Mathias Gläser is Vice-Chairman of the Swiss chapter of the CDO Club and thus chief networker of the guild of chief digital officers (CDOs). In the Bank Frick blog, he talks about digital islands, the pioneering role of the industrial sector in the area of digitalisation and the important pilot function of CDOs at companies. The interview with Mathias Gläser was held via chat.
Bank Frick: In your opinion, what was the last major innovation in the financial sector?
Mathias Gläser: Online banking. Since then, I have not seen any further innovations. I do not view the digitalisation efforts of recent years – including online mortgages, onboarding, TWINT and others – as innovations, but rather as digital islets with little market success and a great media impact.
Which digital innovations will we see in the coming years?
I believe we will experience significant changes within value chains. Companies will increasingly work with one another in order to holistically integrate their value chains from a client perspective. One example from the banking world will be the second edition of the Payment Services Directive (PSD2). It is a sad situation, actually, that the regulator has had to provide the impetus here.
Do you view PSD2 as an opportunity for banks?
Definitely. After all, PSD2, or open banking, or even more generally speaking the linking of products and services of different companies to create a client experience, represents an opportunity to establish a position alongside the major digital players like Google and Apple. PSD2 is just a part of the story here. Swiss banks can shut themselves off, but others will then come and fill the void. The safe Swiss franc and the country’s own regulatory system will not provide a bulwark that is insurmountable for others.
How do you recognise whether a company is prepared for the digital age?
By seeing whether it has the required flexibility and integration capacity to quickly adjust its value chain. This applies a company’s culture, organisation and IT in equal measure. It is impossible to know today what we will need to do in the future. Client needs are the only thing that is stable to some extent. How these needs are met will change significantly over the next 10 years. New offers from partners, new services, linked with products – you need to be able to respond here.
Technology or culture: from which area can a company draw greater strength for the digital transformation?
One affects the other. Integration capacity, application programming interface (API) gateways, interface standards: technology only allows us to make transformations. We need to understand this and to do so we need the requisite culture and openness. Creating the cultural basis for changes is, however, far more difficult than the technical basis.
“Culture eats strategy for breakfast.” Does this quote also apply to technology?
Yes, absolutely. To give an example, we are currently working with a number of banks and insurance companies towards providing their boards of directors and management boards with the fundamentals for digitalisation. They say of their own accord that they do not understand it and therefore are scared of managing the process. How should we lead? Which employees do we need? These issues need to be clarified otherwise you end up simply doing alibi exercises like the online mortgage.
Which factors are decisive for these kinds of cultural changes within organisations?
It’s a trickle-down process. Top management first has to identify the market changes and see a solution for the future. This automatically heralds the start of a cultural change, as incentives and procedures then gradually adjust. This will lead to the departure of some employees and attract new staff. You then need to take the first steps. For example, we are currently working on designing the corporate architecture for a Swiss bank that applies the open banking approach. The governance defines new, agile development processes that are aimed at the incremental implementation of client experiences. This provides the existing culture with real impetus to rethink old strategies. We confronted the employees with the new methods, and in so doing, rang in the cultural changes. At the same time, we explained why. But both, i.e. concrete change and/or technological and cultural change, have to go hand in hand.
Can you provide us with a detailed explanation of what such measures to increase employee awareness look like?
Specific example: at the bank, you conduct backlog management, inspired by Scrum management, which sees concepts for client experiences assessed and prioritised. This will be completely new at most companies, as they plan applications in accordance with the waterfall model. The responsible specialists therefore need to learn a lot of new things. In parallel, I can explain the relevant backgrounds to these individuals in training courses. Why we no longer marry processes with technology, but rather adopt an incremental approach.
For you, what are the current digitalisation trends in Switzerland or in the DACH region (Germany, Austria and Switzerland) as a whole?
I will answer from a banking perspective: open banking is clearly a trend that has now arrived. Even SIX wants to position itself as a Swiss API gateway. Blockchain is still a long way off. Here, the major regulatory issues have not yet been clarified and this will still take years. The digitalisation of front-office processes such as client relationship management and credit processing is here and will become even more significant. Although artificial intelligence (AI) and big data are the words on everyone’s lips, I do not see any solutions at present that provide real client benefits. These are the trends that spontaneously come to mind.
Do you see general trends from outside a banking perspective?
Data is the new oil. I believe that we will see even more solutions in this area in the near future. Sensor technology and Industry 4.0 will become even stronger as a trend. There is great potential here for new offers and optimisations with respect to service and client experiences. The same applies to the area of autonomous vehicles.
Are these trends generally reaching us from the US or are independent approaches being developed in Europe?
If we are honest, a great deal is coming from the US. This certainly doesn’t happen as a matter of principle but this is also a question of culture. The Americans tackle things very spontaneously and adopt a greenfield approach. We Europeans have the heavy and long-standing burden of our culture on our shoulders. This means that innovation can be somewhat stagnant with us. We also have trench warfare. Think about PSD2: the European banks would never have come up with this among themselves. The British have already had this in place for some time with the Open Banking initiative, and Mint has long since been well established in the English-speaking world. But exceptions confirm the rule.
