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Time for technologists to sit at the top table

By David Arnott 16 Feb 2016

*This article was originally published by Retail Banker International in December 2015.

Boards have failed to grasp the importance of having technology experience in their midst, so it's time for shareholders to demand it

Technology is a critical issue for banks and yet they just don't have the board level experience to deal with it. Of course I would say that, but it's not just me.

Accenture, the global consulting group, recently warned that banks' boards lack the technology knowledge needed to make critical decisions. In a report published in the autumn, it found that only 6% of board directors and 3% of CEOs of leading banks have professional technology experience.

Commenting on the findings, Richard Lumb, group chief executive of financial services at Accenture, wrote:

"Fin tech, cyber-security, IT resilience and technology implications of regulatory changes 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."

The banks themselves admit they need to hire the right IT experience, though their focus is lower down the hierarchy. In our annual survey, hiring the right talent was a much higher priority than ever before and innovation was the banks' second highest.

Banks want to introduce products and services that can help to develop intimate customer relationships in the digital world, and are looking for software engineers to do this. They also need inspirational leaders to help them successfully recruit, leaders who get the technology and can lay out a strategy that will excite staff.

This is increasingly critical because banks have become relatively less attractive places to work, particularly in the eyes of Millennials. These guys would rather work for a slick start-up than a stodgy bank. Indeed, talent management has become the highest priority in wealth management, according to our survey.

Among the big operators, Nationwide has woken up to this and just appointed Joe Garner from Openreach as its new CEO. David Roberts, the building society's chairman, is quoted in the FT saying that understanding new technology and the challenges of moving into the digital age were key considerations in Mr Garner's appointment.

It's not easy being an early IT adopter - certainly not for banks. Legacy systems represent billions of dollars of investment and the risk of change has meant their managers have preferred to stick with what they know, particularly when resources are tight. But the landscape has changed. Not only must banks deal with the considerations highlighted by Accenture, but customers are also crying out for solutions that they're not getting from traditional banks but can get in abundance from companies such as Google and Apple. The result? The disrupters are gaining market share, focusing on the profitable markets such as forex and payment processing. Now there's peer-to-peer lending too. You've just got to look at the way the disrupters have grown. Today, they have perhaps less than 3% of the market, but they have acquired that in just three years.

These disrupters are tech specialists and have no interest in obtaining banking licences: they just want profits and absolutely understand the role of data in looking after people's money. They can hold a complete picture of a customer, whereas the banks just see a balance.

Until the boards of the traditional banks understand what they can do with technology, they won't mandate investment in digital platforms and won't be competing on a level playing field. There's certainly plenty of talent on these boards, but they have backgrounds in marketing, strategy, operations or finance.

But it's the fintechs that are setting the agenda: they understand the capabilities of digital banking and are driving the market. Banks have got to meet that challenge or ultimately it will be the shareholders who lose out.

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