The Commonwealth Bank CEO, Matt Comyn, once complained about Apple’s stronghold at the POS terminal. There was exasperation in his tone. He could not comprehend why Apple can be the preferred method of payment by customers when banks like Commonwealth Bank have been in that business for over a hundred years while Apple showed up less than a decade ago. Indeed, why?
Matt Comyn is acutely aware of the bank’s problem, but he has a blind spot on his customers. And that is a big problem, from which he cannot extricate himself.
Big traditional banks are legacy driven. There is so much in their infrastructure going back to a hundred, or hundreds of years back, when everything was manual and physical.
My recent experience with my [unnamed] banker is a typical manifestation of this problem. After I was notified in writing that I must update my email address (I cancelled the old one), but not to worry, I can do that online. First obstacle: I could not update the address online because the web site doesn’t allow that action for this type of account. After almost two hours of calling, waiting and back calling, going through tedious (but necessary) verifications, the operator looked into my account details, confirmed that I cannot do the changes online, put me on hold, and said that I have to go to a branch. Whaaat? Is this the year of 2021? At the branch, I had to go through verification process again and finally I could update my email address.
Every single point of interaction points to legacy issues: the printed letter assumed I could make the changes online (not true, meaning the sub-system that generates the letter is programmed in isolation, most likely because the programming teams don’t speak to each other), the operator didn’t know that different account types have different rules in regards to email (meaning, the software development people do not talk to the support group, or the communication is inconsistent, feudal), there is no form that could be printed and sent to me so that I can fill in and mail (a procedure acceptable in one department, but not in the other, although both are linked to the same account), I made the changes at the branch having exactly the same communication as over the phone. The changes were made on the spot, although I was required to pass less stringent security checks (different point of contact, different teams or sub-units, different procedures and definitions of what is acceptable, on the same account).
Old banks, with idiosyncratic rules and semi-fiefdoms departments entrenched over decades, are like large versions of counters separated by a thick glass wall insulating individual tellers from other tellers and customers. Processes are self-contained and collaboration resistant.
Re-structuring is impossible because no-one would ever dare take responsibility of executing such plan, knowing that there are so many points of failure that could result in money loss or worse, in drastic reputation loss. The risk of having to deal with frustrated customers instead is a much more palatable option.
Banks suffer from persistent risk aversion and fear of loss. They are gripped by a conservative stance justified by the imperative of risk management. Mostly, this fear, historically speaking, is there for good reason, it is what it is, and customers, although frustrated, are also under the spell of insecurity and stay. That is, until they have other options.
One of the most prominent characteristic of the old institutional banks is that they are always inward looking, preoccupied by self-preservation, maintaining the order, the command structure which makes them feel so safe, powerful, surrounded by an aura of wealth, power and authority.
These banks fail because they are money centred, not customer centred. That is their DNA. You will always see these traditional banks driven by the desire of order and obeyance to the money rule, whatever the rule is, and whatever department owns that rule.
The most painful experience for the executive running these institutions is not the prospect of a government enquiry, or recession or recalcitrant customers. It is the exasperation caused by nimble, tech savvy, young companies that erode their power base, against which they feel powerless. Even the almighty JP Morgan CEO Jamie Dimon had to admit a simple truth: JP Morgan could not have thought of creating a business like Square because they don’t have the skills and the culture of technological innovation.
Credit: Photo by Museums Victoria on Unsplash