Could you at least provide us with one European model of success from recent years?
Europeans made the first major steps in the area of renewable energies. Bringing solar and wind energy to a level that is commercially usable.
In your opinion, which sectors are pioneers when it comes to digitalisation in Switzerland?
Interestingly enough, the industrial sector. There is pressure here due to the strength of the Swiss franc. Those in Switzerland who want to preserve their position need to provide state-of-the-art innovations and quality.
Where do you see the banks?
I have a very strong feeling that in the Swiss banking centre, people are still sitting back securely and relying on traditional business models such as investment advisory services and mortgages. There is also no pressure, as earnings are still growing very strongly thanks to the mortgage business. In Switzerland, however, models such as those of Fidor Bank and FinTech Group Bank are nowhere to be found. Robo-advisors are also still under-represented. If a levelling off of the mortgage business emerges in a few years, I believe this is the time when people will start to seriously seek out real changes.
External pressure has always been the greatest driver of change.
It is essential. People only take action when they need to. At listed companies, there is also the pressure to deliver results every quarter. This hinders long-term thinking. Resource allocation is a further obstacle: those who currently contribute money to a company can also reinvest it. It is difficult for new ideas here.
At banks, does there tend to be more catch-up potential with respect to the value chain or the client experience?
As things stand, clients do not need or desire any change. We have ascertained this ourselves in a survey. In reality, nobody changes their bank due to a poor client experience. It is clear that everything could be done better, but there is no pressure to do so and this will also remain the case for years to come. Here, only insignificant market shares will be snatched away by competitors such as Revolut. People are also very slow when it comes to adapting to new things. Only 60% of people in Switzerland put their faith in online banking and this has already been around for approximately 20 years. We cannot currently say for sure how exactly value chains will change in future. PSD2, blockchain and crowdlending are all still in their infancy. But banks can prepare themselves accordingly by demonstrating greater flexibility, enabling them to respond more quickly in future. There thus needs to be a move away from silo thinking and technical monoliths towards structures that take care of clients and their needs.
Interesting. As fintechs, in your view, only operate at the margins, do you see them more as complementary to banks when it comes to certain services?
Yes, as no fintech is a bank. They have all focussed on a very specific client need and improved it. However, they all need a bank for processing. This is what prompted Fidor Bank and FinTech Group Bank to establish their API-first strategies and fully digital processes. Banks would do well to cooperate with or purchase fintechs instead of viewing them as competition. At the end of the day, the question will be who offers a client interface.
In order to pursue such strategies, there is a need for digitally savvy employees on the side of the bank and somebody to pave the way for them. The post of Chief Digital Officer is a varied role – is this really needed or are we just seeing a passing fad here?
Let’s put it as follows: companies need change but existing employees are so involved in day-to-day business that they are unable to take care of it. At the same time, the requisite knowledge is lacking. CDOs makes sense if they take digital trends to a management level, develop an understanding here and then derive what the bank has to do in order to modify its existing core business. The position of CDO may be a transitional phenomenon until the change process runs alone but it is no passing fad.
Is a CDO thus a provider of impetus or a sparring partner rather than an implementer?
I will use a metaphor: an existing company is a steamship. The CDO is the pilot who is brought on board in order to change its course. He or she knows the area and provides clear navigation commands. I see CDOs resign in frustration when they are only sparring partners. They need to have the authority to bring about changes.
What problems do frustrated CDOs face?
They are supposed to rescue everything, have no authority, are viewed by everyone as a troublemaker and in cases of doubt are to blame for everything. Their role is not defined, as the management board that hired them has not considered their duties, powers and responsibilities. I am currently creating the CDO governance for a bank and these are precisely the issues. I know a few examples of others in the CDO Club who are stuck in precisely this situation.
So what does the ideal candidate look like and what does he or she contribute?
They will have comprehensive knowledge of the digital trends in their sector. They can communicate very well and, above all, they are emphatic. They are able to convince and captivate people. I hear time and again that the CDO should create the sense of purpose that employees no longer see in the midst of the whole digitalisation thing. I think that the ability to communicate clearly and at the same time inspire others and to get people to follow you rather than instruct them are the key skills. It is thus extremely dependent on personality.
To put it bluntly, is the CDO therefore internally an empathetic mediator and externally a digital evangelist?
The important part of the role is played out internally. CDOs do not have to speak externally for the company. Their work manifests itself, for example, in new offers, which are then communicated and marketed by the bank. Nevertheless, they can appear externally within their community, such as the CDO Club, and it is for this reason that this network is in place.
With their digital know-how, CDOs are heavily future-oriented. In future, should all employees fulfil a monitoring function with respect to digital methods?
Theoretically, yes, but most employees are completely overtaxed with this. They want structures and clear messages as to what they should do. These structures need to be created by the CDO.
How do you keep yourself fit for the digital future?
Whew! Of course, I do a lot of research. But I believe that I get my real knowledge and a feeling for what is hot air and what is actually valuable from discourse with clients. I try to spend 50% of my time in client projects. And of course, I try to be open to new ideas and to continuously scrutinise ingrained ways of thinking.