The Rise of FinTech spells trouble for Big Banks


Canary WharfTraditional banks could be damaged by demand for new ‘fintech’ products CREDIT:GETTY


Peer-to-peer lending. Robot financial advisers. Crowd funding. Alternative currencies. Every day seems to bring news of another whizzy new financial technology start-up. The industry is exploding, and may be reaching a tipping point where it starts to seriously damage the major banks – a report this week from Capgemini found that 63pc of customers had used a “fintech” product and were more likely to recommend them to friends than any traditional provider.

Perhaps slightly late in the day, the major banks have woken up to that threat, and have started to respond with a hurricane of investments, either trying to create their own platforms, or else partner with one of the fast-growing new challengers. The strategy is fairly clear – if you can’t beat them, join them.

There is a problem, however: it is not going work. The existing players are too big, too burdened down by costs, have operated in an over-regulated market for too long, and are unlikely to pick the winners anyway. In reality, the major banks are in more trouble than either they or their investors yet realise.

Funding Circle websiteFunding Circle is one of the best knwon peer-to-peer lenders

The number of companies exploiting the internet to provide new ways of providing financial services is growing all the time. In this country, the best known are the peer-to-peer lenders such as Zopa and Funding Circle, which match up lenders and borrowers, and the fast-growing crowd-funding websites such as Crowdcube or Seedrs, which enable people to invest in new companies. But there are new ones coming along all the time. According to a report by Innovate Finance, the UK was second in the world for fintech funding last year, accounting for £675m of the £8.9bn raised globally. New ones are joining their ranks all the time – this month for example, Loot, a student banking app, said it was raising £1m in investment,

It is not hard to see why so many entrepreneurs and venture capitalists are rushing into the space. The internet is very good at ripping out the middlemen, and there is probably no industry with more of those, and better paid ones, than finance. From basic banking, to lending, to financial advice and broking, financial companies have charged high prices for what are often fairly standard tasks. There will be some big winners in the years ahead, There are already 24 with valuations of more than a $1bn, and the Chinese peer-to-peer lender Lufax was valued at an extraordinary $19bn earlier this year. Even more seriously, customers seem to like them. The Capgemini study found that 80pc of customers said that they had had good customer service from a fintech company – not the kind of numbers reported for the traditional players.

complaint formCustomer service levels are positive from new fintech start-ups 

The big banks, inevitably, are starting to fight back. The last year has seen a slew of investments in the sector. JP Morgan has partnered with One Deck, an online lender. Goldman Sachs bought Honest Dollar, an online advisory outfit. In Europe, BNP has partnered with Smart Angels, a crowd-funding platform. The Spanish bank BBVA bought out the Finnish start-up Holvi. Others are collaborating on working together to provide their own services. As the bandwagon gathers pace, expect to see many more examples and perhaps some huge deals. The major banks are still very big companies with deep pockets – one or two may decide to splash out on the fast growing start-ups, just as some of the media companies did at the height of the first dotcom bubble.

There is nothing wrong with the strategy. When your industry is being turned upside down, it makes sense to try to invest in the future. And yet it is going to be far harder than it looks – for four reasons.

Barclays bank branchTraditional banks are weighed down by the cost of high street branches CREDIT: ALAMY

First, the traditional banks are weighed down by down by huge costs accumulated over decades. All those branches on the High Street are horribly expensive compared to running a simple website. They have tens of thousands of staff, and even bigger pension funds, and layers of management that were built up in a different era. All that costs money. By contrast, the new start-ups don’t have any of those vast fixed costs. They are cheaper to run, and so can offer far better value – and it won’t take long for the customers to notice.

Second, banking has for a long time been so heavily regulated that it is virtually an oligopoly. This has smothered genuine competition – all the main banks, for example, offered much the same products, at much the same price. Even worse, they have developed a culture of ripping off their customers – a series of mis-selling scandals have shown that. Banks have relied on inertia to keep hold of customers. That’s not going to work if the market becomes super-competitive.


Third, the chances of picking the winners are slim. There are dozens and dozens of fintech start-ups out there. But inevitably only a tiny handful will genuinely prosper, just as only a few of the dotcom stars of the late 1990s really made it big. Will the big banks invest in future hits or those that fall by the wayside? The law of probabilities suggests it will be the latter.

Finally, the weight of history is against them. All the evidence of industrial innovation suggests that legacy companies can virtually never transform themselves. Railway companies didn’t make successful cars. Film companies didn’t create the giants of the TV industry. It wasn’t the established electronics manufacturers that thrived in personal computers.

The real disruptors are always new companies. They start with a clean slate, and a new way of thinking, and that is a big advantage.

