An Interview With Chris Skinner on Building a Digital Bank

It is becoming more and more difficult for traditional banks to compete in an increasingly digital marketplace. With most bank systems stuck in the last century, the conversion of legacy technologies to new platforms with total reliability, security and resilience is a massive challenge.


How can today's banks evolve to a new model of servicing and processing, where the mobile internet allows consumers to bank wherever and whenever they want using an increasing array of devices? How can banks leverage their existing foundation to compete with new and nimble mobile-first competitors?

I had a chance to speak to Chris Skinner recently about his perspective on the evolution of banking, the emergence of new competition, winning the mindshare of an increasingly connected consumer and on the release of his newest book, Digital Bank: Strategies to Succeed as a Digital Bank (available on Amazon for $9.99 for the Kindle version or $17.99 in paperback).

Best known as an independent commentator on banking and the financial markets through the Financial Services Club blog and Chair of the networking forum The Financial Services Club, Chis is the author of several previous books covering everything from emerging regulations to innovation and new currencies. He is also Chief Executive of Balatro Ltd, a research company and a regular commentator on BBC News, Sky News and Bloomberg on banking issues.

In reading an advance copy of Digital Bank, I found that Chris provides a great overview of the digital revolution in banking from channels to systems to emerging currencies. He also provides in-depth analysis of the how incumbent banks such as Barclays to new start-ups such as Metro Bank in the UK, Alior Bank in Poland and FIDOR Bank in Germany are building for a digital future.

As several noted fintech followers mention in online reviews of this book, Digital Bank is the most recent must-have for anyone wanting to help their organization stay relevent in banking or for businesses wanting to better understand the impact of digitalization on the marketplace. 

What inspired you to write this newest book?

I've been blogging daily since the start of 2007 at the finanser.com. With the blog, I would write a series of four or five posts on a particular subject, like why branches were the wrong focus, how data is becoming the new banking battleground, why existing banks have challenges, what organizations are innovating in unique ways, etc. These posts were never edited or placed in any sequence, but provided a great foundation for potential chapters in a book. So, I finally got around to taking all of that experience and all those thoughts and personally editing them into a readable, digestible, logical book. 

What do you hope readers take away from your writing?

The overarching theme of Digital Bank is that banks are being fundamentally restructured and challenged by the Digital Age. From physical services through physical branches, we have rapidly become a business that provides digital products through digital relationships. That leap is not happening fast enough, however, as most banks are tied to their traditional operational, technological and physical structures. This book provides a roadmap to take that old bank into the new world, how it can be achieved, proof points as to why it is needed and lessons of what to do and not do. Anyone dealing with digital bank distribution through the mobile, social internet will find it useful.

The Rise of PayPal as a Major Payments Player

No place in financial services is transformation and innovation more apparent than in the world of payments, where the convergence of mobile and new data-driven business models have the potential to completely disrupt both the consumer and merchant experience.

The recently concluded Money2020 illustrated that there is no shortage of payments players vying for attention,  but no firm seems to be as aggressive as the new PayPal, which continues to roll out new innovations impacting the payments ecosystem.

While some of the 'innovation' at PayPal may not seem new or disruptive (such as the use of QR codes), the ability to quickly build scale by using the existing payments infrastructure may be the key to PayPal's success. The company hopes to transform its reputation as a means of exchanging cash over the Internet into the default payment system for many everyday transactions.

At stake for PayPal is control of a mobile-payment market that is expected to grow more than three-fold from this year’s $235 billion over the next four years, according to researcher Gartner. PayPal faces a host of competitors, including Google Wallet, Square, Lemon and Stripe (and potentially Amazon and Apple).

Brian Roemmele, researcher and business advisor says of a recent PayPal announcement, "The true innovation that PayPal has achieved is really quite invisible and perhaps even boring to technologists. No iOS devices or android devices deployed at the merchant locations. No new add-ons needed, just the a boring laser bar code scanner that every single major retail store already has."

It is clear that PayPal is moving fast to become a ubiquitous option at retail merchants, introducing products for both the consumer and the retailer. In fact, there have been so many changes recently, it may be difficult to keep up.

To that end, I am providing a brief overview of what has occurred over only the past couple months and what the future may hold.

New PayPal Mobile App

In early September, Paypal introduced an updated version of the PayPal mobile app for both iOS and Android, turning it into much more of a mobile wallet. Maintaining all of the old features, the new app added tools to facilitate shopping and paying for goods online at the physical POS.

The app features five clearly labeled sections on the home page, with the major sources of innovation residing within the new Shop tab and Bill Me Later integration. Within the Shop screen, you can find nearby merchants that accept PayPal. Once you check in at a merchant (using your PIN), you can download any special offers from the store and can complete the transaction simply by saying "I'm paying with PayPal". Since the merchant will have your PayPal photo on their POS device or phone, funds can be transferred without needing to pull out your phone a second time.

Leveraging the app's location-based capabilities, there is the ability to push coupons based on a consumers specific location and even allow for ordering and paying for a meal within the app.

