Thanks and hat-tip to reader Maura G (aka ReaderofTeaLeaves) for making us aware of this latest piece of finance industry nonsense. It comes from bank pom-pom wavers and general all round flim-flam merchant Tearsheet. While it is always entertaining and comic relief to include these kinds of industry echo-chamber delusions in our daily roundup of links, this one on bank technology caught my eye. It warrants unpacking in a little more detail.
The original Tearsheet story is here and the topic is how banks, according to the article, are getting “creative”, “innovative” and “design-led” in both new products and also how they work, culturally, in their internal operations and management. But in the process, this inadvertently highlights several industry issues. It’s even more revealing when financial services rha-rha’ing shows how the banks are not only bad actors, but are so delusional in their group-think and surrounded by paid shills who can’t or won’t provide a challenge to the skewed logic.
Starting with a (mercifully) brief quote from the Tearsheet piece:
Despite all the hype around transformative technologies or the fact that consumers aren’t actually using any “fintech”, the dinosaurs of the financial world are changing from the inside out, putting the customer experience before their business — and design thinking is at the forefront of that.
It’s optimistic, but also just a new way (for banks) of doing business. They’ve realized they no longer dictate how they do business and what they produce; their customers do. In a digital world filled with choice, banks’ customers need choice, empathy and ease of use designed into every interaction they have with the bank and they need to deliver on that quickly, before their competitors, which now include retailers and other non-banks.
The first paragraph states what may be obvious to those outside the finance industry bubble. Namely that users of financial services mostly do not want or need so-called innovative financial products or any new ways of using finance in their lives. Rather, they want banks to provide simple, easy-to-understand basic financial products that work. According to the copious data available from the Consumer Financial Protection Bureau which I’ve analysed, retail bank customers’ top five sources of complaint are:
- Poor customer service.
- Unpaid checks or other bounced payments.
- “Gotcha’s” hidden in product Terms and Conditions small print.
- Bank errors (which were either not corrected, took a lot of effort to get corrected or the corrections caused other knock-on issues).
I’ve worked in finance for nearly 30 years. The very first list I ever saw for complaints looked exactly the same as this.
And this begs an obvious question: if customers complain about how banks let them down, why are the banks not concentrating on what customers are telling them is wrong with the products and services the banks provide already – rather than spending time and money on creating new supposedly innovative ones? The answer is, of course, that it generates profits for the banks to do things which customers find annoying (high fees, obscure product features and even bank errors which cause the customer to lose and the bank to win). Or else it costs money, such as to train staff and then retain that knowledge in their workforces or to have sufficient numbers of staff available in the first place, to fix the problem.
Customers, even if we are supposed to be “In a digital world filled with choice” don’t need “choice, empathy and ease of use designed into every interaction they have with the bank“. We want to not be ripped off and for the banks to act competently in our dealings with them.
It is too much of a stretch to expect that the banks, unprompted or without being cajoled by regulators, will address structural issues around their business culture, executive conduct and outlandish profitability ratio expectations. However, we should expect continued wailing and gnashing of teeth from the banks about “innovation” and the need to be “competitive” in “the marketplace”. The latter is a complete and immediately disprovable canard though, because the top 5 banks control nearly half of the market.
So why, then, do the banks keep going, broken-record like, with their claims about the need to innovate?
For one thing, which may not be obvious to those outside the industry, working in finance is usually incredibly boring, frustrating, tedious and slow. While the outsized pay can and does attract intelligent and talented people, some of whom are quite creative, it is just about the worst place for those sorts of people to work. Systems and operations are convoluted and difficult to change because of their complexity. Banks are large bureaucracies with fiefdoms, turf wars, massive egos and driven by the need – in the cause of maximising shareholder value, the alter upon which many business have to sacrifice themselves – to implement the lowest cost solutions.
It is not uncommon for the graduates and those recruited from the top performers in science and technology to join banks. They are lured by high pay and the promise of joining the Masters of the Universe. Sadly, they often find that the reality is form-filling, battles with nickel-and-diming accountants and internecine warfare. Boredom, for want of a better word, drives many of them to seek out vanity projects or resume-burnishing novelties such as fintech.
Lining up alongside a desire to do anything to relieve the monotony push, bank C-level leaderships then adds a pull all of their own. A preoccupation with trying to escape regulatory and legal constraints. For evidence, let’s return to the Tearsheet post:
There is no greater trojan horse to change an organization than design thinking, said Stephen Gates, head of Citi Design. “Especially with something where there are lawyers, regulators… Part of what we had to do was change thinking, not behavior. If it’s new behavior on old thinking, we didn’t really change anything.”
Superficially, this doesn’t sound especially problematic. It could even be construed as plodding old legacy businesses like banks trying to adapt themselves to the modern knowledge economy era. Such superficial analysis would be wrong. Firstly, repeating a cliché of innovation and relying on invisible hands that ceaselessly drive any and all businesses to discard everything they’ve done historically and start afresh is just that, clichéd.
The notion that everything a business has learned and any intellectual property it possesses has suddenly, somehow, been rendered obsolete by some vague notion of an immense technological development is repeated so often that it’s become part of our prevailing culture. But aside from a very small number of breakout products, such as the personal computer, the internet and the smartphone, most products you buy or services you use are only ever incremental improvements on what has preceded them.
The same applies to banking. Without getting too bogged down in the technicalities, a bank’s only functions are to intermediate maturities and interest rates on deposits taken and loans made, plus to offer some money transmission services. Within financial services, the only two true innovations in the past 50 years or more which stand up to a scrutinizing of that term are the ATM and the credit card. Changes to how customers are serviced such as the migration from the branch channel to the telephone or the internet have shifted the “where” and the “how” banks interact with their customers, but not the “what” of those interactions.
The line I highlighted in the Tearsheet article gave the game away. The participants who’s thinking purportedly needs to change are not the accountants picking through expense reports stripping out costs (which usually means reducing headcount). Nor is it the thinking of executives to reduce their outsized compensation packages. Nor is it in boards who will only look at changes through the lens of a 5-year business case which must pay back within the shortest of short-term timeframes and satisfy outlandish Return on Investment (ROI) targets. These ways of thinking have been with us for at least 20 years or more, but apparently aren’t in any danger of approaching a sell-by date.
No, the thinking that needs to change is that of “lawyers, regulators…” who are being exhorted to change to embrace the latest design trends and technological innovations. But regulators and lawyers are not and cannot be creative types who spend their time considering new colors for logos and typefaces for websites. Their jobs are to enforce or provide advice and guidance on the laws governing a corporation’s products and services or to interpret regulatory frameworks which have been enacted by regulators and lawmakers. Creativity, design thinking and behavior doesn’t come into it. Just because a bank wants to label a change as being innovative doesn’t — or shouldn’t — lessen the obligations on a bank’s legal team or the regulators to comply with laws or existing regulations.
Gutting regulatory compliance and trying to side-step legal obligations aren’t “design thinking”. They’re the same connivances which would have killed the entire banking industry 10 years ago, had we not all been coerced into bailing it out.
You can’t blame the banks for trying it on. They are what they are and will continue to be so until they are forced to change. You can, however, fairly and squarely blame regulators and lawmakers for not pouring a lot of cold water on this craving for technological fervour. Making the banks tackle their long-standing issues as evident in the CFPB’s complaint data before they can try anything fancy like fintech would be a start.