Both of my parents were bankers. Dad had a senior position in a regional retail bank, mom held mid-level jobs in national banks branches. Evening family time was full of conversation of stories from work. I was impressed by the level and complication of politics and beauracracy that happens in banks. The level of creativity in problem solving had to be very high to get anything done.
Banks historically have a cumbersome management style. The power of the chairman or CEO was limited to mostly giving out major decisions to collective bodies. The reasoning is simple they had to build a balanced system to mitigate loss and fraud. This builds the credibility that the bank has to provide to its investors. Investors isnt just share holders, its also anyone who deposited a penny to a current or savings account.
Collective decision making avoids one person destablising the banks operations. Especially in the past, bank records were handwritten. The times when reconciliation of the balance sheet report took weeks. On the flip side, collective decisions are slow, lack flexibility, accountability and are heavily influenced by the relationships between people. Every bank in the world does this, including the one down the road from you.
A few years back, banks started slowly conceding the market to fintech. Often very profitable markets. Banks are trying to fight back. They’re upgrading websites, banking apps, launch good and even innovative products but are still almost always squeezed out by neo banks. Banks all over the world are making huge changes to their strategies. For example, Citi bank decided to pull out of retail banking in some very promising markets simply because competition was too hot.
Ivan Switek the head of Unex Bank explains banks are too attached to the classic management model. Banks separate back and front office and then split the front office by departments: retail, corporate, MSME etc. It seems logical but also a foundation of the fundamental internal conflict. Bank departments fight each other not for better products or customers but back-office capacities. Defending power and resources at executive/supervisory boards, committees take nearly all the management’s working hours. This reduces overall effectiveness of a banks management.
Meanwhile, fintech has compact, high tech, well-aligned crews that deliver innovations in a quick manner. This style and focus on product and customer innovation attracts customers away from classic banks. Can banks change? Theoretically yes, practically not any time soon. They are finally locked in this cycle by regulations and the demand to be perfect managers of investors’ funds.
The future of the unbanked and the underbanked has never been brighter. Banks and fintech are both pioneering use of digital platforms, customer first innovation, flexible credit terms and also considering using alternative credit data in credit decisioning.
