Venice and the Digitalization of Private Banking

Francesco Guardi: The Departure of the Bucentaur Towards the Lido, ca.1768

Francesco Guardi: The Departure of the Bucentaur Towards the Lido, ca.1768

By Geoffroy de Schrevel (Gambit)

A recent article in the Harvard Business Review  [1] explained how the dominant economic leadership enjoyed by the Venetian Republic (687 to 1797 AD) came to an end because its naval industry leaders failed to apprehend that the invention of seafaring galleons had allowed countries bordering the Atlantic to set up new trade routes by passing the Mediterranean. Venice was suddenly disadvantaged by its location at the northern border of the Adriatic Sea. This, combined with its technology acumen, had been the cornerstone of its millenary power. Gone the Serenìsima Repùblica Vèneta. Welcome Napoleon!

“Venice reached a point where it focused more on exploitation than exploration. Entrepreneurs chose not to move away from traditional pathways. Established practices and preferences became more popular than speculation. Merchants and traders played the game of incremental innovation by focusing on efficiency and optimization rather than charting new courses.”

What’s the lesson for private banking today? The stronger the assumption that the industry is future-proof, the firmer the belief that private banking is an exception, is so immune from the revolutions affecting  other industries, the deeper the confidence that changes essentially come with generations, the greater the centrifugal force of procrastination.

If that is the case, does it necessarily mean that private banks are dead meat? Chris Skinner (Chairman of the Financial Services Club) recently asked how many times, in the last twenty years, had we heard that big names like Amazon or Virgin, account aggregators or Mobile Network Operators would eat the bankers’ lunch, and would surely disintermediate banks? Well, nothing of this sort happened, and banks have launched their e-banking platforms, their mobile apps or their digital factories.

And don’t count on today’s Fintech community to fundamentally disrupt the current situation. Young startups have quickly realized that becoming a bank is more complex than designing a cool app, and that trust isn’t built on the back of dissatisfaction from traditional players. Just look at how many proud B2C fintechs are humbly turning to B2B revenue streams.

Disruption doesn’t come from well-identified offenders. Today’s galleons are technology, and the new trade routes are consumers’ never-before-seen speed in adopting new technologies. 
As Marc Andreessen (co-founder of Mosaic and Netscape) quipped in 2011:  Software is eating the world.  Everything that can be automated, will be. Add artificial intelligence, and things you wouldn’t believe could be automated, will also be. Consumers are already embracing the new experience this evolution brings.

According to Skinner this revolution might take a long time in coming, but when it finally hits and the digital transformation finally matures, banks will be disintermediated unless they adapt to its demands, platforms, marketplaces, open sourcing structures, micro-services architectures, etc.

When will digital transformation of private banking be effective? The future will tell us, probably by the number of corporate bodies left on the global battlefield. Remember Kodak!
So if banks don’t want to be caught by surprise, they will have to recognize today that the future will be substantially different from the past, and that it is most unpredictable and ambiguous. Furthermore, banks need to resolutely invest in digitalization.

This means adopting new technologies, new ways of engaging with teams and customers, new ways of bringing innovation to clients. It’s about culture as much as about technology.
It means that financial products must indeed be of the highest quality, but they are not king anymore.

It means that investors should not be the sole focus of banks’ marketing efforts – do banks know them so well anyway? Marketeers can no longer view audiences as a series of large monolithic groups who respond to consistent marketing messages. What matters is the customer journey built around a unique experience. The client experience is actually the product.  

It means that banks should value trial-and-error, welcome cannibalization, and focus teams on outcome rather than on output. Banks need to build for many speeds, also in IT. How many releases can you handle per year? Facebook releases to production more than twice…a day.
It means that - since there’s more than one way to transform the private banking business - banks need to be bold and rather than chasing a fixed horizon, they have to demonstrate their nimbleness to head for a moving horizon.

No organization has a monopoly on innovation, but execution is key. Several fintechs have demonstrated the ability to adapt fast, to prototype rapidly and to design and implement incremental capabilities in a short timeframe. Partnering with an external player is probably the best way for private banks to win precious time, to create competitive advantage and to capture a client base in search of a specialized and continuously innovating service. See UBS Americas with Sigfig or JPMorgan with Investcloud.  

[1]     P. Formica, “Why Innovators Should Study the Rise and Fall of the Venetian Empire,” Harvard Business Review, 17 January 2017. 

About the author

Geoffroy de Schrevel is CEO of Gambit. He worked for MasterCard, KPMG and Swift. In 2009, he took the head of Gambit Financial Solutions with a very clear goal: transforming this young company into the leading figure of the investment advisory software market. Supported by a brilliant team, he launched Birdee in 2016, a robo-advisory solution relying on Gambit’s technology.