Welcome to Tuum Talks Episode #5: Bank Culture Eats Strategy for Breakfast
Recorded Live: Wednesday, April 17, 2024
Host: Myles Bertrand, CEO of Tuum
Guest: Dr. Leda Glyptis, NED | Advisor | Author
Diving into the profound impact of organizational culture on the strategic direction of banks, our latest episode of Tuum Talks, “Bank Culture Eats Strategy for Breakfast,” featured a riveting dialogue between Myles Bertrand and Dr. Leda Glyptis. This episode unpacked the often underestimated power of cultural undercurrents in shaping the future of financial institutions and their approach to digital transformation.
Our speakers discussed:
- How internal culture dictates the pace and success of a bank’s strategic evolution
- The challenges banks face when adapting business models to modern consumer expectations
- The role of technology in facilitating a bank’s journey towards agility and efficiency
- Strategies that banks can employ to overcome the ‘immunity to change’ within their organizational structures
Watch, read or listen to the conversation below to discover how banks can navigate the complex dance between preserving a supportive culture and embracing the relentless pace of technological advancement.
Key Takeaways:
- Unveiling the ‘tribal behaviors’ within banking organizations and how they impact innovation.
- Dr. Glyptis’s unique journey from academia to banking, proving that diverse experiences enrich the sector.
- The significance of nurturing talent within banks, as they offer resources and stability for growth.
- The imperative for banks to adapt their business models amidst rising customer and regulatory pressures.
Special thanks to Dr. Leda Glyptis for her thought-provoking insights and to all participants who contributed to this engaging conversation.
Stay Tuned for More:
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Bank Culture Eats Strategy for Breakfast
[Full Transcript]
[00:00:00] Myles: Hi everybody. I’m Myles Bertrand, CEO of Tuum, and welcome to Tuum Talks. With great pleasure, I’m joined today by Leda Glyptis. Leda, thanks for joining us.
[00:00:13] Leda: Good to be here, thank you for having me.
[00:00:15] Myles: I should correct myself, it’s actually Dr. Leda Glyptis. Very rude of me. That poses my first question, what are you a doctor of?
[00:00:23] Leda: It is one of those where you did it and then you put it on the shelf and moved on with your life. The rise of political Islam and the European accession plans of Turkey in the early 2000s.
[00:00:36] Myles: Wow, what a thesis to write on! How does that apply to your financial services expertise?
[00:00:44] Leda: You know what, on the surface of it, not at all, to be fair. When I first went from one to the other, it was the least obvious transition. But there are two things that have been very useful. One is when you study national behaviours, national imperatives, you study tribal behaviours, essentially, which are very relevant in how people behave inside big organizations.
The second piece is, my thesis was around notions of legitimacy. The things you do and the things that motivate you and the things you mean but don’t say, which perversely is very applicable to the conversations you end up having inside banks. The content is very different, but the fact you say one thing but mean another, and there’s some sacred cow.
[00:01:30] Myles: Ah, very good. How did that feed into you becoming a banker? What’s the short story there on how you found yourselves in financial services?
[00:01:39] Leda: It was entirely accidental. I was finishing my PhD and I had a series of unfortunate events in my family; I had deaths in my family, and I run out of funding before I had finished. I needed to find a job and I did all the things you’re not meant to do. I shot off CVs without properly researching. I ended up finding my first job in a company that did non weapons defence technologies, which really didn’t suit my personality, my politics. But you’re young, you need the money.
A few months in, I was like, what am I doing here? I was speaking to a buddy who was, like, we’ve built some technology, but we don’t like people or things or interaction; so why don’t you come deal with people and things? I was like, what does the technology do? He was like, price verification. They had sold it to a tier one bank completely by accident.
With the audacity of my 25, 26 years at the time, I was like, I don’t know anything about tech, I don’t know anything about finance or banking, but how hard can it be?
[00:02:42] Myles: And the rest is history.
[00:02:44] Leda: And the rest is history. Turns out it was a little bit harder than anticipated, but I was horrified to find I was good at it. This is not who I thought I was as a person. The rest definitely is history. That was 20 odd years ago.