The right to education (Malala Fund)

While watching an episode of Ellen, I came across one show which featured Malala Yousafzai – the amazing woman who was shot in the face by the Taliban, recovered and won the Nobel Peace prize for her amazing inspiration & conviction for education for girls (& indeed everyone) in countries such as Pakistan and alike.

Malala’s story inspired me to donate and I would encourage others (no, implore you!) to do the same.

See below a note which I would encourage you to copy and forward to as many others amongst your friends, families and professional networks.


I just joined student, education activist and Nobel Peace Prize winner Malala and donated to her movement to ensure ALL girls access secondary education.

Will you join me and help make Malala’s vision a reality? Your gift will support a local girls’ education project in some of the world’s toughest places, including efforts in Pakistan, Nigeria, Lebanon, Jordan, Sierra Leone and Kenya.

Click here to donate:

Thank you sincerely,


Career Paths for Enterprise Architects

(Original article available here – from EA Principles)

Whether you are a seasoned manager for a large corporation or an undergraduate student, training as an enterprise architect makes good sense. Getting a TOGAF certification can transform you to a sought-after professional by corporations around the world at a time where only 5% of companies use it (2011 statistics from The Open Group [1]) and trends show increasing demand for qualified practitioners.

Members of this 5% club are companies that are at the forefront of management techniques, and leaders in their markets (like Intel, Volkswagen AG, Intercontinental Hotels Group [2]). Others (competitors or not) are taking notice. The field of enterprise architecture is likely to see strong growth in the coming years. In fact, the industry insiders believe that EA adoption is at the early stages of a 10 to 20 year process [1].

Rapid social, technological, and socio-economic change places tremendous pressure on companies to adapt. The basic structures of most modern organisations are based on models from the 20th century. The modern competitive environment favours agility over size, vision over market share, and creativity over history. The realities and complexities of change will require people with the right skills, both technical and strategic; that will help organisations plan and implement change. These people are Enterprise Architects.

Enterprise architecture has matured over the last 20 years, to be a discipline that can be learned; akin to many disciplines people can learn in Universities and Schools, as opposed to be learned organically through practical experience in the field. This emergence of a body of knowledge made through numerous academic and practitioner publications, especially standards and frameworks, such as TOGAF[3], Zachman[4], DoDAF[5], TRAK[6], and languages, such as UML[7] and Archimate [8]; suggest a maturity in this field that marks the transition of the discipline from the fringes of management to its very core.

The fact that Enterprise Architecture works for enterprises is well documented [9] and especially here [10][11]. New technologies, especially the “cloud”, SOA, smartphones, wearable computers and related, make up a powerful component of the rapidly changing competitive environment mentioned earlier. Such technologies offer exciting opportunities that can be exploited through architecturally led and managed organisational change.

The trends identified by the experts suggest exciting new ways of building and operating organisations: Big Data will transform Business Intelligence, automatic business rules processing will go mainstream, cloud-based platforms and virtualisation will become the default choice, collaboration with people inside and outside the organisation will be an important competitive advantage, social networks will be the main medium of communication (and collaboration) with customers [12] [13].

Understanding of IT concepts is an essential skill for an enterprise architect, but far from being the only one. Instigating change across the board in an organisation requires the understanding of issues like employee incentive management, politics, and the ability to think strategically as a leader [14], to name a few. Perhaps above all, the enterprise architect needs a developed sense of empathy [15].

Recently, one respected architect in a blog post explained what his role really is: “…as an Enterprise Architect, I am in the business of creating social change.”[15]. A video [16] he linked to beautifully describes the power of empathy not just in terms of helping us live a more satisfying life, but also as an enabler of change. As the enterprise architect’s mission is to bring change, empathy is indeed a core skill

A career in enterprise architecture is one that empowers the practitioner to conceive, design, and implement large-scale change. It is a career that blends together hard skills from many distinct disciplines (like systems engineering and information technology, management research), but also soft people’s skills such as strategic thinking, mediation, collaboration, and negotiation. We are approaching an inflection point whereby enterprise architecture’s importance will be recognized as a fundamental component of organisational strategy and when this happens well skilled certified practitioners will be highly sought after.

Articles used for the preparation of this post

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How to get the most from big data

Reprinted from McKinsey Insights – December 2014 | Matt Ariker, Peter Breuer, and Tim McGuire

Simply collecting big data does not unleash its potential value. People must do that, especially people who understand how analytics can resolve business issues or capture opportunities. Yet, as most executives know, good data people are hard to come by. According to a McKinsey survey, only 18 percent of companies believe they have the skills necessary to gather and use insights effectively.1 At the same time, only 19 percent of companies are confident that their insights-gathering processes contribute directly to sales effectiveness. And what if number crunchers aren’t enough? After all, if a great insight derived from advanced analytics is too complicated to understand, business managers just won’t use it.

