digital transformation into a UK retail-banking context for a moment, last year saw the ushering in of the Open Banking era for consumers, in the form of the European Revised Payment Services Directive (PSD2).Open Banking, as I’m sure most readers are already aware, is a system that lets people share their own transaction data with other banks and third parties. In 2019, the banking industry focused on regaining the customer confidence lost after the 2008 financial crisis and the data breaches that have occurred as a result of targeted attacks, whistle-blowers or in some cases, human error. It has also brought a realisation that data is an incredibly valuable asset in financial, regulatory and reputational terms. It’s a major opportunity for a bank to become more customer-centric and to better react to the way customers evolve, based on data insights and technological advances.
However, in order for customers to fully engage with the developing digital ecosystem and its inherent opportunities, they will need to understand and trust it.
The public in the United Kingdom so far seem unfamiliar with Open Banking. According to a survey published in August 2018 by YouGov, and despite the initial hype around its launch, only 20 percent of retail bank customers in the UK had even heard of Open Banking as a concept. The study further reported that just 9 percent of adults in the UK had thus far touched a piece of technology that had been enabled by Open Banking.
Despite this, as the data culture establishes itself, it’s important to recognise that today’s consumers expect their banks to understand and even anticipate their needs, delivering personalised, tailored solutions. Apart from the fact that personalisation promotes customer loyalty together with better opportunities for cross-selling and upselling, financial-services providers realise they need to go beyond simple transactional relationships and move to a lifestyle-based banking model, where they are at the centre of any financial decisions their customers make.
Developers worldwide have also been creating solutions devoted to personalisation based on ease of use, behavioural expertise, neuro-linguistic programming and data insights. Right now, interacting with a chatbot is viewed as a novel option to connect with one’s bank. However, as digital becomes more entrenched as a preferred mode of communication, especially with Millennials and Gen Zs, chatbots and other digital platforms will become a necessity for any business looking to engage proactively with their customers.
Ecosystems rely on strong partnerships based on an alignment of objectives, robust standards and interoperability. Banks are used to being “owner-operators” of their own infrastructure and to building in-house rather than buying in from the external market. So, can a bank truly be assured that it is better than the leading technology firms at their own game? The change in mindset that is required is significant, which explains the delay in uptake, and we at the Chartered Banker Institute would argue that none of this will work effectively without banking professionalism. Banks and bankers of the future must, of course, understand digital tech and how to work with digital channels and must not forget that technology supports the delivery of banking services.
So, given all of these changes and challenges, how can senior bankers prepare themselves to take maximum advantage of the opportunities that digital transformation will continue to present and defend against the challenges?
Firstly, banks must rapidly move off their existing bespoke core-banking legacy infrastructure and applications. These have been excellent workhorses for decades, but new solutions such as private, public and hybrid cloud computing as well as software-as-a-service (SaaS) solutions offer new, significantly cheaper and more secure options to respond more rapidly to the increasing volume of demand for data and analytics services.
Secondly, the changes to banking business models will mean enormous changes for staff, their job training and their future skill development. Banks will need to support digital delivery of banking services to customers through a seamless multi-channel delivery model, and their organizational structures will also need to change to reflect the new emphases.
Thirdly, and most importantly, banks will need to deal with the ethical and moral challenges that the new digital era and its supporting technologies produce. In a world in which information on customers is ubiquitous and provides enormous insights into customers’ lives, how will we in the banking sector strike the right balance between protecting our customers’ privacy while at the same time using that data to generate analyses and insights that allow us to better serve customers and mitigate potential negative risks?
For its part, the Chartered Banker Institute is keen to ensure customers are not viewed as mere “data-collection points” during the digital transformation of banking. To that effect, the Institute has developed the Advanced Diploma in Banking and Leadership in a Digital Age to prepare future generations of bankers who, in addition to learning about technology and data, will be educated about the core banking skills of credit, risk, regulation, banking operations and professional ethics. It’s essential that the sector doesn’t just focus on the digital, the data and the technology, which should underpin and not determine the service that is banking.
We also recognise this rapidly changing environment through our Centres of Excellence Programme—working with our university partners to develop the Certificate in Banking Technology (Bangor University), MSc in Digital and Retail Banking (Cranfield University), MSc Fintech (Leeds University) and the forthcoming MSc Finance, Technology and Policy (Edinburgh University).
The Institute’s international influence and collaboration—which we have been building in countries such as Australia, Malaysia and Singapore—offer synergies and benefits to the banking profession, customers and communities in the UK and across those regions, too. To emphasise this, the Chartered Body Alliance (the Chartered Banker Institute, Chartered Institute for Securities and Investments and the Chartered Insurance Institute) recently signed a joint declaration with the Institute of Banking and Finance (IBF) Singapore and the Monetary Authority of Singapore (MAS), with the agreement specifically alluding to working together on data skills.
The challenge is educating future generations of bankers at all levels, from service officers to chief executives, to understand what the deployed technology is, how it works, how it arrives at the outcomes it does, what inputs it needs—and to be able to demonstrate that the outcomes are genuinely in customers’ best interests. In essence, we want to ensure that the sector avoids bias or other ethical issues that can creep into technology and to reconcile the advancement of technology with the restoration of trust.
In 1983, the then president of the Chartered Banker Institute, Charles Winter, spoke about rapid technological change, the decline of bank branches and competition from non-banks. He concluded his remarks with:
“It is far and away the most important function of our Institute to educate bankers in these skills, and I hope we will continue to cherish the Institute, therefore, not just as some kind of exclusive club for those who happen to have passed the examination at some time in their career, but as a source of continuing education and the best guarantee of survival and growth of our profession.”
All of which sounds very familiar in the landscape we view today.