[00:02:59] Myles: Wow. I’ve got a view on the next question as well, having worked at a bank, and I also myself have worked at a bank, what do you think is the best and the worst thing about working at a bank?
[00:03:08] Leda: That’s a really good question. I think it’s fair to say I’ve worked for three banks so far on payroll, and I worked with another five or six as a vendor. I would say that the experience of selling into banks is almost universal, but the experience of working in them is not.
When you’re selling to banks, they all feel very similar. Some are nicer than others, but they all feel very similar. But working in them is very different. I’ve worked in some places like a BNY Mellon, where the culture is really nice. You don’t expect that for banks.
The best thing for about working in a bank, particularly a bank like a BNY Mellon, is that you feel you have the time, resources, stability and protection to do things, provided you don’t want to do them too quickly.
That stability and protection means that you can take the scenic route to some pretty impactful decisions. You as an individual, as a worker, will be nurtured more than you will ever be nurtured inside a start-up, because they have the time and resources. I think we bash banks a lot, but we forget that the growth you and I had, we wouldn’t have had in a start-up. They wouldn’t have invested in us the same way.
I think that is the best way to grow your career. They have the time, they have the resources, they have the inclination. They don’t have the urgency, so you need to manage that need to go faster. I would say the hardest thing is that any organism has an imperative to protect itself. For the most creative, for people like me who want to poke things to see if they go boing, the antibodies are designed to keep you in your box – as they should, because the organism needs to keep going. It needs to keep doing what it’s doing.
[00:05:04] Myles: Yeah. I found that as well. I spent a lot of my 20s and 30s down in Asia Pacific, and I spent a lot of time in Australia. Unless you’re inside that ecosystem, most people from the outside look at banks, they do think they’re all the same. Australia with its four very big banks dominating 80-85% the market, the actual culture inside the four of them was just so uniquely different. It was really interesting that on the outside they all seem the same, but once you got inside them, either working with them or for them, each of them was so different. It was really interesting.
A lot of these banks have been doing this a long time. I would say some of them feel like they just keep chugging along the same old way.
Do you think they do a good job at adapting their business models? Because the way business is so dynamic these days and customer expectations are so dynamic, how do you think they’re tackling the ability that they just need to move faster and do things quicker?
[00:06:06] Leda: Again, it’s a good question, and I think it deserves a more nuanced answer than we normally give it. Because the reality is some are doing better than others, and all are doing something. There isn’t a single bank out there that doesn’t have at least some digital footprint, an ability to go to market for at least some verticals, at least some products, differently.
Some progress has been made, but your question on the business model is the crux of it. I don’t think any of the banks has wholly transformed its business model. Which means that the way they make money is balanced on pretty traditional distribution and manufacturing engines, which means that your cost to serve, which frankly is the problem that cloud native core banking engines tried to solve, goes through the roof.
As we go in a world where your digital products come with quite a lot of regulatory owners and an expectation that they will be, if not free, then cheap, but you haven’t switched off a lot of your legacy systems. I’m on a mission to say the word mainframe at least once a day. If you’re still on 1968 mainframes, the reality is that you have complexity. It’s not necessarily the mainframe that’s expensive; it’s the operational risk. It’s the fact that you have 20 different teams pointed at different problems and different skill sets.
Your business model is dragged down, not by your ability to manufacture and distribute products, but your overall cost footprint. In retail, that has always been difficult, but the reality is no universal bank makes money through retail. It has been okay because that thing wasn’t the money-maker anyway.
As we’re seeing customer expectations shift in wholesale banking, that becomes existential. Because the minute you start needing to digitize with both regulatory and customer pressure, your wholesale and transaction banking and liquidity management and treasury, then that’s a different ballgame. Then you will need to change your business model. We haven’t seen anyone really do that yet.
[00:08:15] Myles: Yeah. I agree, because I think what’s happening is you see mid demographic shifts. These youngsters that have been dealing with etiquette at a consumer level with digitized banking, they think, why do I need to go to a branch, why do I need to fill out all this paperwork? They’re now getting a little bit older, they’re getting more mature, they’re getting into more senior roles in businesses and organizations. They’re going, I can do this on my consumer side as an individual, why can’t I have a similar type experience as a CEO or an executive at a business as well.
