I read an amusing comment in an investment newsletter recently. It related to a press conference following the 1970 Business Council meeting in the USA. The CEO of Citibank was quoted as saying:
“We have to get this bill passed to expand one-bank holding companies. We have to get into new lines of business and attract the best possible people to work at the banks—or we will go the way of the railroads.”
The writer of the comment quipped: “He didn’t realize what a good prophet he was. The bill passed and Citicorp is now, like the railroads, a ward of the government.” Citibank was bailed out by aid from the U.S. government in November 2008 as a result of the global economic crisis. However, the organisation has since repaid its government loans in full.
Changes in banking
In recent years the banking sector has seen significant change and is having to transform as a result of the recent global economic crisis. Yet for decades banks have been relying on an industry model of service delivery that has remained virtually unchanged today.
Bank training programmes and employee incentives used to be regarded as the crème de la crème a few years ago and young people would do almost anything to get the opportunity to work in a bank. As a result, executives were able to attract the best possible people.
But that’s not the case today. The sector has been very slow to redesign work practices that reflect not only changes in the marketplace but also the needs and desires of a new generation of employee, to the point where other industries are now attracting the top talent.
The current banking system has focused more on cost cutting than adding. This underinvestment in employees is causing widespread discontentment and, in turn, it is having a direct affect on customer relations.
The banking sector’s cause has not been helped either by the global economic collapse, with many people accusing greedy, over-reaching executives for being the prime cause of the recession. The effect on the morale of bank employees on the shop floor has been startling.
A few years ago, people would be proud to say “I work for ABC Bank.” Not today.
With banks losing many of their young people and having some difficulty recruiting good staff, there is a growing concern about how to keep hold of the next generation. This is one of the reasons we are beginning to see a new era in banking with the rise of non-bank disruptors (such as PayPal) and the neobanks (Metro, Atom, Aldermore and Shawbrook amongst others).
Some 26 startups are believed to be in discussions with the UK regulator about applying for a bank licence and all are hoping to capitalise on the regulatory pressure facing the existing banks to make the market more competitive.
Even though they are part of the same industry that has come in for some stinging criticism in recent times, these startups don’t have the legacy or “baggage of the past” of the existing high street banks. They claim they are different, that they understand the banking needs of individuals and SMEs and that they put the customer first.
Yet even though they are avid recruiters, they are challenging to recruit for at C-Suite and board level because the talent they need requires an unusual blend of skill sets for the industry.
A new genre of talent
Whilst the startup banks believe they need executives with solid experience in banking and finance, the very people they are looking for stem from an industry background that has been severely tarnished. Even though existing banks seem to recognise the importance of integrating quality into their service delivery, in practice most continue to focus on reducing labour costs and competing on price.
A small number of startup executives already accept that recruiting management from the existing high street banking sector may not bring to the table the very skills they are looking for.
To grow and survive in this dynamic marketplace, the executives startups need to be searching for should not only have significant skills and experience in the finance sector but, more importantly, they must also have leadership and innovation skills that combine with an entrepreneurial mindset.
In effect, these executives need to be able to mould their positive banking expertise to fit a smaller, leaner and more flexible landscape.
For banks to stay competitive in this changing market environment means not only offering products at reasonable prices but also tailoring these products to meet individual customers’ needs. The startups are moving quickly to take advantage of this market shift, but it will take entrepreneurial minds to make it happen.
The challenger banks need executive and non-executive directors who can also creatively address a number of shifting situations. They must be able to simplify what is widely regarded as a complex business operation, optimise technology costs, implement a more efficient delivery model based on high service-level standards and ensure innovation is based on the identification and understanding of new market trends.
In effect, this will require the creation of a new genre of talent that combines strong elements of banking expertise and meshing these with intrapreneurial traits. This is where there is a need to apply cultural and sector diversity to ensure a good mix of expertise is achieved.
Whilst the majority of current long-term banking customers are likely to stem from the baby boom era, it is the new era of customer – those that stem from the Millennium Generation (generation Y) – that challenger banks will probably concentrate their efforts on. Since their banking and finance requirements will, in the majority of cases, be quite different from the older generations, executives must have a firm understanding of the way this digital generation lives and works.
No trend has impacted the financial services industry as much or as quickly as the digital explosion that has destabilised virtually every other industry. With increasing numbers of people owning smartphones and tablets, today’s consumers are researching, purchasing and managing their financial services in their own way, in their own time and from virtually any location.
Effective leadership of the neobanks will therefore require executives to de-silo the resource that gives established banks a significant advantage: volumes of customer data. Management will need to know how to integrate data, systems and processes across different product lines, moving to a service-orientated architecture whereby data can be shared and leveraged in real-time on all the bank’s touchpoints.
Neobank executives should also have the skills to communicate with authenticity (internally and externally) and to rebuild credibility with consumers. Additionally, they will also need skills in new product innovation and be able to build of revenue channels around mobile, web and social commerce.
The following infographic summarises neatly the skill set this new genre of neobank executive will need to possess:
Serious disruption in the banking industry has begun and those organisations that don’t, or are unable to, provide a holistic experience that today’ banking customers have come to expect will find themselves on the casualty list within a very short space of time.The type of leadership we would be looking for requires re-working the talent pool in a way it has never been done before, certainly in the banking sector. Only then will the challenger banks be lead by the type of people at both executive and non-executive level who will make a sustainable difference.