Banks need to transform their infrastructure. But they also must invest in people and build frameworks that enable empowered decision-making. Digital transformation doesn't stop at "digital", says Rita Waite, who, after spending 4 years as a corporate venture investor in the US, joined Millennium bcp, the largest private bank in Portugal.
Rita Waite was one of Netguru’s guests at Web Summit 2019, discussing the “Secret Code of Digital Transformation.” We sat down for a talk to explore:
My team focuses on integrating innovative technologies that improve customer experience. We believe our future success is based on our ability to work within the financial technology ecosystem and partner with companies solving hard problems. My job is to do just that – integrate the right technologies into our strategy to secure future growth.
All three are intertwined in our team. Our team’s strategy is governed by our thesis built on a 3-year market horizon. We focus on answering the build/buy question to meet the market in line with how our overall internal strategy meets the external market forces. Ultimately, our goal is to position Millennium to offer the best banking experience in the market, while ensuring that we have the business models to sustain it.
I want to introduce new business models that change the way the customer interacts with the bank – a seamless and efficient interaction.
We are still going through an economic recovery. Despite customer growth and an overall stronger economy, the macro trends in Europe remain unfavourable. At a time where we need to invest, it’s a challenge.
The move has been a great experience for my career. While I understood the mechanics of payments of the US system, I have been particularly amazed at how complex and interconnected the Portuguese banking ecosystem is. There are a limited number of players, highly dependent on one another, creating unique market dynamics.
That’s a big question with a lot of answers. Every country has its own characteristics. Overall, the regulations in Europe are more restrictive and getting more so with the shift to digital models and growing data regulations (GDPR, for example). This is putting pressure on the traditional bank’s existing business model (e.g. interchange fee regulation).
The US is behind in regulation but leads in digital transformation, making it an interesting case where we can see what will happen and how to accommodate given the EU regulations.
In Portugal, the most notable difference is the fact that there is a strong domestic payment scheme, which changes how banks, processors, and customers interact. While Visa and Mastercard are ubiquitous, 50% of POS terminals in Portugal still rely only on a Portuguese scheme, called Multibanco. You’ll notice as a tourist that the Visa card you’re accustomed to using might not work in many places.
Tokenization and the use of NFC technology for payments are two great examples of practical, impactful innovations. They have completely changed the way that physical payments are made.
The existing legacy infrastructure is what hinders traditional banks the most. It is what makes digital transformation challenging. Despite heavy investment, the non-traditional tools in the market have the advantage with agile and flexible infrastructure.
Despite private investment growth across the payments ecosystem, I still see a big opportunity in cross-border transfers, short-term lending, and capital markets.
Digital transformation has two key components for me: (1) adopting new technology that enables a scalable, modular, and efficient infrastructure; and (2) the ability to change the way people work together in order to take advantage of the new tools and data available to us.
You must have a defined strategy, with clear exit objectives for what you hope to achieve with digital transformation. Beyond investing in new technologies, you must have an understanding of how it will impact people and change the way that they work. Invest in both the technology and the people.
Believing that digital transformation is a one-time thing. Companies lose focus because they become invested in trying to “modernize” rather than build a modern business. While you can modernize your technology, building a modern technology-driven business is different. The distinction is important.
You need to learn to embrace failures. One of the biggest challenges that large organizations face is the lack of risk tolerance. Failure has a very negative connotation, which dramatically limits the adoption of more innovative, and therefore risky, initiatives. Startups don’t have that. It is one of the most important characteristics that can help large corporations break away from the existing framework.
Because targets change and a deeply agile infrastructure allows you to change with them. Service experiences are becoming more digital every day. For example, people expect to take care of all their banking needs in their banking app. They do not want to engage with customer service representatives, much less go to a branch.
In order to support the same functionality online that you have in the physical world, you must be able to add and remove services at a rapid pace, while also offering the same level of security and privacy customers expect with their bank.
If you have legacy infrastructure, any change to your portfolio of products and services will suffer – think of launching a new virtual card, launching tokenization-based solutions, or integrating with third-party services. Not to mention the benefits that a modular infrastructure has on testing and improving existing products.
Digital transformation doesn't stop at "digital". Organizations must invest in people and build frameworks that enable empowered decision-making. Individuals need the flexibility to build the right teams.
The same way that we have seen DevOps change software development, there are other Agile techniques that promote open collaboration, focusing on improving processes, eliminating waste, and continuous improvement.
In today’s digital economy, internal investment and M&A aren’t always enough to drive competitive growth. Forward-thinking technology companies are consistently demonstrating the outsized benefits of venture investment. This was a big lesson in itself – that companies can insource massive innovation through external venture investment.
The application to the banking industry comes through the way we think about strategic partnerships. It’s more of a change in attitude – we can’t build everything better than everyone, always. This gives us the freedom to insource innovation in similar, maybe more closely aligned ways.
For the wider market, the lesson here is that new economies exist that allow you to be creative with addressing your weaknesses.
A corporate VC arm enables companies to leverage the balance sheet in innovative ways; it creates exposure to markets outside its core business – eyes and ears in the market. It also solidifies a leadership position in the market; and with or without investment, it is a great source of building new partnerships and can serve as a due diligence.
CVC doesn’t always have the same financial objectives that you might see with a traditional venture capital fund. Investments for CVCs might be purely strategic, giving them a view into a new technology, a defensive position against a competitor, or access to a particular talent pool.
For any corporate venture group to be successful, it is crucial to have a clear, well-defined strategy with full support from the CEO and the core team. While the overall company strategy may shift, you need to have a clear thesis with an even clearer buy-in from the CEO. The more independent the investment management team is, the better.
A company’s long-term strategy may cause some friction with the short-term (e.g. competition with existing solutions), which is a normal part of the business cycle. If the investment team is not isolated enough, it will be challenging to make those investments.
Overall, you want to ensure that you drive value to the companies you invest in and leverage the portfolio to drive innovation inwards – it goes both ways.
Rita Waite was one of the guest speakers at Netguru's panel on digital transformation during Web Summit 2019. Click the link below for the recap.
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