I really think there’s lots of drivers in the market now, which are encouraging a lot of banks, to your point, that had probably sat on their hands, focused on all the things. They’ve got to start doing something. They’ve got to start reacting.
[00:09:00] Leda: I like what you say about the generation shift, because it’s very true. People like us were the renegades a few years back, and now there’s decision making power in our hands. The generation above is still on the board though. There is a discussion that is happening in tighter circles, but it’s still happening.
I don’t know that I would say that banks have sat on their hands so much as they wanted their bling where they could see it. That’s my phrase and I’m sticking to it. They have made changes, but they have made changes that were visible, that could be celebrated.
[00:09:33] Myles: Exactly. I always try to bring back to where they’ve made themselves pretty on the outside, but the hamster is still spinning the wheel on the inside fundamentally. But I think technologies like AI is a really good example. Personally, I think AI is going to have a big impact in financial services, not right now but in a couple of years as it matures and evolves. You can’t have a mainframe system that goes to sleep for three hours a day while it does its batch processing. You’ve got to start. It can’t just be your UX or your front end now. The whole life cycle of the process has got to get with the times.
[00:10:12] Leda: 100%. Somebody called me a few months back and offered me a substantial sum of money to do some marketing for them, proper influencer work, which I don’t normally do. But what have they built?
[00:10:26] Myles: Leda, the influencer.
[00:10:27] Leda: Oh my God. It really doesn’t suit my personality. But it was ChatGPT for mainframe, which first made me laugh and then made me say, please go away.
But the reality is what you just described, people will try and do it. People will try it. Because we’ve been balancing technologies that were not meant to work together, on top of each other for such a long time. API wrappers around sleepy data lake depositories. We have done it without anything going disastrously wrong, because the hamsters in the background do manual reconciliation, swivel chair data inputs.
If you’re trying to do the same with AI capabilities, which a lot of banks are trying to do, or you try to create an AI enabled piece of your organization over there while not touching the rest, that operating risk we talked about before will go through the roof.
[00:11:24] Myles: I call it putting lipstick on the pig. You can only do so much. I think the industry is at a bit of a tipping point with that as well. I don’t mean to pick on the banks, because I do agree with you, banks are trying to do a lot. They do some fantastic stuff, but what could they learn from other industries? Because you see the speed of innovation and what’s happening with some of these consumer fintech companies, what could banks learn from that?
I see some institutions are trying to really adapt that and bringing in people which with that innovation mindset to change that. But what could banks learn from other industries?
[00:12:02] Leda: It’s again, a very good question.
[00:12:06] Myles: I try. I try to ask.
[00:12:07] Leda: Very good, you can stay. For me, there are two messages I always try to land with bankers. The first one is very unpopular. I’m going to say it, and you it the minute I say that the people inside banks don’t like it.
[00:12:22] Myles: I’ll see if we have a drop off in the participants.
[00:12:25] Leda: Half of them are going to get off.
We have spent a lot of time talking about innovation, and we have taken that to mean creativity and invention. But actually, it does not. It means things new to you. I remember reading a book by Neil deGrasse Tyson a few years back, saying that a lot of the things we use as consumers in med tech and elsewhere were created by NASA for something very different. They are geared towards the bleeding edge of innovation and invention. We are not.
When we talk about innovation and creativity, we don’t mean that you need to create something new out of a technology that’s still frontier. We mean that you need to reinvent yourself so that you can keep pace with the economy. It’s much less sexy, but much less risky. If we recalibrate the mindset that, yes, you still need to learn and experiment, that’s all good stuff; but nobody’s asking big regulated institutions to invent. We’re asking you to keep pace.
That, of course, is unpopular, for all the reasons that you can imagine. But it leads to the second piece, which is you don’t set the clock on the time and pace of these changes. That has been the biggest shock to the system. If you go back 10 years, every bank thought, we’ve got time, we’ll work this out in our own time. The reality is we don’t. We don’t because the regulator is not waiting, which I must admit I find very interesting, because in places like the European economic area, the UK, Australia, Singapore, the regulators are pushing harder than the market. This is the reality inside the organization.
