Blockbuster banks eye Netflix success

Incumbents have big ideas – but lots of baggage

When banks describe how they plan to use technology to transform their businesses, they invoke wildly popular disruptors and innovators, such as Amazon and Netflix.

Amazon because – if a bank collects enough client data and analyses it well enough – it might be able to sell as effectively as the online retail titan, which surrounds each sale with an array of suggestions, and seeks to anticipate its customers’ needs.

Netflix because – if a bank is able to break away from the prevailing distribution model – it might create a lasting advantage over its stuck-in-the-mud competition, as the streaming media service did to incumbent video rental business, Blockbuster.

That’s all well and good – it makes sense to set your goals with reference to well-known winners. But there are lots of people in the world who have unrealistic aspirations.

To pick an example with whom I am familiar, my five-year old son wants to be a great grey owl. Or a martial eagle. Time and enthusiasm are on his side, but not much else.

The reason it is unrealistic for banks to set expectations with reference to Amazon and Netflix is that both firms were disruptors from the off. Technology offered a way to recast an existing business model, and they were focused every day on winning customers and proving it could work. In contrast, banks are incumbents with an established client base, existing technology and a variety of motives behind their technology push – they want to cut costs, to be more efficient, to meet client needs, to head off possible disruptors in their own markets. Each of these goals might suggest a slightly different strategy.

In short, the challenge facing the banks is less about launching Amazon or Netflix, and more about overhauling Blockbuster.

Taken together, this is essentially the argument our first batch of 30th-anniversary articles explores. Over the past few days, we have published stories about the commercialisation of in-house risk technology, plans to revamp the fixed-income sales function, and the obstacles that have so far prevented banks embracing new technologies.

Our second batch of articles will look at the changing role of quants within the financial markets, and at how – and whether – the world’s leading quant finance courses are adapting to meet the industry’s needs.

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