The Bank of Tomorrow
Bankers from across the globe say digitization is the only way forward for the banking sector. Many banks are investing heavily to automate most of their services and accelerate adaptation and resilience. But this is far from an easy task.
Our guest on The Change Officer is the Head of Digital & Innovation, Corporate & Investment Bank at Mashreq Bank. Jameel Khan is on a mission to optimize Mashreq Bank for Digital while developing innovative customer journeys and engaging with exciting FinTech potential partners.
Jameel will share his lessons from extensive experience in various Financial Services sectors and reveal the biggest opportunities for the banking sector right now.
Vuk Zlatarov: You have a very interesting path behind you, how you ended up in the banking world coming from the consultancy side. But what’s interesting is that you’ve been on ‘both sides’ — one was with KPMG, which is more of a traditional consultant, and the other one was Accenture — a technology-driven consultancy. And now you’re with Mashreq as Head of Digital Innovation— a very exciting role these days. The term ‘disruption’ is overly used, but banks are really going through a very disruptive age.
Jameel Khan: It’s true. Our CEO openly calls it out as an existential threat. It’s really about the survival of banking as we know it.
Vuk Zlatarov: Let’s talk more about the state of the industry today. You told me that the banks have enjoyed these regulatory protections for a while and maybe got too ‘cozy’ in their own space. But with the growth of companies that they didn’t see as threats, such as Google or Amazon — they’ve found a way around the regulatory frames to deliver financial services, so the game has completely changed.
Jameel Khan: Exactly. It’s playing out literally as Clayton Christensen’s Innovators Dilemma. His brilliant assessment of disruption is generally gifted with coining the term. The disruption comes from most basic aspects of that industry. So while these incumbents are focused on high-value customers building and perfecting services, the disruption comes from players that don’t invade the incumbent space. They come in with simple services, find their market, and establish a market that’s not really of interest to the main players. And surely and slowly that market grows and grows, and little by little they start disrupting the value chain. Until you know it, the incumbents are out and the new entrants are in.
Amazon, the bookseller as we once knew it, has more than 13 financial service lines. It’s in the cash management business, in the payments business, it’s got a business around working capital instruments, lots of consumer services. It’s a bank by any other name ultimately.
Vuk Zlatarov: And they managed to do it initially without an actual banking license.
Jameel Khan: Yeah, they made acquisitions in fintech and partnerships with various institutions. But when it comes to stored-value cards and things like that, these are all financial services provided without banking licenses. They’re taking away those basic services, building their market, they enjoy a lot of loyalty from their customer base. And one of the other barriers to entry typically in banking, other than regulatory support of not having a banking license, is around trust.
Customers typically trust their money being stored with banks. What’s emerged is actually the household names we’ve become very attached to, like Google and Amazon, we tend to be quite trusting with them as well. So that trustm, that was enjoyed only by the financial service providers, has been distributed across the wider set of players.
Vuk Zlatarov: So when we say it’s an existential threat for banks — can we unpack that? What does it mean for a bank that customers are going to switch to these new-age financial service providers?
Jameel Khan: Great question. I think there is a number of different aspects to that. The fintech ecosystem that is emerged and matured over time is really being a bonus to banks in the sense that fintechs are desperate for customers. They’re B2B players, they’re looking for people to partner with. Banks generally nowadays are all about how they can remain relevant to their customers. So as these fintechs are coming about, that’s a nice symbiotic relationship.
The disruption and the threat are really coming from the big tech.
So as the market is saturated, they can afford to make mistakes, they are in the habit of building very neat software solutions. If you think about the Exponential leadership framework of the likes of Singularity University and their stacked view of digitization and disruption through digitization — as aspects of the customers experience become information-enabled or digitized, that becomes right for someone else to come in with the neater software solution that comes in cheaper, with a higher CX, and that’s where the big tech is strong. Its ability to scale, and to be in there for the long game. So fintech is, as I see it, partnership-based, rather than threat. The threat comes from other banking institutions that also see themselves as pivoting to remain relevant, as well as the big tech.
Vuk Zlatarov: So basically banks are in the race of who’s going to be faster in pivoting and adjusting to this new age of banking, partnering faster, opening up their technology, integrating with other service providers, so they follow the expectations of customers which are growing every day.
