We need to launch a digital bank? OK, here’s $3 billion!


Article by Chris Skinner

Chris Skinner recently blogged about JP Morgan Chase spending $10 billion a year on technology of which $3 billion goes into new projects. There were then several other announcements that caught my attention about Citibank and Bank of America investing similar amounts in digital.

The question it prompted is: why are you spending $3,000,000,000 on new tech when you could probably get better results spending $3,000,000 on a brand new start-up set-up?

Now I know the answer to this. To roll-out a brand new bank app system (like Finn) takes a lot of effort. Bearing in mind, the bank already has thousands of customers on their platform and the need to manage cross-platform cannibalisation, the balancing act of launching a brand new start-up set-up needs to be carefully managed.

Equally, to build incredibly smart AI systems that can eradicate lawyers and traders, takes some heavy investment in tech. But these numbers are shockingly high when I see the new challengers in the UK getting through the gates for $100 million or less. And their offers are pretty darned comprehensive, considering that budget includes getting the banking licence which costs around $30 million on average.

What you can do with a little investment today goes a long way. It’s a little bit like what I do here and online. I blog every day and reach 100,000 people per day through various social media. Twenty years ago, this would have cost a fortune in telephone and postal costs. Today, it’s free.

I run a networking group across Europe of 1000’s of people, and the only cost is the wine and food we serve on the evenings we meet. Twenty years ago, it would have cost me over $1 million in communication overhead. Today, all that communication is free.

So, it frustrates me when I meet people who work in small banks, who listen to my presentations and then pipe up: but this is not for us. I ask them why, and they tell me it’s because digital is complex and expensive. They point to the big banks spending billions and tell me that they could never compete with that. They whine about the challenge digital creates and why can’t it be like it was before?

Now I know these people. These people don’t get digital, at all. They’ve grown up in an era where technology was complex and expensive. We were talking five or ten years projects that cost millions and took out a large chunk of the banks’ operational expense. That’s the position that they’ve cemented in their head: technology is complex and expensive.

What they don’t get is that it is actually simple and cheap, if you can code. How do you think so many FinTech start-ups got started up? They use Amazon Web Services, partner with firms that provide APIs, and focus on the one thing they want to do brilliantly well.

Often these firms are boot-strapped by incubators and angel investors, and get to be successful with little more than $20 million invested, and many times less. Surely a budget of $20 million is affordable for a small bank? Of course it is, if it has the right leadership and vision to see where it should be invested.

In other words, the big hairy-scary banking corporations (HSBCs) can frighten little guys and start-ups with their $3 billion invested in new projects. But let them get on with it. A lot of that investment is just going into maintaining the banks’ hierarchies and structures. I don’t mean maintaining old systems, but a big bank will often waste 20%-30% of their investments on internal politics.

Meantime, a small bank can be more nimble, agile and visionary, if it has the right leadership to make it happen. And a start-up can create something radically new and different, as it has no existing or legacy to deal with at all.

This is why I cannot handle it when I hear a small bank CEO say: but this is not for us. Thinking that way is like saying: well, I’m just going to play dead until I am dead. Just saying …