The reality outside the organization is that if you look at other industries, what do they do well? They do well two things that we don’t. One is, their acceptance for failure is nowhere near ours. If aviation or medicine had the failure rates that are acceptable in banking, we would be rioting in the streets. Error acceptance has to be a very different threshold.
The second thing is they switch things off. They are playing with a much narrower margin. The margins that banking has had over the years have made us complacent to carrying high costs, as we said earlier. In e-commerce, if your margin is single digit, then you cannot afford to carry anything redundant. You’re much more militant about future proofing your technology, evergreening your capabilities, streamlining what you have, switching things off, not carrying things you don’t need.
[00:15:00] Myles: Get rid of that technical debt. I know stories of some very big banks, and I won’t name names, but they’re running like 15 parallel systems that do the same thing within the organization. They can’t for the life of them work out how they could reduce it just to 7 of the same systems, or 6.
[00:15:18] Leda: As part of a sales effort a couple of years back, somebody told me that big bank, they were running 34 core banking systems. I had the, I’m jet lagged, say that again. I said to them, “I’m not going to name you, but I will be quoting this number till the day I die.”
[00:15:37] Myles: You beat me. I’ve heard 27, and I just went, wow.
[00:15:41] Leda: My highest number before these guys was 15. That’s insane. But 34! I can understand how they got there, because they had to balance short term considerations, egos, budgets. Sometimes it was easier to go sideways than forward, because nobody has a holistic view of the cost footprint. When I talk about managing your cost footprint, because I do these workshops for decision makers inside banks, and it’s like, how do you make decisions on technology you don’t fully understand? You don’t go to school to learn the technology first, because by the time you finish that degree the next thing will have come along. You need to sharpen the ways you assess things without being an expert in them. One of it is a relentless focus on your unit economics.
You know how many people I have who have very senior positions inside banks saying, that’s a central cost centre, I don’t need to worry about it. Therefore, I don’t need to know it Therefore, because we’ve been accumulating this cost for 10, 15 years, nobody really knows what it is.
[00:16:48] Myles: It’s a black box. Don’t touch it and it won’t break.
[00:16:50] Leda: Exactly. Then if it breaks. you have existential consideration, so you’ll find the budget to fix it.
[00:16:57] Myles: 100%. Leveraging that as well, traditionally also banks also like to do things themselves, typically. We’ve seen the change of the partnerships and ecosystems. How can they leverage these better? Because there’s some really great technology out there. Both of us have worked for organizations that have great tech, but in partnering and working with fintechs, does that help these banks move faster? Should this be more of a key consideration for them going forward?
[00:17:25] Leda: We all know that banks have historically suffered from the not-invented-here syndrome. We’ve all seen it. The urge to want to build new stuff inside banks is strong. It’s what led me to jump. It was that blank sheet of paper itching to build software from scratch. I get it. I would say that’s further complicated by the fact that banks have started trying to hire different types of talent, and that talent wants to build.
[00:17:52] Myles: You’re seeing Googlers, AWS people, Microsoft, there’s CDOs at banks, et cetera. They’re like, we’re just going to bring them better people, but with the same mindset.
[00:18:04] Leda: The itch to build is very much still there. But the way I describe it, I tried to sell to a bank a few years back and they decided to build their own core banking system in the end. I bumped into the Chief Digital Officer at a dinner a few years later, and I said, how’s it going? He goes, turns out it isn’t so hard, we’re almost done. I was like, yeah, but it’s five years on.
It’s like working out that your wife needs surgery and the best school specializing in whatever it is she needs is in China. You go off to learn Chinese and then go off to medical school in the thought that no one will care for her like you do. True, but wouldn’t you rather she had treatment right now? I find that that time consideration that we talked about earlier will bring some of those decisions forward, will catalyse them.
The other thing is, there is a relentlessness to the amount of stuff that is happening, the amount of regulatory pressure that is mounting, the amount of stuff that will just stop functioning the way you want it to.
