Boardrooms largest banks lack technology experience

03 December 2015

Less than 6% of boardroom members of the world’s largest banks have professional technology experience, research from Accenture shows. Of the more than 100 banks surveyed across the globe, 43% of boards had no member with professional technology experience, while 13% had more than two. The survey further highlights that only 11% of banks have technology committees at board level, suggesting the potential threat from disruptive technologies may not be fully grasped by the board.

In a report from Accenture, titled ‘Bridging the Technology Gap in Financial Services Boardrooms’, the consulting firm explores the level of technical experience directors of the largest global banks possess. The analysis involved 1,925 executive and non-executive directors working across 68 banks in Europe, 20 banks in the Asia Pacific regions, 18 banks in North America and 3 banks in South America. For a director to be classed as having ‘professional technology experience’ they must have served in a position that had senior technology responsibilities, for instance as a chief information officer, chief technology officer or chief digital officer, or have had senior responsibility at a technology firm.

Survey findings
The survey finds that the overlarge part of bank directs have had no professional technology experience; only 6% of board members and 3% of CEOs at the world’s largest banks have had such experience. For many banks (43%) no board member has professional technology experience, at 30% one person has such experience, while 13% have more than two members with such experience.

Professional technology expertise at executive level

This poses a problem for banks, according to Richard Lumb, Group Chief Executive of Financial Services at Accenture, because “many of the biggest challenges now confronting banking are intimately connected with technology so directors need a robust understanding of technology if they are to make informed decisions.” The issues facing banks include FinTech, cyber-security, IT resilience and technology implications of regulatory changes. According to Lumb, the rapidly changing environment from disruptive technology and regulatory requirements means that technologies “have all become critical board-level issues but many bank boards simply don’t have adequate expertise to assess these issues and make decisions about strategy, investment and how best to allocate technology resources.”

Board members with professional technology experience by country

Regional differences
Not every region has the same level of technology expertise at board level. Particularly the US and UK have higher levels of board level representation, at 15.7% and 14.3% respectively. Australia, Japan, Germany and Switzerland all sit slightly above or slightly below the 7% range. Particularly low levels of professional technology experience are on bank boards in Belgium and China. However, none of the banks in Brazil, Greece, Italy and Russia had any professional technology experience on their board. 

Board-level technology committees at the worlds largest banks

The report further finds that 11% of the more than 100 banks surveyed have set up a committee whose function it is to deal with technology related issues. According to Lumb this number suggests that many banks are not yet waking up to the full consequences that technology may have on the historic dominance many of the institutions have enjoyed. He remarks that, “they also need a clear innovation agenda with measurable objectives, investment plans and execution strategy. Board members have a key role to play in helping set the trajectory and monitor progress, but to do so, they will need to fill the current technology expertise gap in boardrooms.”


The business and operating models of digital-only banks

04 April 2019

In recent years, several digital-only banks have successfully managed to nestle themselves in the banking landscape, with their popularity continuing to increase. Looking at it from the customer’s point-of-view, there is little difference between these FinTech unicorns; looking at the bigger picture, however, reveals significant variation in their business models. Matyas Fekete, a consultant at KAE, explores some of the main similarities and differences in digi-bank business and operating models. 

What about the profit?

Unlike in the UK, in most of continental Europe, bank accounts and corresponding banking services are historically paid-for services. The fact that digital banks offer most of their services free of charge has undoubtedly helped them build a large customer base. On the other hand, despite comparatively low set-up and minimised operational costs compared to that of traditional banks, and given the lack of revenue stemming from the typically no-fee model, profitability has proved difficult to achieve. Monzo, for instance, recorded a net loss of £30+ per customer in its most recent financial year. 

In the start-up world, it is customary to focus on expansion rather than profit – see the case of Uber, for instance. Still, while profitability might not be their number one priority in their early stages of development, it must be a long-term goal of any business. With their ever-growing customer base, digital banks are increasingly under pressure to turn their business from loss- to profit-making. 

Credit where credit is due

Digital banks pride themselves on their fair (often meaning “free”) proposition and have so far stayed clear of offering loans (including credit cards & overdrafts), traditionally amongst the most lucrative products for traditional providers. Though somewhat reluctantly, newcomers are also realising that offering lending products is one of the most straightforward ways to offset losses made on their free, often high-cost services (e.g. overseas ATM withdrawals). Monzo, N26 and Starling have recently started offering credit products to their customers, with their loan offering expected to be extended to a wide range of services, from mortgages to overdrafts. Correspondingly, creating a lending portfolio can also pave the way for launching an interest-paying savings offering – a proposition seen as a basic banking product that is yet to feature in most digital banks’ portfolios. 

The business and operating models of digital-only banks

The premium customer

While most digital banks offer most of their products for free, some have extended their offering by paid-for premium services in order to create a revenue stream. As these premium features – including different types of insurance, unlimited free transfers/withdrawals, faster payment settlement or concierge services – are often offered in a subscription format, customers are typically prompted to pay for the full package rather than just the desired service(s), providing a significant revenue stream for the bank. Revolut, for instance, was amongst the first digital banks in Europe to break even earlier this year, a feat largely due to revenue from its premium subscription.

SMEs like digital too

Traditional banks typically service small and medium sized businesses under their retail rather than corporate banking arm. Having their product offering tested with consumers, and consequently gaining a reasonable customer base, digital banks have also identified SMEs as an ideal segment to extend their target audience to. The five FinTechs profiled have already gone, or plan to go, down this path by following up their consumer solution with a business account. While both propositions are typically built on similar features, some providers charge businesses a monthly subscription (e.g. Revolut), while others apply additional fees to specific services (e.g. TransferWise), banking on the expectation that businesses are more likely to be willing to pay for banking – something they are already used to doing. 

The marketplace model

While most digital banks offer a wide range of banking services, some of these tend to come from partnering with third-party providers. For instance, Starling Bank’s only proprietary product is its current account, which serves as a basis for the provision of ancillary services, ranging from loans to insurance, to investment opportunities. Instead of developing these services in-house, Starling enables a select group of partnering financial service providers access to its platform in exchange for a fee. In effect, Starling is using its customer base to create a market for its partners, charging a commission for each acquired customer. 

In such cases of digital banks applying this marketplace model, the majority of their income often comes from partners rather than customers. Naturally, only banks with a large enough customer base can be successful in this set-up, underlining the current intensity of competition amongst digital banks.

Banking as a Service

While customer-centricity is heralded amongst the main USPs of digital banks, some are looking beyond offering consumer-facing services to diversify their revenue streams. Starling, which is among the few digital banks built on its own proprietary platform, has recently leapt into the Banking as a Service (BaaS) industry, making its technology available to other start-ups looking to launch a digital bank. Naturally, this raises the question whether the two offerings could threaten each other’s success. Generally, as long as such partners operate in different markets, the two business lines should be able to thrive alongside each other. Further along the line, however, such partners could easily end up expanding their banking solution into the same market(s) as they aim for global success, and by doing so, becoming direct competitors. 

Different approach, same result?

It is fair to say that consumers in Europe looking to bank with a digital-only provider would have a difficult time finding relative advantages/disadvantages amongst the leading players in the industry. Still, despite the limited surface-level variety, exploring the business models of leading digital banks reveals different approaches to the challenge of making money. Alongside the more straightforward method of offering paid-for premium features/subscriptions, some are banking on the value that access to their customer base offers to third-parties, while others outsource their technology to neobanks wanting to focus on the Fin rather than the Tech. With competition amongst digital banks heating up, it will be interesting to see which business model(s) prove to be the winning formula in the long term.