By Thornton May
Futurist, Senior Advisor with GP, Executive Director & Dean - IT Leadership Academy

In front of the Preface of C. Vann Woodward’s masterwork, Origins of the New South: 1877-1913 historian Arnold Joseph Toynbee1 wrote:

I remember watching the Diamond Jubilee procession [22 June 1897] myself as a small boy [he was born 14 April 1889]. I remember the atmosphere. It was: Well, here we are on the top of the world, and we have arrived at this peak to stay there – forever! There is, of course, a thing called history, but history is something unpleasant that happens to other people. We are comfortably outside all that.

History appears to be “happening” to banks and bankers.

My first job right out of graduate school was with a bank. At that time [late 1970’s/early 1980’s] banks were cool. Financial institutions were among the most international, the most aggressive adopters of technology, and perceived as one the most exciting places for young people to begin their careers. MBA’s competed aggressively for bank summer intern slots. In the current environment banks are, not only, most decidedly not cool, they are thought by many to actually be “evil”. Journalists, regulators and savvy investors “describe big banks as ‘black boxes’ that may still be concealing enormous risks.”2 What happened? What lessons can bankers and non-bankers alike learn from banking’s precipitous fall from grace?

Strike One for Banks – Bad Data
In the late 1970s, according to the Gallup organization, three out of five Americans said they trusted big banks “a great deal” or “quite a lot.” In November 2011, Gallup found that only 15% of Americans had "a great deal" or "quite a lot" of confidence in the U.S. banking system.  And it is not only Joe and Jane Six Pack who has trust issues with banks. Andrew Haldane, the Bank of England’s executive director for financial stability, was unambiguous, “For investors today, banks are the blackest of boxes.”  Luis Aguilar, a commissioner at the Securities and Exchange Commission, shared research indicating that “79 percent of investors have no trust in the financial system.” When reporters from The Atlantic asked Ed Trott, a former Financial Accounting Standards Board member, whether he trusted bank accounting, he said, simply, “Absolutely not.”

While bank executives decry the sad state of financial literacy of their customers, non-bankers are concerned with the lack of transparency regarding bank operations.

Strike Two for Banks – Bad Experience & Questionable Relevance
In the gun-fight which is the battle for customer attention/engagement most banks arrive in the gladiatorial arena not even carrying a knife. Many academics in the marketing space wonder why banks exist at all. If one can crowdsource/crowdfund venture capital, why can’t one do the same in the personal finance arena? Will retail banks go the way of the travel agent?

Entrepreneurial Use of Data is the “Main Chance” for Banks
Big Data in general and analytics in particular has been touted as a disruptive element which might enable banks [~7,000 in North America] to regain lost credibility, trust and relevance. Big Data is a set of technologies, practices and mindsets which has to potential of enabling managers to measure and know a lot more about their business and customers, lead to better decisions and improved performance. Terry Gordon, Senior Manager for Next Generation Banking at Standard Chartered recently told a group in Singapore, “I think we all agree that financial services and banking are among the best placed industries to really leverage and create significant value from Big Data.”3 Without a doubt banks are among the vertical markets which can take best advantage of the transformations associated with “Big Data.” McKinsey even has a bubble chart to this effect.4  However, before this can really happen, some basic blocking and tackling around fundamental bank information flows and risk exposures has to take place.

-

1The universal historian not to be confused with his uncle the economic historian – Arnold Toynbee – the fellow who coined the phrase “industrial revolution”.

2 Frank Partnoy and Jesse Eisinger, “What’s Inside America’s Banks?” The Atlantic [2 January 2013].

3ThinkFinance Singapore http://www.youtube.com/watch?v=BjNzEwx51sE [6 July 2012].

4Big Data: The next frontier for innovation, competition, and productivity,” McKinsey Global Institute [May 2011].