How These Two Big Banks are Successfully Doing Digital Transformation
I believe Chris Skinner’s book “Doing Digital” is a must-read for anyone working in Fintech.
I read his book over 2 months ago and here I am, still writing about it. The book is packed with so much knowledge and insights that it’ll take me quite a few more articles to fully unpack everything that’s in there. This article is one of them.
In Doing Digital, Chris interviews five large banks that he believes are making digital transformation happen. He dives into what being digital really means, why these banks are different to others and how they are transforming their business model. He also covers the rise of Big Tech in China, the challenges facing Fintechs and how various leaders are adopting the tech mindset. In one chapter, he interviews the CEO of DBS, Piyush Gupta, where they break down how DBS approached transformation and what makes it the most “digital” of the big banks today.
I thought it would be interesting to write an article about how two of the big banks approached and implemented digital transformation: BBVA and DBS. But first...
Why are banks not adapting? 🏦
According to Chris, banks will not change because customers want to. There are three things that will make banks change:
Regulators
Competition
Investors
With the introduction of Fintech, banks are suddenly facing competition. Fintech has brought new technology, and technology enhances customer-centricity. Technology has placed the customer in control, and many are now realising they would much rather bank with a Fintech that caters to their needs than an incumbent that caters to shareholders.
However, as Chris fantastically points out, managing technology and managing money are two very different things. Money is a key part of our lives, while technology is not quite. Your Facebook or Twitter account is disposable, but your money is not. That’s why there is a difference between:
Technology through money: Paypal, Square, Alipay
Money through technology: Trading, investing, banking etc.
Money and tech are still two different things. In fact, when we bank with a traditional bank, it’s not the bank brand we trust: it’s the regulation and licenses they hold. Traditional banks have been around for centuries, and are embedded in our society. We trust them because of the regulations and because they’ve been there forever. But now with technology, it seems that customers are looking elsewhere and the only way for big banks to remain relevant is to adapt (or be acquired).
The new infrastructure is no longer incumbent, it’s: “do what you do best and link to the rest”. Or as Chris says, the Lego Bank vs the Spaghetti bank. Traditional banks are built with legacy systems: siloes everywhere, departments that don’t communicate and acquisitions that haven’t been truly integrated. This is different to Fintechs and service providers: they build lego pieces that neatly fit in with other lego pieces. This is thanks to APIs, the Open banking directive and companies that offer Banking as a Service (BaaS). Many Fintechs make nothing, and connect everything (they just do the branding/marketing).
What can large banks do to adapt? How can they overcome their legacy infrastructures? Will Fintechs completely take over? Let’s find out. 👇
DBS: Digital from the Core 🎯
DBS was founded in 1968 and is a traditional bank based in Singapore. Historically, the bank scored the lowest on customer satisfaction surveys and struggled to keep up with banks across the world. This changed in 2009, when Piyush was tasked with the mission of reinvigorating the bank and getting it to catch up with the likes of Alibaba and Tencent.
In the interview with Chris, Piyush describes how DBS approached digital transformation and the steps they took to get to where they are now. Almost every line Piyush drops in his interview with Chris is pure wisdom. If you don’t read the entire book, then I highly recommend reading this specific interview. 👌
Piyush describes digital as a “reflection of how you reimagine customer journeys”. At DBS, they quickly understood that digital was not just a project, and that it involved replacing the core of their business model and banking systems. They also realised that going digital meant changing both the hardware and the heartware construct. This meant they needed to change the technology they used as well as change the mentality and approach to doing banking.
Piyush says time and time again that this transformation would not have been possible without the support of the board. The board wanted the bank to grow to the levels of Alibaba, and Piyush told them the only way to do it would be to go digital. They said “ok, let’s try this” and gave him $200 million to go spend and experiment.
Key differentiator: the board was open to supporting change without a business case. This meant they were open to mistakes, to failures and not getting it right the first time. This is rare amongst legacy institutions such as banks and insurance companies.