That’s why companies need to recruit and cultivate “translators”—specialists capable of bridging different functions within the organization and effectively communicating between them (exhibit). But looking for a single translator at the right intersection of all the various skills you need is like looking for a unicorn. It’s more realistic to find translators who possess two complementary sets of skills, such as computer programming and finance, statistics and marketing, or psychology and economics. In all but the rarest of cases, you’ll need at least two translators to bridge each pair of functions—one of whom is grounded in his or her own function but has a good enough understanding of the other function to be able to communicate with a counterpart grounded there. That’s because when this process works best, it’s a collaboration rather than a straight “translation.”


Organizations should focus on finding ‘translators,’ people who can bridge different functional areas.

Consider, for example, business and analytics. Business managers generally have an incomplete understanding of the data available, no matter how well versed they are in data or how well developed their analytics requirements are. In this case, analytics managers with a fuller appreciation of the data, who also understand the business and have a clear vision of the objectives, can proactively offer solutions and options.

When considering what translators you need, it’s important to understand that business impact based on analytical insights requires bringing together the right group of people with complementary skills, and then creating the necessary connections between them. In effect, translators form the links that bind the chain of an effective advanced-analytics capability. On the business end, that requires people who can define a strategy and run the economic and financial analysis to determine the value of the opportunities to pursue. Translators turn those analyses into requirements that guide IT’s development of an analytics environment to perform, validate, and ultimately scale analytics. When the data are rendered into insights, business managers need to then translate them into messages and offers to be delivered to the marketplace.

The ability to work together quickly and flexibly is critical. The best processes are highly iterative, requiring business, IT, and analytics teams to rapidly review real-world results, recalibrate analyses, adjust assumptions, and then test outcomes.

While companies don’t often think about talent in terms of value chains, the skill and capability links between people are crucial for unlocking the full value of advanced analytics. 

About the authors

Matt Ariker is the chief operating officer of McKinsey’s Consumer Marketing Analytics Center and is based in the San Francisco office, Peter Breuer is a director in the Cologne office, and Tim McGuire is a director in the Toronto office.

Elevating technology on the boardroom agenda

Businesses are becoming increasingly digital and it’s not just a matter of process automation or resource-planning systems. Technology trends such as big data, cloud computing, mobility, and social media are giving rise to new marketing and operational capabilities. Indeed, technology has become too embedded in the fabric of the business—and too critical for competitive performance—to be left to the IT function alone.

As a result, many senior-executive teams have been called upon to get involved in technology issues. Boards are also beginning to take a strategic view of how technology trends are shaping their companies’ future. More boards than ever before are asking questions that ensure executives focus on the right issues. Deeper board involvement is also serving as a mechanism to cut through company politics and achieve endorsement of larger, integrated technology investments.

The value at stake from getting technology right is typically quite large. Recent research indicates that about half of M&A synergies depend on IT, which makes it a core driver of deal success.1 The risk of cyberattacks is another area that can directly affect both operations and the broader brand or business reputation. In fact, some boards are beginning to direct their risk committees to oversee cybersecurity issues.2

There are also many other competitive opportunities and threats that are driven by technology trends, such as new entrants causing industry disruptions with radically different cost structures or game-changing innovations. What’s more, major corporate investments or transformations, such as supply-chain or operating-model transformations, often have a major IT component that can imperil delivery if anything goes wrong.

A constructive IT role for boards

It’s not surprising that many corporate directors and senior executives would like boards to have a more frequent and more constructive role in IT strategy. In a McKinsey survey of corporate directors, more than half said their boards had at most one technology-related discussion a year. Almost half of the survey respondents indicated that this level of attention was insufficient (Exhibit 1). Moreover, a separate McKinsey survey of executives suggested a significant gap exists between the conversations their boards ideally should be having and the ones the boards actually were having. For example, more than half of the respondents said their boards should discuss forward-looking views of technology’s impact on their companies’ industries. Less than 30 percent reported that their boards had these discussions (Exhibit 2).

Exhibit 1
Executives would like boards to have more frequent discussions about technology issues.

Exhibit 2
Board priorities appear to be misaligned.

Given the importance of technology, many companies are considering a more structured approach to board engagement. In our experience, this involves new forums, new thinking about board organization and about interfaces with management, and, when needed, an infusion of talent so that the board includes people with better knowledge of technology.

Indeed, some national governance bodies agree. South Africa’s code of company governance, for instance, now mandates regular interactions between boards and executive management on technology topics,3 making the country one of the most advanced in this regard.

