10 years from now, are we going to look back and realize that banks had already missed the massive market change and were already on the way out?

Recently, I’ve been having a number of conversations with friends and clients (all experts) about digital transformation and banks built for the future. On more than a few occasions we’ve started down the rabbit hole out of tactical topics like building the best product development shop, becoming a better acquisition target, or attracting millennial depositors.

In every case, they’d lost the narrative about banking and I’ve had to reset the conversation. We had to get back to first principles, a topic worthy of it’s own discussion.

In resetting these conversations, the following four posts are good starting points I’ve used.

Posit 1: Banking Products Not from Banks

A variety of people have written at length about the rise and success of organizations like Rocket Mortgage, SoFi, and others. Many banks partner with FinTechs for ancillary products and services in lieu of being able to build and deploy them internally. This limits growth and introduces a variety of alternative competitors not burdened by traditional banking mores and norms. It is now significantly more likely that we get banking products not from banks.

Posit 2: Bank’s Changing Customer Landscape

Gone are the days of <20 transactions per month, oriented around the branch. I had 209 transactions in September. Not a single one involved a check or a branch. The last time I went into a branch it was to close an account.

We’ve gone from mobile-first to mobile-only in a remarkably short amount of time. That trend is expanding and extending across the financial services landscape.

Posit 3: Dissatisfaction Drift

If you look at the wave of dissatisfaction roiling around the world, a massive one comes out of banking. While the 2008 financial crisis might seem far away to those in the industry, it had a massive, and lasting, impact on the average person. Not since the great depression, I think, do people speak of banks in as negative a way.

Also consider drops in mortgages, the glut in car loans, and the dominant role consumer payments have begun to play via touchless payment platforms and peer-to-peer payments.

Added to that massive increase in competition in traditional financial services markets, like financial advisors vis-a-vis robo-advisors, with price wars and subsequent drops in customer satisfaction. In the political spectrum, these waves brought Chavez, Duterte, Trump, and Sanders to the forefront, and in the banking space, it has opened a massive wedge for organizations like Square (and their new charter) and others to ride the wave.

Posit 4: The Wildcards of AI and Blockchain

Having spent over 25 years in and around AI, I know it will not cure all the world’s ills, and certainly will not be a panacea to solve banking challenges for anyone — be they a banker, a consumer, a regulator, or a banking solution provider. AI is just one category of algorithms that can be wielded — sometimes well, oftentimes not well, as part of large problems being solved.

Blockchain is evolving in much the same way enterprise data storage has evolved — except in this case we are not going to witness a 20-year evolution, but a 5-year one, and at the end of it we will be able to store and share information just a bit more securely than we do today. Blockchain is the realization that information alone, without context, isolated, has almost no value. Blockchain will fulfill the dreams, desires, and promises of all of those who promised that database will solve your problem in the 80s and 90s, how the cloud would solve all your problems in the 2000s and how Big Data would solve all the woes of the last decade.

In both cases, try to ignore the hype machine.

Get Back to First Principles

Grab a cup of coffee, turn off your phone, and write these four posts down on a piece of paper (yes paper!). Now, just think about the future for an hour. Get back to first principles.

● If you’re a bank, focus on running the best bank, at the lowest expense, with the highest customer satisfaction you can.

● If you are a consumer, understand all your options, do some research, and pick and choose your solutions thoughtfully.

● If you’re a banking solutions provider, maybe get an espresso and figure out how to survive the next 10 years intact.

Here’s what I’ve been thinking about. I was having a conversation with a friend (formerly of a big bank) and we were discussing common themes amongst a certain category of the bank — how their financials just looked bleak: not enough deposits, costs are too high, and new products were hard and expensive. We broke down the common solution banks use to solve these problems — consultants to renegotiate core contracts, FinTech partners, and sticking their heads in the sand. We hypothesized the ‘bank of the future’ when all core services would be outsourced — from the core bank to all banking products, to regulatory compliance. A core business operation and marketing/sales organization would be the only non-outsourced functions. We concluded that in 10 years this kind of completely outsourced bank will be the ‘best in the class bank’. I shuddered to imagine being in the boardroom of any competing bank then, or now.