Legacy in banking isnt just about mainframes, its also about people. The future of banking will be so different that many banks won't survive unless they clear out most or all of their executive suite, says a new report from Forrester.

The most important factor in future banking success is not customer experience, branch strategy or cloud utilization it is the banks self awareness, the new report concludes.

The biggest thing holding banks back plays out in their culture, said Alyson Clarke, principal analyst at Forrester.

Alyson Clarke, principal analyst,, Forrester

The problem with banks is they get in their own way because they want to be best at everything, they want to own everything. They have a reluctance to go to cloud, reluctance to partner and be part of a larger ecosystem, so they build all their own technology and the technology goes out of date.

Banks need to take a really hard look at their organization and see where they do well and where they do not and then invest, divest or partner with a fintech or even another banks. And they need to move fast.

If you wait too long you will fail. Some firms and some individuals, get that it can be very hard to move these big ships, so they may need a sweep of the executive suite. I hear all the timehow slow are these firms to change, cultures get in the way of decisions I hear We are still making a lot of money, were fine.

But she says the tipping point is happening now, and points to Google which recently announced partnerships with eight banks and credit unions: Citi, Stanford Federal Credit Union, BBVA, Bank Mobile, BMO Harris, Coastal Community Bank, First Independence Bank and SEFCU.

Google will build account opening like a mobile banking environment. As a customer I go in and pick the products, checking or savings, through an amplified Google Pay platform. On the back end, the bank is owning the product, moving money, but customer interaction is through the front end that Google is building. So whilst it looks like co-branding, will customers see the (bank) brand and care, or will they go to the marketplace and see who has the best interest rate and go with it?

That could leave the banks competing on price, which most companies want to avoid, except for challengers which have the latest, most comprehensive and least expensive technology. Clarke thinks customers will feel they are getting value from Google, in the form of financial management budgeting and rewards programs with incentives to use Google Pay. The Big Tech companies like Google are better than banks at collecting and analyzing data, she added.

We know Amazon and Google are masters of this, their businesses are built on data. They also are playing a different game than the banks.

The focus on data in banking is lets find out what we can about our customers and flog them another product. But banking is not like Amazon where you buy a product often. We buy financial products every three to five years. So when banks focus data energy on selling products, they are probably just annoying customers. They have have overestimated the importance of their banks brand in the consumers life.

The big tech companies arent all the same, except perhaps in wanting to get into banking services without becoming a regulated bank. Clarke said she was an outlier in her evaluation of the Apple card, saying other analysts were looking at it wrong.

For Apple, its a long-term play. You cant measure success on the same field as a credit card. Apple doesnt need revenue in the same way; they need an attraction to the brand. They want people buying more devices using Apple Pay, and they can turn up the dial on incentives and rewards when they want to.

Apple doesnt collect any user data, that concern for user privacy is part of its brand. Google, however, lives for the data to make money on advertising. Google is in an ecosystem of banks and merchants whom it is trying to keep happy, She sees increasing usage of Google Pay which is behind some other digital payment platforms. Google has access to the data they can sell back to merchants and assist with merchant reward programs.

These offerings are enablers to other things.

Their priorities are different from banks because their business models are different. For a bank that does get it, she points to Goldman Sachs and Apple in particular, which she describes as a partnership and a collaboration.

No bank will do this alone, she added. It is really, really critical that banks start to think about the future and the way they do business is not just them alone. Their partners could be fintechs, other organizations, tech vendors, they could even be other banks. The point is that it cant be done alone, and thats a really interesting and tough shift for many banks. Banks talk about partnerships, but it really is just a vendor relationship.

This offers both challenges and opportunities for community banks.

Some will succeed by creating niches, and they may understand their communities better than anyone else. However, they may also see they are not the best at building out the product, but so many dont trust anyone to be a partner.

You can see why she thinks executive suites may need comprehensive change.

Banks have to be nimble and adaptive, or they will keep having the same problems. The loop between technology and humans makes it hard for firms to keep up. You have to invest ahead of the change. You cant wait for it and follow it in the market. Banks face massive challenges in infrastructure, resources, interactions and talent pools, she added.

Originally posted here:
Banks May Need To Replace Executive Suites To Succeed At Digital Forrester - Forbes