George Warfel
George Warfel Feb 15, 2019

How banks can gain a clearer vision of high tech's next wave

It’s fascinating to recall that less than 40 years ago, the internet and banks had literally yet to connect. Then in 1983, the Bank of Scotland offered its dial-up Internet banking product. Not long after, web-based commerce took off like a cyberjet.

You’d perhaps think banks saw this as a clarion call to build digital technology into long-range strategic planning. But what was true then still applies now: Rather than base plans on anticipating where technology is headed, financial institutions often end up eating dust as technology speeds past.

Nor do we estimate the future investments required. One bank I was involved with had a budget and head count to patch up existing technology that was ten times the resources they set aside to prepare for the next ten years. Just as 2009 iPhones make nifty shot glass coasters today, you can bet on a bank’s current technology turning obsolete 10 years on—and its personnel ill prepared to adapt.

Now if we were to look at several strategic plans from 10 years back, we’d likely find a terrible mismatch between general technology recommendations and what could’ve been more accurately anticipated via “futuring” exercises targeted to roughly the same years.

As a comparison, think of senior executives and board members of a hospital deciding one minute that stem cell therapy signaled the future of cancer treatment—and then the next writing a strategy to assure a sizeable budget to purchase radiation equipment by the same date.

The future was now

Banking is somewhat unique in this mismatch of future technology forecasting and strategizing. In aerospace, you’ll see much tighter integration between what a company thinks the future holds and the ways it plans to exploit it.

Let’s also examine big tobacco. It spotted marijuana as a strategically important product line as far back as the 1970s, some 45 years ago. Flipping through multiple bank strategic plans, I haven’t found any that accurately forecasted 45 years ahead. I’ve seen just a few that look more than 15 to 25 years out. That includes banks with two centuries of history.

Pioneering banking technologist and futurist Hank Koehn was an exception. Working with Security Pacific Bank (SPNB), he suggested that that by the early 1970s every branch needed a desktop computer, not long after the first one hit the market in 1971. Otherwise, the authors of strategic plans that purport to look ahead fail to grasp what’s right in front of them: that the technologies and capabilities they anticipate may already have already been around for years or even decades.

An example: Payments all over the world today take place in five or fewer seconds. Several countries have operated at this scale for more than a decade. Yet some industry leaders in the U.S. hold that 15 seconds—three or more times the current benchmark—qualifies as a “fast payment.” Yes, that’s fast—but hardly the speed already possible.

The most puzzling thing about the financial services industry’s myopic view of its future is that banking, more than most other industries, sells long-term products such as 30-year mortgages—which demand accurate forecasting and monitoring of likely changes over decades.  

A plan to revamp strategic plans

Resolving this isn’t going to be easy, but a first pass could include these four strategies:

  • Before updating the bank’s strategic plan, get the writers up to speed on high-tech forecasted to impact the core processes of banking in the next five or ten years.
  • Apply solid predictions based on miniaturization and automation levels that could come on line in the near and mid future—and how they will change banking product design.
  • Extrapolate the future based on the past. Using a 2007 iPhone as an example, compare what it could do versus today’s models. Now imagine what banking technology will look like in 12 years based on that curve—though conservatively, tech from here on out will move much faster.
  • Stress test your conclusions by assuming you’re wrong by small or large increments (i.e., four years, or one, for a new technology to come on line instead of two).

Integrating technology forecasting and strategic planning is as essential as any initiative your bank can undertake, from improving customer experience to refining your marketing efforts. In fact, both those crucial goals will benefit from a future forecast that gets ahead of change before it happens.   

Meanwhile, remember: Future forecasting is not an input to a strategic plan. It is the runway where strategic plans operate and take off. For what flies like a cyberjet today will tomorrow soar like a rocket—or some vehicle to stratospheric success that we can’t even imagine just yet.

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George Warfel is general manager, fintech and payments strategy at IBM partner Haddon Hill Group, Inc. in Oakland, California. He can be reached at gwarfel@haddonhillgroup.com.

 

 

 

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