For me, the way you would approach partnerships if you are a decision maker inside a bank now, is what are the things I can afford to not learn and make it someone else’s problem? Then how do I create the right SLAs so that they deliver business value? How they do it is a secondary consideration; because there is just too much for me to learn and build and manage.
Partnership becomes about managing the mental load. It’s less about go to market maximization, and more about I don’t have the hours in the day to learn and understand all of this, which are the things I don’t need to learn, and who are the experts who will understand enough my business drivers that will commit to SLAs that are about business outcome? Then you’re cooking with gas.
[00:19:49] Myles: Yeah, I agree. I think we’ve tiptoed around what the questions have been asking, but how important do culture within these organizations play? Do you think it’s facilitating or it’s hindering? I have my own view on this, but I’ll wait for you to respond first.
[00:20:02] Leda: I have written a book about this.
[00:20:05] Myles: We’ll get to your book later.
[00:20:07] Leda: The main obstacle inside banks is cultural, it’s people. It’s people, stupid. But also, the driver is people. That’s the premise of the title. That’s the premise of the book.
The biggest thing that we see inside banks is that somehow when you make it past middle management, there is an acquired learned helplessness. People who have immense budgets and considerable power feel that their hands are tied and they can’t make major decisions. Some of it is conscious; you don’t want something to go wrong on your watch because there goes your retirement. Some of it is unconscious because of caution and being beaten down over the course of your career. It means that when you have the power, you don’t make the decisions.
It is harder than it should be to make the right decisions. People are being measured for career progression on things that run at odds with the things they need to do for long term shareholder value. You keep a precarious balance that hurts both sides, actually.
[00:21:10] Myles: Yeah, I tend to agree with that. One of the biggest problems you have, having worked even when I was inside the bank, it felt like death by committee. Even mid level management, the empowerment wasn’t there. That always seems to be one of the challenges. I agree with that 100%.
What’s some of the best practices that you’ve seen for running some of these IT projects? Let’s maybe use outsourcing rather than running in an internal project where you’ve made the decision to bring in an outsource vendor, what’s good look like? What have you seen that you see as good in the marketplace?
[00:21:46] Leda: I’ll tell you a horror story that I was part of, and I’ll tell you two good examples. One of the horror stories that I was a part of is we were running two RFPs. One as for payments orchestration, and the other was for payments gateway. Problem number one, how are those really different?
[00:22:07] Myles: I was going to say, why have you got two RFPs?
[00:22:10] Leda: Because there were two different sponsors.
[00:22:14] Myles: Two streams within the business.
[00:22:15] Leda: Who has what has, right?
[00:22:16] Myles: Yeah.
[00:22:16] Leda: But we were running the committees back to back in the same room, with almost 100% overlapping decision making, to the extent that we weren’t sure which was which. I was like, wait, is this for this one or for the next one? How not to make good decisions.
Flip side. Same organization, we decided to run a robotics process automation exercise, and rather than running an RFP, we did a competitive pilot. It is the same organization. It goes to show that you can find sponsorship to do things because a competitive pilot, no matter what you do, you learn in the process. It forces you to look at a lot of the things that will slow down your project downstream: data quality, third party access, sign offs, compliance, risk matrices. It forces you to do it in a way that is still quite small but doesn’t delay you downstream. It teaches you that you weren’t asking the right questions because you were doing something for the first time, so how could you?
Scrapping the RFP and doing a competitive pilot, a competitive POC between two or three processes, which is becoming more and more common practice particularly for core, right?
[00:23:32] Myles: 100%.
[00:23:33] Leda: The second thing is creating a set of incentives for both the teams and the vendors to meet certain timeframes. But creating a mutual assured distraction, which is heavier on the team than it is on the vendor.
I worked with a client a couple of years ago that put us, the FinTech, to shame, in terms of their speed. But they were dedicated to this and they had extremely focused personal incentives to meet the timeframes. The bank was putting its money where their mouth was.
[00:24:12] Myles: I agree with you. Again, it’s a culture question. You find the right person within the organization and you’ve got the right approach, you can do that. I’m a big fan of that competitive, the days of the traditional RFP, these are quite often we get them, 50% of the questions are just irrelevant. There’s something that some consultant came up with 10 years ago and they just keep popping into every RFP. It’s insane.