As for payments, PayPal is providing the option to pay directly from a bank account, from a PayPal balance or to use a credit card on file within the app. It's also expanded the 'Bill Me Later' function, providing credit for large purchases within the app. 

It's Time for Banks & Credit Unions to Embrace Change

As I travel across the country, visiting financial institutions in the midst of their annual planning cycle, it is like a trip down memory lane. While the technology and distribution channels have changed, banks and credit unions are still faced with the many of the same strategic challenges we talked about 20 years ago.

As a long time banker and friend, Michael Bencic said, "Improving the customer experience, embracing change, deriving value from data, building strategic partnerships, leveraging technology, ensuring privacy and security, cutting costs and generating fees is like deja vu all over again."

I agree. While the details behind these goals have changed, why have the overarching themes stayed the same? Is it because the planning process usually begins with broad financial requirements and many involved in the process simple dust off last year's plan and hit the restart button? Or is it because, despite a lot of talk around embracing change, the industry (and the regulators) frown upon the potential risk associated with innovation and doing things differently?

In a new report just published by KPMG entitled, Reshaping Banking in a Dynamic Business and Regulatory Climate, the author emphasizes the importance of getting out of 'survival mode' and embracing change, creating new strategies, crafting new infrastructures and focusing on the customer. While there is no denying the importance of each of these issues, this report is not much different than similar reports I read in the 1990's. The primary difference is that the risk of ignoring these issues has far greater implications.

Dusting off last year's planning document and making small alterations is not enough. It will take more than simply finding ways to 'do more with less', cost-cutting and operational improvement. According to Brian Stephens, national leader of KPMG's banking and capital markets practice and author of the report, "There must be acceptance among the entire leadership team that the rapid, unpredictable, and profound change we are witnessing is structural -- not cyclical." He continues, "The debate in not about the need for change, but what changes should be made."

As in the past, the issues that must be addressed are many. The difference is that today, while the issues may look similar to the past, the issues are more interconnected than ever before and the environment where these changes need to be made is evolving at breakneck speed.

The KPMG report provides a perspective into the following critical areas as banks and credit unions plan for 2014 and beyond:

• Culture of embracing change – In today's environment, change is constant, so banks must be nimble and innovative. "Banking leaders must choose to adapt and evolve, or risk irrelevance," says KPMG. "In the future, when banks look back on this time of change, an organization's resilience will not be measured by how much adversity it endured throughout the financial crisis and this period of recovery; rather, it will be measured by how well it adapted to it." The challenge is a tradition of rigid internal resistance to change and a consequent inability to execute. The change in culture must come from the top, starting with the board and senior leadership. And it must me more than just words.

Musings of a Finovate Virgin

They say you always remember your first time. 

After years of being built up by a great amount of hyperbole, including being dubbed The Disneyland of Fintech™ by my friend Brad Leimer, I finally decided to experience Finovate for myself a couple weeks ago in San Francisco. Similar to many 'first times' in my life, my experience expended a lot of energy, ended too quickly, but definitely did not disappoint.

To those not familiar with Finovate, the event is a fast-paced showcase of financial technology vendors, who have only seven minutes to provide a live demo of their solution (Powerpoint not allowed). It’s produced by Online Financial Innovations, the people behind the excellent NetBanker blog.

Taking place several times a year across the globe, FinovateSpring included 72 demos in front of a record crowd of over 1300 bankers, investors, media and bloggers like me. (Video archives of this year's presentations are available here)

As opposed to focusing on only a few themes, Finovate has something for everyone. This Spring's event covered some familiar themes that would be expected (Mobile, Payments, etc.) as well as some newer themes that sparked conversation, debate and maybe even a bit of fear among traditional bankers (P2P Payments, P2P Lending, Virtual Currency, etc.). 

My Takeaways

Overall Impression: Bordering on sensory overload, Finovate should be on every financial marketers bucket list. While many of us spend countless hours dealing with some rather mundane challenges at times (compliance and other internal battles), it is refreshing to know that innovation is alive and well in financial services. It was difficult to keep up with the presentations at times since there is no apparent logic to the order of presenters, but I quickly realized the value of the live blogs and recaps from Finovate, Bank Innovation, PaymentsViews, the William Mills Agency, and others.

Optimistic Forecast for FinTech Providers

A new report, being released today by the William Mills Agency, reveals that spending by financial institutions is recovering as the economy and industry rebounds. The tenth annual ‘Bankers as Buyers’ study shares indepth insights and research from more than thirty individuals and organizations regarding what technology, services and solutions banks and credit unions are expected to invest in 2013. 

This report is a compilation of viewpoints from many of the most influential research and fintech support institutions in the country and is available as a free download here.

In this year's report, IDC Financial Insights projected that technology spending is expected to increase to $57 billion, with much of the spending expected to occur in the ‘second tier’ of financial institutions ($1 billion - $10 billion) as opposed to the largest banks.

