Banks must become technology companies
Research & Advisory / 22 January 2019
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Professor of Bank and Process Management at Frankfurt School of Finance & Management
Professor for Bank and Process Management at Frankfurt School of Finance & Management. His teaching and research focus on Strategy Development, Business Engineering and Business Process Management in the financial industry. He is the founder and head of ProcessLab – a research centre of Frankfurt School focusing on process management in the financial services industry. He is also the author/editor of eleven books and has published around 300 articles in academic and practice-oriented journals. He presents his research results at conferences both nationally and internationally.

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The time when the use of information technology was restricted to back-office applications, simple advisory programs and providing digital customer interfaces is finally past. Digitalisation – accompanied by the implementation of “smart” technologies – has embraced the entire banking industry. This is causing profound changes in the demands placed on both managers and staff.

Five strategic challenges for financial institutions

In 2019, the financial sector is confronting five strategic challenges:

  1. Digitalisation is part of everyday life
  2. When to use technology depends on the customer
  3. Aim for organisational ambidexterity
  4. Employees need training
  5. Business models are crucial

1. Digitalisation is part of everyday life

Today, digitalisation is part of our daily lives. This also applies to every form of banking – for private, corporate and institutional clients. Progress is being relentlessly driven by new technologies. With respect to business processes, everything that can be digitised is being digitised. This means continuously reviewing all available technologies to find ways of implementing them to provide a competitive advantage. The competitive arena is wide open – and increasingly global. In short: It is vital that banks build up experience of new technologies such as robotic process automation (robotics), cloud computing, blockchain and artificial intelligence as quickly as possible – or to be more precise: right now!

2. When to use technology depends on the customer

As things stand, it does not necessarily make sense to digitise everything, even when it is technically feasible to do so. Instead, it is important to use the bank’s strategy as an ongoing benchmark. Thus how various technologies are used will depend on the bank’s target customers and their needs. In short: It is vitally important to identify and understand customers’ actual processes, with the aim of supporting these customer processes more effectively and so building customer loyalty. In the future, all customer processes – without exception – will be supported by technology. Anything else is banking moonshine.

3. Aim for organisational ambidexterity

The challenge for banks is to enable “organisational ambidexterity”. On the one hand, banks must constantly improve existing processes and structures. This involves streamlining workflows, complying with regulatory requirements, standardising processes and so on. On the other hand, banks must also develop brand-new processes so they can keep up with innovators like Amazon, Google, N26, PayPal and so on. In short: Banks must develop organisational structures that encourage innovative thinking (digital labs, agile teams/squads, etc.), and then rapidly spread and embed this kind of thinking throughout the organisation.

4. Employees need training

Retraining parts of the workforce will be a major challenge; some employees will be highly resistant to retraining. This challenge also applies – quite explicitly – to senior managers. Furthermore, thousands of traditional jobs will have to be cut. At the same time, banks are in urgent need of employees with other skills, such as programming or (big) data analytics using advanced statistical techniques. Banks are also frantically seeking employees capable of applying and developing artificial intelligence (e.g. for chatbots, algorithms in advisory systems, anti-fraud pattern recognition). In short: Banks must develop intelligent strategies for restructuring and developing their workforces.

5. Business models are crucial

No matter how much is digitised, no matter how many new technologies are introduced, none of this will be of any use if the bank’s business model no longer works. The U.S. digital giants in particular, such as Amazon, Apple et al., hotly pursued by Asian retail platforms like Alibaba, Tencent and Rakuten, pose a major threat to traditional banks. These web-based companies are in a position to render banks’ business models obsolete – in the retail sector at least. In short: German banks and banking groups must realise that only by working together at national – or better still, European – level will they be able to remain relevant in an industry that has become globalised and digital.

Frankfurt School’s ProcessLab  focuses on research into the digitalisation and transformation of businesses. You can find further details of our activities and publications here.

This post has also appeared in the Bank-Blog: Banken müssen zu Technologieunternehmen werden as one of a series of articles in: Leichsenring, H. (ed.), Ausblick 2019 – Themen, Trends, Herausforderungen, Chancen und Gefahren für Banken, Sparkassen und andere Finanzunternehmen, e-book, 2019, pp. 31-32