Wouldn’t It Be Simpler Just to Launch a New Bank?

Wouldn’t It Be Simpler Just to Launch a New Bank?

Chris Skinner

Chairman at The Financial Services Club

Views 277

Wouldn’t It Be Simpler Just to Launch a New Bank?

07.10.2016 08:30 am

One of the commonest questions I’m asked is whether the bank should just launch another bank, rather than trying to be digital and convert the existing bank.  The idea is that the new bank will have no legacy, no constraints, can develop from a clean sheet of paper and be the bank’s very own challenger bank.  The expectation is that the new bank will eat the old bank, over time, until at some point in the future the old bank can be shut down.

This is a strategy, but it is a flawed one.  First, does the new bank have the commitment to eat the old bank, or is it just being launched to show that the bank can create a digital first proposition.  Second, what is the commitment to the new banks’ success?  Does it have the full support of the old bank’s executive team, in terms of budget, capital, resources and talent pool?  What happens if the new bank eats into the products and services of the old banks’ lines of business?  Will the SVPs be happy to see their bonus destroyed and given to the newbie upstart?

I’m not saying it’s impossible to do this, but it needs to be very well thought through.  In particular, the most acute danger for an offshoot bank is that its seen as an experimental plaything.  This is certainly what I observe with some digital first new bank brands spinning out of incumbent orifices.  They look nice and shiny and bright, and then you go in and talk with them and the pervasive view is that the new bank is just there to allow the old bank to learn new bank tricks.  Shame, and very disheartening for those involved.

Equally, the new bank should be seen as a child of the parent.  A child needs nurturing and continual care.  It must be carefully spoon fed and given just enough nourishment to grow wisely.  Often, the interest and motivation for launching the new bank was to avoid the hard work of changing the existing bank.  Once launched, the interest and motivation then starts to wane, especially if the new bank isn’t capturing the customers or reaching its targets.  After all, no bank wants to wait for their ROI, and diluting capital flows for years – it’s often the case that a new bank will be unprofitable for at least 7 to 10 years before gaining enough critical mass to deliver ROI1 – is not tenable for a long-term executive support system to be maintained.   This is why we see so many offshoot banks disappear into history.

Finally, the only real reason why an incumbent would spin off a new digital bank is because changing the incumbent bank is just too darned hard.  Sure, it’s easy to tinker around the old bank, but everyone knowsthere is not just a skeleton in the closet, but hundreds of them1.  There are legacy vendors, legacy systems, legacy structures, legacy people, legacy customers and legacy thinking.  It’s far more than just a nice shiny tech project to digitalise the bank.  It’s a wholesale rethinking of the existing bank from top to bottom.  Every aspect of people, product and process will change, as will all of the current customer propositions, distribution methods and servicing.

This is where it gets tricky, as radical transformations never sit well with leadership teams who want to avoid risk, so they would far rather duck the hard question – change the bank – and go for the easy option – launch a new bank.1

It’s a great idea but in reality, for the reasons given, is probably a path to failure.

This article originally appeared on thefinanser.com

Latest blogs

Nish Kotecha Finboot and Bryan Foss, NED, Visiting Professor at Bristol Business School and member of the FRC Audit & Assurance Council

How Listed Companies Can Use Blockchain to Prevent Auditing and Reporting Malpractice and Avoid Scandal

Not too long ago, there was very little to link Wirecard, the disgraced payments platform in Aschheim, Germany, with Boohoo, the fast-fashion online retailer in Leicester, England, but both have recently been embroiled in high-profile scandals. Read more »

Leon Muis Yolt Technology Services

The Time for Financial Services to Become Truly Digital is Now

The financial services industry looks set to change dramatically over the next couple of years in response to COVID-19. The pandemic has certainly highlighted some inefficiencies and weak spots in current processes for many businesses, such as those Read more »

Granville Turner Turner Little

The Lockdown Money Revolution

Many Brits have found that lockdown has been beneficial for their money, having cut back on personal spending and managing to put away some extra cash. According to eToro, Brits with unspent discretionary income are set to accumulate £75.5bn in Read more »

Sandra Higgins Sysnet Global Solutions

Are You ‘Prescribing’ the Right Security Solution to Your Merchants?

When it comes to leading a healthy lifestyle, eating the right food, taking regular exercise, and maintaining a positive mindset are key. However, despite these best intentions and practices, you still might not get all the nutrients your body needs Read more »

Robert Flowers DivideBuy

It Doesn’t Have to Be the End – How Retailers Can Grow in Light of COVID-19

It’s no news that the retail industry has been flipped on its head by the COVID-19 pandemic. Due to the lockdown, most in-store operations have been shut down, and nationwide furloughs, reduced pay and steady streams of income at risk have fuelled a Read more »

Related Blogs

Chris Skinner The Financial Services Club

Lego Bank is Here, but It’s not Built with Lego

A short time ago, I hosted an interesting group for the Nordic Finance Innovation meetings.  The meeting gathered several of the leading-edge Banking-as-a-Service (BaaS) companies that have launched in the last few years including Bud, Clearbank, Read more »

Chris Skinner The Financial Services Club

The Way We Bank is Radically Changing Too

The British Bankers’ Association released their The Way We Bank annual report last Thursday. It was interesting. Here are the key highlights: Read more »

Chris Skinner The Financial Services Club

How Can a Bank Guarantee its Future?

Three people are chatting in a bar. The first says: “It’s great working for a FinTech start-up as I get to travel the world.  As a result, I can easily call my partner and tell them I’m on a business trip to stay with my other love.” The second says Read more »

Maikki Frisk Mobey Forum

Banks: Be the Change

It’s been 20 years since Lastminute.com turned the travel industry upside down. Now Airbnb has done it again. Google, Apple and Here have long since done to TomTom what TomTom itself did to the paper map. Not to mention the changes ushered in by Read more »

David Jones Irdeto

Polish Banks Hack: Quote on the Most Serious Attack To Ever Hit Polish Banking Industry

The Polish banks attack is yet another example of creative cybercriminals leveraging diverse technologies to seed and propagate an attack across multiple banks. As banking systems become more connected or share common access points (such as a Read more »

Magazine
ALL
Free Newsletter Sign-up
+44 (0) 208 819 32 53 +44 (0) 173 261 71 47
Download Our Mobile App
Financial It Youtube channel