Let’s focus on something a little bit more exciting. Why did you write a book? Tell us about your book quickly? I could never write a book, but why did you write it? I can see it’s strategically placed in the picture.
[00:24:50] Leda: Yeah, I practice this. I’ve been writing a column for FinTech Futures for quite a few years now. We’re coming into its eighth year. There is a back catalogue, and if you have the patience to go through it, you’ll see how much more formal and restrained my tone was when I started before I discovered that the boundaries of acceptability in the market are a lot wider than I thought.
If I’m honest, I started writing as a combination of an ask from my organization. The bank wanted more authentic thought leadership out there, and therapy. When you have a really frustrating day, when you’re like, I can’t believe I spent nine hours of my day doing this, I find that I’m a naturally happy person and I need to return to that. Writing through the really frustrating experiences was my way of finding catharsis, of moving away from a grumpy place to going, there is a way we can fix this, or there is a universality to this experience, ha-ha.
What I didn’t expect is the audience that this writing would attract. I have Tanya Andreasyan to thank for this, the Managing Editor of FinTech Futures. Particularly eight years ago when we started, nobody really was writing about these things as openly. She was like, we’re going to make it a weekly column, people will want to read this. I was like, you’re insane, but nothing ventured, nothing gained. She was not insane, and I have eaten my words since then. It was Tanya again, who was like, it’s time for the long form, it’s time to dive a bit deeper. I was like, yeah, sure. Then she hacked the system. She introduced me to a publisher using our own personal and professional credibility to get me the meeting, then you don’t let your friends down.
[00:26:31] Myles: Yeah, absolutely. Now with your celebrity status, you get solicited a lot. How do you make decisions on the types of companies you want to engage with and you want to work with? Anyone watching who’s a start-up or a FinTech, what would you look for when you want to say, I feel like I can help this organization?
[00:26:53] Leda: Again, such a good question. Thank you for that. I look for three things. I appreciate that there is a halo effect when you have name recognition, but if that’s all you want from me, or if all you want from me is my black book, then it’s a no. I do not monetize my relationships because I resent it when people try to monetize their relationship with me. I never make recommendations on the basis of being paid for them, because they lose the value. If I tell you, you should totally meet this guy, you take it very differently if you know I’m getting a kickback. If they want just the halo effect of my name or my black book, it’s a no.
The second thing is, they know they need help, but are they willing to take it? That is a really big thing. Because very often you’re called in and even before you offer any assistance, you play back the problem statement and the hackles go up. Because the reality is accepting help is uncomfortable. It requires accepting that you had a blind spot or you underestimated something.
A few conversations that establish what people need help with also establishes their willingness to accept the help.
If I come in to advise your business, I don’t need you to always take my advice. In fact, I’d be worried if you always took my advice. But I want to see you reflect on it. You don’t even need to explain to me as an advisor why you didn’t take it. I just need to see that there is a reflection. If you say, okay, I understand the risk of doing what I’m doing, but I’ll double down because I believe in it; I’m fine, my work is done. But that willingness to accept the help, to take the advice and process it, isn’t always there.
The third thing is, I want to need to feel that I will make a material appropriate difference, but I will also learn something too. It could be because I’ll be working with amazing people, because it’s a slightly different problem statement, slightly different market, slightly different vertical, I’ve done this exact same thing, but for a different shape organization. I am not at that stage where I want to dispense my wisdom and go. I like to go, “I don’t know. I have to think about that. I haven’t done this exact thing before.”
That combination of things means I say no more than I say yes, which is an amazingly privileged position to be in. But it also means that I’m always on the lookout for things that have that balance. I can learn with you. I can help you. But are you willing to go on that journey?
[00:29:31] Myles: That feeds to my last formal question for you on the session. What’s next for Dr. Leda Glyptis?
[00:29:37] Leda: Oh, God. I have started working on my second book.
[00:29:42] Myles: Obviously you made some money on your first book then.
[00:29:45] Leda: It has been okay, it sold much. Here’s the thing: you write the first book, and you don’t know what you don’t know.