Boards can take a number of measures to engage management on technology issues:

Sponsor periodic reviews of technology’s long-term role in the industry. Some boards are taking responsibility for the big picture by engaging in forward-looking conversations about how technology affects the industry and what the implications are for their companies. Some companies may have a CIO or other senior executive who can facilitate such a discussion. Those that don’t, and those that prefer an outside view, involve external experts who can help generate a discussion about technology trends and topics that can inform current and future strategies. Given the rapid pace of change, such big-picture discussions should take place every 12 to 18 months—or more frequently if necessary.

The CIO of one financial institution, for example, requested substantial investment to modernize legacy software platforms and develop new capabilities in advanced risk analytics across the business. In response, the board looked for an outside perspective and arranged a presentation and discussion rooted in the company’s industry context. The presentation, which looked at recent trends, found that while a new type of player—large, highly tech-enabled and data-driven companies—was emerging in the commercial market, there would still be room for a sizable number of smaller players with varying technology capabilities. The presentation also highlighted leading practices applied by other companies and drew on developments from other sectors in using data and analytics to improve customer segmentation and risk assessment. By engaging the board with these perspectives and then discussing the implications, the company gained a better understanding of its business-technology gaps and the investments that would be required to close the most critical gaps. As a result, the CIO received funding for substantial expenditures in the next corporate-investment cycle.

Establish board reviews of the IT portfolio and major projects. Some boards are also beginning to introduce an annual “state of the union” report on the company’s wide-ranging IT capabilities and infrastructure and how they support corporate strategy and operations. This is essentially a review of the entire IT portfolio’s alignment with corporate and business unit strategy, focusing on major IT systems and components. These often include core business systems (for example, enterprise resource planning, customer relationship management, and industry-specific systems), as well as the company’s IT operating model and resource strategy. The review should also look at ongoing issues and projects, like cybersecurity and major transformational efforts, which often have a substantial IT component. Moreover, the review should include discussion about IT talent and CIO succession plans. For greatest impact, this report should feature joint presentations by IT executives and corporate and business-unit managers. Boards also need to more frequently review major business projects that have a significant technology component. One company, for example, is rolling out a massive systems-transformation project, estimated to cost several hundred million dollars and representing the company’s largest investment over a five- to ten-year period. Given the importance of this effort, the board conducts regular progress reviews with the project leader, who is supported at these reviews by the CIO and the head of the business area.

Leverage technology-savvy board members. Greater board involvement in technology matters means that corporate directors, just like CIOs, have to raise their game. Many more boards are seeking to better understand technology issues and their business implications than they have in the past. For boards that are lacking in this regard, there are ways to build the expertise that will enable them to have constructive dialogues with IT.

One approach is to bring on, over time, more board members with technology backgrounds who can help start these conversations more organically during the course of board meetings. A recent report from Spencer Stuart4 indicated that 20 percent of boards are actively looking for directors who have this expertise. Finding the right board member can pay significant dividends. This is borne out by survey results (Exhibit 3) and our client experience.

Exhibit 3
Technology-focused discussions are richer when boards have at least one IT-savvy member.

Some boards are also considering their own “technology boot camp” training sessions, much like the risk or accounting training that some boards conduct for committee members. Although this will not turn board members into experts, it would give them a chance to become familiar with the core issues.

Strengthen the technology governance structure. While boards often need to improve their technology expertise, there are also structural steps that can make them more effective stewards. One is to create a technology-focused committee to ensure more frequent and directed discussions on these topics. Twenty-two percent of survey respondents reported that their companies’ boards had a committee responsible for technology oversight. It is important to remember, however, that delegating this work to a committee does not relieve the full board of broader responsibilities, such as discussing technology trends.

Another way to strengthen technology governance is to delegate risk-related technology issues to the board committee that oversees company risk. Many boards already consider some technology topics in their audit reviews. However, they could expand oversight to conduct risk reviews of systems and review the operational risk from business processes dependent on those systems. They could also review how company data are used and how these data are safeguarded, as well as discuss concerns about broader cybersecurity issues.

A UK group has tasked its board’s audit committee with overseeing technology risks. The group COO reports regularly to this committee. In addition, the audit committee regularly asks the company’s internal audit department to examine the IT-security strategy and report on its findings. The committee then mandates the group COO to report on the measures being taken to fill existing gaps.

Technology is becoming increasingly important to corporate strategy, and boards have a crucial role to play as trusted advisers. That means engaging continuously in discussions about technology trends and the company’s technology portfolio, as well as building the expertise of corporate directors and creating structures that strengthen IT governance. Now is the time to act.

About the authors

Michael Bloch is a director in McKinsey’s Tel Aviv office; Brad Brown is a director in the New York office, where Johnson Sikes is a consultant.