And so that’s exactly what he did. He created several phases of digital transformation and put them into action:
Phase 1 involved improving the backbone of their tech stack to a single core banking app. This took them 4 to 5 years, starting in 2009 till around 2014, where they focused on moving away from legacy systems and towards the cloud. They realised that the only way they could scale was by moving to the cloud, and so they prioritised fixing the plumbing. The banks had weak infrastructure and Piyush understood that they needed a stable infrastructure in order to move fast. He gets into more detail on how they did this in the book, but he essentially explains that they chipped away at their legacy systems until it no longer took up so much of their resources.
Then was Phase 2, kicking off in 2014. The goal was to reach similar levels as Alibaba and Tencent. So the first thing Piyush did was talk with them and understand what they were doing. He talked to Alibaba, ING and a few Polish banks. They used Big Tech as a frame of reference and focused on creating an environment where it was ok to fail.
Key differentiator: DBS was not arrogant or proud enough to look at what others are doing. Many companies (not just banks) think they are better than everyone and don’t need to learn from them. DBS was humble and admitted they had a lot to learn, and was willing to talk to their competitors.
Piyush says that in 2016, DBS was focused on running experiments. As he says, “Everybody was reimagining how you could do things”. They were running mini hackathons and training the entire company on customer journeys. Slowly, they saw their numbers increase. They went from owning 24% to 31% of the mortgage share market. Then 19% to 25% of the card market. Clearly, something was working. They used to have the lowest multiple of all Singaporean banks, and now they had the highest.
They also focused on culture. Instead of firing old programmers, they would teach the COBOL programmers new languages. They started encouraging hotdesking, creating “joy spaces” and testing new KPIs. They would follow the RED concept: Respectful, Easy to deal with and Dependable. They created a reward structure where traditional measurements of success were combined with digital reward structures. They say so themselves that they managed to change the mindset of their people. They’ve implemented an agile and continuous integration and continuous delivery (CI/CD), allowing them to roll out releases 10 times faster than before.
Key differentiator: DBS took culture seriously. Too many banks and other companies think that culture is some wishy washy concept that really means millennial ping pong tables, beer on tap and a fun Slack group. But culture simply means creating a working environment where people thrive. DBS made this a priority.
DBS integrated digital into their business model by also adjusting their core metrics. They implemented both traditional KPIs (shareholder metrics) and “digital adoption” metrics, such as ecosystem metrics, progress made in leveraging digital channels and more. They developed a mantra: “tech is business, business is tech”.
Finally, DBS also took the whole “Lego bank” thing seriously. Their entire system uses a virtual private cloud and their own API marketplace, making it easy to integrate with the bank. They connected the data layer, reduced the number of silos and learned how to implement data in order to drive decisions. They stopped seeing Fintechs as a threat and learned how to embrace the new ideas that came with technological innovation.
It’s clear that Piyush is not just any bank CEO. In fact, Chris points out that the roles of CEO and chairman make a large difference when it comes to digital transformation. When comparing the five banks he interviews in the book, one thing they all had in common was a CEO and chairman that used to work in tech or understand how tech systems work.
Key differentiator: Piyush has experience in tech and even set up his own tech company in 2000.
According to Piysuh, DBS is the first bank in the world to demonstrate the link between digitisation and shareholder value creation. The data does the talking: In 2017, 39% of customers were delivering 68% of the profits. The bank has also dramatically increased its market share and delivered 19 quarters of consecutive growth. They consistently score on the top of their customer satisfaction surveys and they won a Euromoney award in 2016.
Notwithstanding, Piyush does say that there are a few factors that worked in their favour: being just the “right” size (26,000 employees), being in Asia (most Western banks were busy recovering from the financial crash in 2009) and having an incredibly supportive board.
This short summary only touches the tip of the iceberg. Piyush gets into more detail on how he helped shift the culture of the company (probably the hardest part) and what DBS is doing now to keep the digital transformation ball running.
BBVA: Transforming since 1999 🤖
BBVA is a bank that is close to my heart because it’s where I opened my first ever bank account at the age of 16. In the expanse of the Catalonian countryside, BBVA and La Caixa were the only banks with branches in our little town. Since Mum had an account with BBVA, like many others, that’s where I opened my account.
Back in those days, BBVA was a traditional bank like any other in Spain (or so it seemed to me). They charged half an arm to withdraw money from any ATM that wasn’t theirs, and sending money abroad was complex and expensive. Since then, the BBVA app has completely transformed and they are continuously ranked as one of the best banks in the world.