[00:29:52] Myles: True.
[00:29:53] Leda: I didn’t think about how important it is to negotiate royalties, and my publisher was, as it turns out, really good. I didn’t think about how important it is, what the price point is. Is it too expensive for people to buy? Because you’re like, “Oh God, I’m going to have a book!” It’s binary, it’s I have this artefact, that success.
I was speaking to my publisher and I was like, “How many have we sold?” He was like, “I don’t know, six, seven thousand.” I was like, “Oh.” He’s like, “That is very good.” I was like, “I bet Tolkien sold more though.” I had just no order of magnitude in my head of what is good.
Now with the second book I’m competing against myself. I’m competing both against the reach the first book had, but also the resonance. I had a lot of people, including CEOs of big banks come up to me and go, are you in the room? Are you reading my emails? Are you living my life? That level of resonance is so important. When you’re putting a second artefact out into the world, you’re competing with that now. I’m working on that, and now I have something to compete against that’s a healthy level of nerves there.
Then I’m working with a couple of very interesting companies, and I’m in discussions with a couple more. Hopefully a few more announcements in the works. I’m really enjoying being independent. I get out of bed looking forward to the day in a way that I haven’t in a long time.
[00:31:14] Myles: Amazing. That’s cool. Second book, you’ve set the bar high on the first one. Best of luck on that.
[00:31:20] Leda: I’m happy for myself.
[00:31:21] Myles: We’ve got a couple of questions. We always like to ask a couple of questions. First, how can we get banks to share data for the holistic benefit of their clients and customers? This is almost the golden goose question. I’ll let you answer it. I’ve got my own perspective on that question.
[00:31:37] Leda: You want the short answer?
[00:31:39] Myles: Yeah, short one.
[00:31:41] Leda: We can’t. Unless there’s something in it for them, we can’t. There are two reasons for that. Banks are absolutely convinced that the data they hold is hugely valuable, but they haven’t quite worked out why. Regulation that has come down the pipe means that using that data is a little more difficult with every passing year, but very few banks leverage that data in a way that propels personalization. The reasons for that, and I wrote a piece about the fact that you don’t have a 360 view of the customer because the customer has another 10 banks. You don’t have all the data, right?
But the reality is they’re reluctant to share because they don’t know which part is valuable and which part isn’t yet. They’re also reluctant to share that because beyond the open banking infrastructure that has been built in order to be compliant, in order to have full portability of the data that they hold, the investment uplift is considerable. From a standing start, you would always spend the money on something that you either have to do, or you can see a value.
How do we get banks to do it? Either by a blanket regulatory imperative, which I don’t think we will get; or if they find a way to generate customer value, but also shareholder value for themselves. Otherwise they’re not incentivized to do it. What’s your answer?
[00:33:03] Myles: I agree 100% I was going to give you a real world example as well. Again, I was working on a big project around payments, which was a country wide thing. Someone threw it out there and said, “Why don’t we share the fraud data that all the banks have and you create the centralized fraud monitoring capability, so you can at least see both ends of the transaction?” Because what you’re going to do is lower fraud for all those involved in the network. It felt almost like a little bit of a no-brainer as an add on to the project. But basically what it came down to is the heads of fraud in the respective institutions go, my fraud kung fu is better than your fraud kung fu, so I’m not willing to share my fraud kung fu with you. It was just the most ironic thing of exactly that.
I agree with you that I think it needs to be a combination of regulatory pressure, which we’re starting to see in some jurisdictions, and the building to feel that they can still monetize it and maintain customer value doing it as well.
I think it needs to be a bit of a hybrid on that one personally, but I hope we see more of it because there’s things out there which are just no brainers where it should be interoperable. Data for fraud as an obvious one for me. Next question’s a bit long, so be prepared.
[00:34:18] Leda: Okay.
[00:34:19] Myles: First thing they say is great conversation. Thank you, Matthew, I appreciate that. On the mainframe/legacy core banking issue, who has completed their transition? How long does it take and how was that supported through the board? That’s part one of the question, then it’s more of a statement. This is going to be a massive investment over multiple years, multiple CIOs, maybe multiple CEOs to complete. How can we get bankers to back and support this?