"As technology continues to be central to customer interactions and an improved customer experience, we are constantly reminded that technology in not a banking department, but is everywhere . . . including in the hands of consumers”, states Scott Mills, president of the Williams Mills Agency. “Demographic and behavioral changes, combined with changing technology preferences and the need for improved trust and brand loyalty will force banks and credit unions to evaluate the role of technology in the delivery of services", adds Mills.

Additional findings of this year’s ‘Bankers as Buyers’ report include:

• A total of 14,210 financial institutions make up today’s depository landscape, which is down 3.7 percent from 2011 according to the FDIC and CUNA.
• While much of the focus on payments technology is on mobile, organizations are also looking at improvements in online payments, ACH, P2P and prepaid cards to attract customers.
• Mobile banking gained a stronger foothold in 2012, as FIs strived to meet increasing consumer demand for anytime, anywhere financial services.
• Consumer mobile banking is now used by 33% of mobile consumers according to Javelin Strategy and Research.
• According to the 2012 KPMG Community Banking Outlook Survey, 47 percent of responding institutions identified regulatory and legislative pressures as the most significant barrier to growth over the upcoming year.

CMO Needs Stronger Alignment With CIO

Now more than ever, the Chief Marketing Officer needs to be a multi-tasker, with enhanced technological and customer analysis skills added to their traditional marketing, branding and advertising credentials. Reposted below is a recent Chief Marketing Technologist post from Scott Brinker that recaps a report from the Economist Intelligence Unit on this transformation of the role of the CMO.

The report, entitled Outside Looking In: The CMO Struggles to Get in Sync with the C-Suite is a global survey of 389 executives sponsored by SAS illustrating that marketing is in a period of great change, becoming more strategic, and that many organizations are not yet in agreement on what that means for the CMO's role and priorities.

One thing that I found particularly fascinating, however, were the results to the question: what skills are most important for CMOs to have? Respondents were asked to pick their top three:

Are Bankers Ready For The Bank 3.0 Reality?

In an exclusive interview about his newest book, Bank 3.0, Brett King discusses how change occurring in the banking industry is inevitable, speeding up and disruptive. 

From the mobile wallet wars to the impact of social media, tablets and the 'de-banked' and digital consumer, Bank 3.0 shows why banking is no longer a place you go to, but something you do.

A great deal has happened since Brett King wrote Bank 2.0 in 2010. Two years ago, banks were under siege as the foundation of the banking system was close to collapse and the image of the industry as a safe and secure environment was being challenged. The impact of social media was just beginning to be understood by the financial services industry and mobile technology as we know it today was in its infancy. Heck, King even referenced his (now long gone) Blackberry in the first chapter of Bank 2.0.

With Bank 3.0, King discusses how consumers are less likely to view their retail banking provider in terms of capital adequacy, branch network, products and rates. Instead, customers are more likely to determine their banking partners by how easily they can access their accounts when they need to, and how much they trust their provider to execute business on their behalf. For those who read Bank 2.0, King's new book retains some of the foundation and case studies, but updates several areas based on what has occurred (and will be occurring) relative to digital delivery, payments, social media, and the power of 'big data'.

On the eve of the introduction of Bank 3.0 in the U.K. (introduction in the U.S. is scheduled for early November), I interviewed Brett King about his new book and about how he views the banking industry today.

New Smart Card Geared to Convenience and Safety Conscious Consumers

As banks continue to innovate around the use and rewards structure of both debit and credit cards, the penetration of smart cards in the United States has lagged other countries. That may soon change, however, after Pittsburgh-based Dynamics, Inc. won the first prize ($1,000,000) 'DemoGod' award at this week's Demo tech start-up conference in Silicon Valley.

Leveraging a programmable magnetic stripe that can be changed at any time (but still able to be read at today's magnetic stripe POS readers) the MultiAccount card can carry different card accounts on one piece of razor thin plastic.

Bank 2.0 is a Bank Marketer Must Read

There are not many books (or anything else for that matter) that I find compelling enough to pre-order. Sure, there may have been a Cleveland Indians or Cavaliers championship jersey I jumped the gun on, but I have never stood in line for an Apple product or pre-ordered a movie to be the first on my block to own it.

I made an exception a few weeks back with the book Bank 2.0 - How Customer Behavior and Technology Will Change the Future of Financial Services by Brett King not only because I was intrigued by the title, but because I have been following Brett's Banking4Tomorrow blog for a couple months and I find his take on the changes in our industry both enlightening and spot on. King is also an international speaker and is an industry advisor on Huffington Post (Business News).

Mobile Banking Can Improve Customer Acquisition by Sixty Percent

One of the more startling takeaways from the Mobile Banking and Emerging Applications Summit this week was when Bob Hedges from Mercatus mentioned that mobile financial services could improve customer acquisition rates by as much as 60% in key customer segments (age under 50) for early moving banks. In fact, according the research findings which were presented at blinding speed at the conference, a bank's mobile presence was more important than online banking, ATM presence or even the convenience of local branches in a customer's decision to select a bank.