It’s important to note that BBVA is an enormous financial institution, with presence in over 30 countries, 125,000 employees and 74.5 million customers. They are one of the largest banks in the world, so one can imagine that digital transformation would be an enormous undertaking. In the book Doing Digital, Chris managed to chat with the former Global Head of Customer Solutions, Derek White, and the chairman (who is the former CEO), Carlos Torres Vila. Instead of a published transcript, we get some interesting quotes and insights taken from his interview.
Although BBVA officially has been working on digital transformation since 1999, it’s Carlos Torres, the former CEO, who’s helped drive the most recent digital transformation of BBVA since 2014. He is an MIT graduate (techie!) and was first appointed as digital banking director, then CEO and now chairman of BBVA. According to Carlos, BBVA started their transformation by focusing on four core capabilities:
Digital services
Design
Data
People, culture and talent
“If the rate of change on the outside exceeds the rate of change on the inside, the end is near.”
This quote from Jack Welch explains why BBVA decided to make digital transformation a priority. It’s adapt, or die - and they decided to adap. They knew they needed to have the right leadership along with the right talent, and so they started by getting the right leadership in place. They also acknowledged that building trust online was very different to building trust face to face. That’s why they kept the “hybrid” model of in-person branches and an effective banking app. Carlos mentions the mantra: “Think big, make changes, surprise the customer”.
BBVA also focused on changing the way it measured its business performance systems across the board on a global basis. Amazon runs thousands of tests real time, and BBVA wanted to reach a similar level of real time tests. BBVA now measures performance of its regions, countries and managers via digital media.
BBVA also focused on culture: instead of implementing a rigid hierarchical change, they delegated work to small teams that had the autonomy to make decisions and solve a problem in 3 months. They would use agile methods called the “two pizza team”: groups of employees that were small enough that they could be fed with two pizzas. As Carlos says, BBVA focused on creating an environment where employees would come to work and fix a problem, not just do what the job description is. They knew they needed to think like a startup: solve a problem, figure out how to scale it then figure out how to monetise.
Key differentiator: BBVA focused on improving their culture and encouraging employees to “solve problems”. No more hierarchy, instead they focused on creating a flatter ecosystem where people would feel more comfortable working together.
They also did something that not many other banks have done: create a behavioural economics team. The team was tasked with analysing the products and services created by BBVA from the perspective of their users. In other words, they put a lot of focus on customer journeys (ring a bell?).
Similar to DBS, BBVA also focused on creating banking tech that was more like a Lego bank. Instead of confusing legacy systems, BBVA focused on creating an API marketplace, which currently has nearly 200 APIs. If you download the BBVA app and create an account, you’ll see how they offer the option to aggregate other bank accounts onto your BBVA account. This allows you to see all your accounts on one screen, and manage your money more efficiently.
BBVA also understood the power of data. As Chris says, data is like oxygen. If it is unstructured, full of silos and confusing, it can’t be used adequately. If oxygen is polluted we cannot breathe. For Carlos, data is a “key raw material” for decision making. So they prioritised data analytics, removing silos and making data driven decisions. Carlos mentions that data is fundamental to creating trust with the customer. If we combine intelligence with data, we can offer recommendations to users that will help increase their trust - this creates a positive feedback loop of data and customer trust.
In 2018, BBVA hit a breaking point with digital customers representing 50% of the bank’s total customers, and digital sales accounting for 41% of the sales. They’ve managed to improve customer satisfaction and drop outs have decreased by 47%. They’ve also been awarded first place for the best banking app in the world by the independent research firm Forrester.
BBVA’s transformation story is a fascinating one. Chris doesn’t dedicate an entire chapter to the interview with BBVA so there isn’t the level of detail that we see with DBS, but it’s enough to see that BBVA is one of the banks that are doing things differently.
Chris Skinner’s Doing Digital is the book to read on digital transformation. It’s easy to understand (no jargon), it’s lighthearted and fascinating. It’s the banks like DBS and BBVA that are leading the change with the incumbents, and it’s important to understand what they are doing and how. Yes, Fintechs may offer digital-first and highly innovative banking products, but let’s not forget all these incumbents who have the resources, a lot of experience, and the trust of its customers.
All I can say is: read the book!