[00:34:49] Leda: Oh God, that is brilliant and a book in itself. I’ve taken from those. If I miss any part of this question call me to account.
Complete is a dangerous word. Going back to what we were talking about before, Myles, if a bank has 28, 34, 10 core banking systems, when you say complete, do you mean all of them? One ring to rule them all? Nobody has done
[00:35:16] Myles: Just to add, I don’t think that will ever happen. I don’t think a large tier one bank will ever end up on one core. It’s just not going to happen.
[00:35:29] Leda: I agree with that. I think the personalities and also the risk profile, I totally agree with you. When we say complete, do we mean has a migration been completed, or complete re-platforming of the whole bank?
If by complete, we don’t mean complete, then the answer is there are organizations at different stages of the journey. The real crux is how do we get intergenerational commitment? The reality is, if you do a project like that, the person who signed off when it started won’t be in position by the time the big problem hits, either because they’ve been promoted or because they’ve been poached by a different organization.
[00:36:14] Myles: Or retired.
[00:36:16] Leda: Or retired, or dead. I have some stories around that for another time. We have seen it, and I’m sure you have seen that. I’ve been part of many successful projects that died even though they were doing really well, because the sponsor was distracted or left. You need intergenerational commitment. Unless you have that intergenerational top of house commitment with more than one sponsor, it will not work.
One of the things that has really struck me, and this is something that came up as part of the interviews I’m doing for my second book, is the mindset that Capital One had when they were moving to the cloud. The attitude was, burn the ships. It gives me goosebumps to think about it, because when there is a mistake, a wobble, a miscalculation, and there will be, nobody does complex software work without getting something wrong, you have no choice but to fix it forward. This is a direct quote from Michael Olyphantakis in my book, so reference it, please, if you use it, or he will be on my case. But that mindset, that if you’re going to make a big change, you commit to it in a way that you rob yourself of the possibility of a fall-back, is the only way. The only people who’ve done that aggressively so far have been Capital One. Everyone else has been parallel running a multitude of infrastructures to manage risk.
Cost goes through the roof, and you have the cowardly option of running things on the old infrastructure if anything complex happens. If you keep doing that, you will never have a complete transition.
[00:37:55] Myles: I agree. I think you’ll always end up that they put a stick in the ground and they do everything new on next generation. They’ll migrate a large percentage onto this new platform, but there will always be this stuff that’s just hanging around. It’ll be there until it basically blows up or implodes, is my view.
One last question. It’s nice to see we’ve got other celebrities watching our YouTube. From my friend Dharmesh, is Rip and Replace an option for any bank?
Can I answer this one first?
[00:38:28] Leda: Yes.
[00:38:29] Myles: In any established bank, I think if you even contemplate it, you’re a moron these days, to be perfectly honest. It just does not happen these days. You have to do it over a period of time, and it has to be an incremental transformation. That’s my perspective. Leda?
[00:38:46] Leda: I totally agree with that. My mission is to make this episode better than yours. By being here, it’s already winning. I agree that Rip and Replace was always dangerous; it has never been known to work. The personal risk of the CIO or CTO who signs off on it is through the roof. No one will do it.
Incremental, business driven, show that it works, show that doesn’t fall over, show benefit, move forward, is the way. The piece that isn’t often happening is switching the blasted things off. We have worked out how to do incremental transitions and moving to new capabilities, but what we haven’t developed, with notable exceptions like the Capital One guys, is the chops to switch things off and deal with whatever residual edge use cases you have, in order to uplift that cost. That’s the bit that we’re missing. We’ve worked out how to start. We haven’t worked out how to complete the journey with decisive leadership.
[00:39:48] Myles: Yeah, 100%. Hey, we’re out of time. We could keep talking for ages. Leda, absolute pleasure, thank you so much for joining the session. Hopefully those online got a benefit from it. The recorded version will be out, but thank you very much and look forward to catching up hopefully at Money20/20.
[00:40:06] Leda: Amazing. Looking forward to it. Thank you for having me.
[00:40:09] Myles: Thanks, everybody.
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