Jameel Khan: Exactly. The expectations around banking are changing wildly.
The bank of tomorrow and in order to remain relevant is detected by its ability to provide financial and non-financial services in a very seamless way.
So what I mean by that — for example, you don't as a customer wake up in the morning thinking I’d really like a mortgage. Actually, you really want a house. So how is the bank helping you get to a house? If you can go to the bank that you trust, and they can help you take care in valuing your current place, helping you find a reliable state agent, organize a survey of your future house… meanwhile they fully understand your financial position so they can tell you upfront how much they can lend you and set you up with your lawyer. So their ability to build an ecosystem around that journey of buying a new house makes them much more relevant than ‘Come to me when you’re ready to ask for some money and I’m going to give you a requirement list as long as your arm and make it really difficult’.
Vuk Zlatarov: So until 10 years ago, banks were in the financial services. But you’re saying is in the future, banks will have to tap into non-financial services so they retain their customers and actually pave the path for them to reach eventually the financial services, their core services. But they need to become a platform of the sort for their customers.
Jameel Khan: Yes, because the finance bit only becomes a small part of the customer journey. Ultimately, in the customer's eyes, it’s only an enabler. So if you’re trying to respond to the customers' needs, then building your entire proposition around selling a mortgage isn't going to get you very far.
Vuk Zlatarov: And nobody actually wants any banking products unless they’re free. I had an episode with Frederik Bisbjerg from Daman, the UAE’s leading health insurer. We’ve been talking about insurance. They’re in a similar position — they are also trying to be a part of the product. Nobody likes to buy insurance. I feel I’m being ripped off because the positioning of the product is not right — you see it more as an expense rather than as a benefit.
Jameel Khan: Yeah, you don’t know when you’re going to need it — it’s the premise behind insurance.
My ability to make the house-purchase journey easy for you is really based on my ability to understand all the other things that you do — your behaviors from the transaction data that I consume and your salary, etc. So my ability to create this concept of the digital twin of you, your behaviors, and your motivations — the fact that you have two children for example…
The more accurate a digital twin I can create of you, the better I can provide you with relevant services.
Vuk Zlatarov: And banks are in a pretty good place to actually get to know you. Much better than probably any other service provider out there.
Jameel Khan: Absolutely right. There are some amazing use cases out there. Everyone is quite familiar with the Ant Financial story which is an offshoot from Alibaba, a 15-year-old company now. But you contrast that with Bank of America, 100-year-old institutions in comparison. In 15 years Alibaba has grown to a customer base of 700 million customers. Bank of America has 70 million customers. They are a new data-driven business — so they are able to effectively offer you credit or financial instruments in seconds, whereas it would take days to get the equivalent type of service from a traditional bank.
I think insurance as being such a traditional industry is hugely fascinating. I don't know if you came across the Vitality concept. There's a company out of South Africa, Discovery Insurance. They provide telematics devices to customers and your premium is effectively rebated to you based on good conduct and your driving style. They’re picking up on how well you accelerate, do you emergency brake more often than not. All these factors make for a much richer data set. They can help the loss ratio for the customers, and allow the business to reduce the premium. Customers love it.
Vuk Zlatarov: Plus it makes you drive more carefully.
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Jameel Khan: Exactly. So indirectly you’re also influencing behaviors as well for the better. So not only is the customer benefiting from a safer driving experience, but they’re actually saving money. And what Discovery had done next is having perfected that data set around drivers, they’ve gone with: what can we do with this data? What can we do from a behavior perspective? They built a bank around the behavioral bank. So if you’re healthy and you’re going to the gym, we can subsidize your gym membership, offer you an Apple Watch let’s say. So that’s generating more data for them. The customer is getting great service and they’re building a super-rich data set that is a constant feedback loop.
Vuk Zlatarov: In our previous conversation you said that the banks need to accelerate the process of adapting to this change and becoming more agile and nimble, so that they can be faster in their turnaround time to actually deliver on all these capabilities, partner, integrate, collaborate and so on. So what is preventing the Middle East or Dubai banks from being fully integrated with all of these providers and just blowing our minds tomorrow?
Jameel Khan: It would be great to see that. The Chinese and American markets are huge, so we are in a smaller market. But what we do benefit from is the access of capital and access to global awareness. To your point, the common element or the common thread between those players and traditional players is around technology.
