I've been helping out in the Lightning Lab GovTech Accelerator (https://llgovtech.co.nz/) and working with the amazing Ministry of Social Development (MSD) Building Financial Capability team. They are aiming to prevent and get Kiwis out of financial hardship and poverty, by creating a new digital financial solution that gives access to existing products and services, including a national reach of financial mentors. Meet the awesome team of Dana; Alistair, Cyma and Michael!
Exponential technology change is increasing the rate that digital disruption is impacting on business models and organisations.
The impact on businesses that are not born-digital can be highly problematic, as I have written about before.
For medium to smaller organisations the challenge can appear overwhelming - where on earth do you start and how do you avoid joining the club of failed digital transformations?
A useful way to clear away some of the noise is to begin by defining how businesses respond to digital - and what that means for their culture & people, operating model and infrastructure strategies.
In this model there are three strategic transformation choices to respond to digital:
The high percentage of digital transformation failures suggests that embarking on a digital transformation of an organisation is an almost impossible quest.
Why do organisations that can afford to hire the best talent, buy platinum platforms and who are run by high-achieving leaders, fail at moving into the digital age?
Surely with the internet now reaching its fourth decade, organisations should be more than up to the task of being digital heroes?
Everyone loves a good hero-story - and for me digitally transforming is a hero-quest of the 21st Century for many organisations.
It can seem like an impossible journey to a magical location and like legendary quests such as The Odyssey, or my favourite, Lord of the Rings.
The quest always involves a heroic group who are given superpowers along the way and only reach their magical destination when they are truly transformed.
There are five key reasons why companies struggle to transform:
As with any great story, there's a challenge for the hero - in the transformation story it’s usually the challenge of creating amazing experiences through great digital products.
The story must always be focused on the heroic transformation, in this case the organisation truly delivering on an aspirational brand purpose that takes its customers and business on an incredible journey to a better place.
As with any quest, the hero is equipped with super-powers along the way. These attributes manifest as:
Transformation is not a linear journey
The reason for the high number of digital transformation failures, is that many organisations see their digital transformation story as a linear, mostly technology-driven story that delivers a grand ending.
But, like any tragedy, if a hero tries to complete their quest with only one-or-two super-powers and ignores the others, then the story doesn't end well.
And in digital the journey is not linear. It’s all about the power of these five factors happening at the same time to deliver a transformational brand experience that will always be evolving.
And this is demonstrated through having amazing digital products that create fans, rather than customers and which deliver on a brand promise that adds more value than it takes.
It sounds magical - but it's not. Like all great storytellers know - there's a clear and measurable formula to success.
And while true digital transformation is a never-ending story every journey has a start point.
Will it be a mutual-growth partnership between traditional financial services players and fintechs or an event that disrupts incumbents and ushers in a truly new generation of digital financial service companies?
These questions are buzzing in my head after Xero’s Small Business Director Nicole Buisson and Banking and Fintech Head Chris Barton brought together both sides of the equation for a stimulating, and at times heated, panel discussion in Auckland.
The line-up featured Will Mahon-Heap from Revolut; Rhiannon White, Chief Digital Officer from Westpac; Ben Murphy from Spotcap; Nicole Buisson and special-guest Xero's UK Head of Fintech Edward Berks who outlined the UK Open Banking story.
The UK regulator the CMA enforced Open Banking at the start of the year to make it easier for consumers to move their financial data to rival service providers and to encourage switching.
Since its launch 63 firms have started using Open Banking, while the technology was used 1.2 million times in June to securely share data, up from 720,000 the previous month.
Which sounds exciting except the reaction from the UK's major lenders is being seen by some as less than enthusiastic.
“For the bigger banks there’s no commercial reason why they want to do it. Without that it’s a very difficult thing to do.”
Anne Boden, chief executive and founder of Starling Bank, is quoted saying: “For the bigger banks there’s no commercial reason why they want to do it,” she said. “Without that it’s a very difficult thing to do.”
And the incubments certainly aren't jumping on a PR Open Banking bandwagon - a recent study showed 72% of UK consumers hadn't heard of Open Banking and only one of the UK's big banks, HSBC, has released an open banking product into market.
So one of the questions for the panel in Auckland today was will Open Banking play out in a similar way in New Zealand? Will it be regulatory-led or industry-led? And could it bring in massive innovation in consumer services through a partnership between incumbents and fintechs? Or will the incumbents only reluctantly participate?
"If a partnership was going to happen, it would have happened already."
On the fintech side of the panel, Revolut's Will Mahon-Heap was adamant: "If a partnership was going to happen, it would have happened already."
On the banking side, Westpac's Rhiannon White said banks, like hers, were already investing in open banking APIs to partner with fintechs.
For Xero, the opportunity to leverage open banking for its more than 300,000 small business subscribers in New Zealand will be based on a number of interesting use cases around businesses understanding their positions better and crucially getting paid, making payments faster.
Xero's Berks said UK case studies showed a "pay now" button means getting paid 50% faster. A world away from SME owners spending dismal Sundays manually synching payments across two browsers in their accounting software and internet banking and waiting weeks for payment.
The UK banks have lost a lot of trust since GFC and have had open banking thrust upon them.
In New Zealand banks are in a different position - but there’s a growing number of fintechs readying for the coming open banking revolution - Jude.io is a locally-grown example testing in beta, Revolut and Go Cardless will be launching here in the next few months.
To my mind, after a decade working in a bank and now working in fintech, the challenge for incumbent financial service providers is the classic innovators dilemma - how to focus on a potentially disruptive innovation in the right way, while dealing with the intense commercial, technology and regulatory pressures on the core business.
Having experienced similar disruption in the news industry during the first Dot.com bubble the only certainty is that it’s going to be a fascinating journey and nothing will be quite what we may envisage today.
What happens to financial services businesses like banks, wealth and insurance companies when suddenly most of their transacting customers are robots and machines?
Machine-to-machine transactions are a unstoppable by-product of a world driven by exponential technology change from Moore’s Law, APIs, Internet of Things, Artificial Intelligence and Blockchain.
The internet is being dramatically transformed from a place where for the last three decades or so we have used it to transfer information and content — and rewrite the non-digital industries that previously handled those activities — to a place where we can transfer assets and value.
And a whole bunch of industries who currently handle those activities are in the process of seeing their business models being rewritten: banking; insurance; wealth management; accountancy; lawyers; currency traders; stock markets, transport. The list goes on.
Financial services is the industry I currently work in which is currently being disrupted.
In many ways it’s a familiar experience to me, as I experienced at first-hand the digital disruption of the news industry in the early 2000s. Back then the news industry moguls just could not conceive how their world was changing.
I put together this short video of what life could be like after the five forces mentioned above have rewritten financial services.