Banks have faced, and continue to face, significant challenges to their future. We’re all too familiar with terms like FinTech (for financial Technology); and a lot has been said on how the disruptive force of technology is impacting the financial sector – from lending to money transfers.
I was recently invited to speak on a panel at The Economist’s Future of Banking Summit in Paris. I discussed the impact of technology, but also the need for banks and financial services companies of all kinds to transform and adapt to another risk: people.
From employees to consumers, financial institutions need to drive a culture that continues to rebuild trust and ethics, and ensures that consumers are placed at the heart of business. I argued that the battle between FinTech and the banks will be won by the institutions that focus on customer outcomes and recruit, recognise and celebrate employees who live the firm’s values. This creates an engaged and invested workforce, which attracts, retains and rewards talent. New talent will gravitate towards these institutions– attracted by the firm’s successes, growth, performance and potential.
Future Forces and Historic Burdens
The first piece of the puzzle is to understand and respond to millennials – are they a self-interested and entitled generation? Or are they enlightened, rejecting possessions and participating in the sharing economy? For the financial services industry to attract and retain this talent, an effort needs to be made to understand what motivates and drives millennials. This generation are driven by different forces; they value flexibility and innovation. They are tech-savvy, more international and socially conscious.
There is untapped value in the nature of this generation. For example, banks could perhaps learn from their fervent adoption of the sharing economy and how ‘loss’ and ‘gain’ could be redefined with a new perspective. Likewise, banks could use Millennials’ adoption of technology to create a data-rich and app-fuelled experience to draw in younger customers and enhance the customer experience.
Trust – A Millennial Value?
The pervasive issue of trust is still apparent almost 10 years after the credit crunch. Indeed if trust continues to be a battleground for financial services, banks need to look to how best to compete against new nimble innovative participants, unburdened by regulation and untainted by the financial crisis.
These new shiny tech start-ups have a ready appeal to millennials, eager to escape the stuffy traditions of the city and forge their own path.
But it’s much more than a simple attraction to something new – many millennials will have witnessed their families struggle through the financial crisis. We now have a generation that has a very different perspective on the financial sector
20% of Harvard Business School grads from the class of 2015 said they were taking jobs at technology companies, up from 11% in 2011, according to the school’s employment report. While 31% of students said they were going to work for financial services companies, about three quarters of that group went into venture capital, private equity and leveraged buyout firms. This is a decline from 39% in 2011. Similarly the numbers of graduates entering the traditional investment banking and sales and trading have dropped by halve – to 5%, from 10% in 2011.
Banks have sat up and taken note. Traditional investment banks have raised junior banker salaries to compete with technology firms and decrease reliance on bonuses, which have been under fire for creating a culture of short-termism. Additionally, firms have introduced new technology platforms to ease work and attract and retain young talent and the traditional long work hours have been replaced with a “kinder, gentler” work environment.
And the brain drain from traditional banks to other sectors is occurring across all levels, with recent high-profile moves: last year Mike Cavanagh (Co-Head of Investment Bank) left JPMorgan Chase to become Co-COO of the Carlyle Group and Ruth Porat left Morgan Stanley to take on the same role (Chief Financial Officer) at Google. Banks are working hard to arrest the decline.
Please Use Responsibly: Big Data
The past weighs heavily upon traditional finance. Banks are investing in technology and updating legacy systems to comply with regulatory requirements and meet changing customer demands.
As banks improve their systems, they are also able to better collect information and data which can be used to really understand the habits of the customer. Banks are unlocking the potential of big data – and using it responsibly—which is helping to reset their relationship with the customer, rebuild trust and put customers back at the heart of their business.
This digital infrastructure is also helping banks improve risk management. They can record and analyse a variety of risks, from operational risks to people risks. As this occurs, firms will not only be able to monitor and control their risks effectively, but take more controlled risk – improving efficiency, promoting growth and innovation. With a better grasp of their conduct risk, banks will create a better relationship with their regulatory supervisors.
In 2006, Warren Buffett said “culture, more than rule books, determines how an organisation behaves.” Wise advice as shortcomings in risk awareness and management have been identified as fundamental causal factors of the global economic crisis.
Senior executives still spend significant time and energy on trying to effect cultural change without fully understanding the concept. The concept of ‘risk culture’ has developed, and although still relatively new, culture can be articulated, measured and managed even though much of culture lies beneath the surface. With an improved risk culture, firms create an improved risk management environment – which goes go hand in hand with driving cultural change throughout an organisation.
There are multiple forces squeezing the financial services sector and the people that work within it, but I’m confident that the banks will continue to harness these forces to effectively accomplish positive cultural change, create sustained performance and growth and to make themselves ready to face the future.