Until a bank sees itself as being more of a technology player that offers financial services, then it’s going to have a cultural struggle to get over the line in terms of really rethinking the way it goes to market and the way it develops its products and services.
So we are really starting to see ourselves as a technology player that does financial services. And that liberates you to think and put the customer at the heart of what you do and build technology solutions around that, much more than this traditional idea of what a bank should or shouldn’t do.
Vuk Zlatarov: That makes sense. We’re touching on a very popular topic that I’d love to hear your opinion about — and that is culture change. Banks have been operating in a similar way for the previous hundreds of years, and the new ways we’re experiencing are happening over the previous 5 or 10 years maybe. So there are still a lot of team members and staff who are wired traditionally in how banks operate. How do you make the whole cultural change happen in an organization of that kind?
Jameel Khan: It’s a great question and I don’t think there’s a textbook answer. If I think about how Mashreq has gone about it, I think the most important thing is that the leadership needs to demonstrate the path forward. So you need to hear the right messages and the right focus being given by the leadership. And that gets you halfway there. If the tone and the direction are being set, then it's just about the mechanics of it. And you learn from the tech sector. Everyone is very familiar with this idea of being agile and that’s a revolutionary concept — you’re constantly trying to mature in your nimbleness and your ability to bring together multi-disciplined teams.
We are delivering our transformation through a set of product owners. Each product owner is running a squad. They are mini CEO effectively around a product or a service. They’ve got a bunch of developers, business people, and access to agile coaches. That autonomous unit is responsible for its roadmap and how it runs its product.
Vuk Zlatarov: When you say it like that, I can close my eyes and picture a startup where you have a product owner, teams, agile coach — I can easily imagine a startup environment. So what is reality? Is it working like a charm or you still have challenges?
Jameel Khan: We’ve got our own challenges — one of the things that we were wary of was building a digital studio that sits at the edge of the organization. So you can effectively recruit that talent in a dedicated studio and say — go ahead, build. And they will build some nice toys. But how do you build those toys relevant? How do you really change the culture of the institution? What we decided to do is put the studio in the middle of the organization and every product owner that comes is an ex-banker. That comes with its own challenges because we’re asking someone who has a very different mindset to suddenly become a product manager or a product lead. But giving them support with transformation specialists and agile coaches. You know the famous African proverb — it takes a village to raise a child. So you don’t throw them in the deep end, but you create the environment around them for them to learn new skills. And you obviously choose individuals that are motivated to see the business turning, to see what’s on the horizon so they want to invest in themselves and in the organization. So you want to pick those people who have a propensity to change for themselves and see themselves in this new light. And when they believe that, they’re thirsty for knowledge but they’re also thirsty for new experiences. You give them the tools and support and you watch them support.
For us, it’s about putting in place those structures so our agile coaches coach teams around how they can act and be more agile. It’s about technology teams have the liberty to find the best tools, build the right DevOps pipelines and find the right engineers that can bring automation and develop in-house. All of that takes time to melt together, but we’ve been super happy with how that’s come together. — Jameel Khan, Head of Digital & Innovation, Corporate & Investment Bank at Mashreq Bank
Vuk Zlatarov: How do you manage a long-term transformation in a relatively short-term environment? What I mean by that is that we’re living in the part of the world where there's a lot of uncertainty about where are we going to be in a couple of years. For example, there are still no citizenship programs — the government is working on it, but there is still a lot of uncertainty.
Jameel Khan: There’s a lot in that question. So when it comes to how do you produce results quickly, we do see this is a long-term transformation and we don’t really see it as a start-stop thing. It's not a transformation program that you can finish quickly. There’s a view that this is here for the long-term, this is a cultural shift, a paradigm shift. That comes with different ways of working. The most significant difference that we’ve seen internally is around our ability to really prototype with the business. We’ve got a different approach to teaming and solutions. So do you really understand the problem, what are your solution ideas, have you prototype them and then build them? This kind of approach isn’t going to go away by the end of the ‘program’. This is really how your DNA starts becoming influenced by that. When it comes to individual insecurities — and a lot of people left the country of their job — I think that level of insecurity always remains in a sense. Most people I know have been here longer than they had planned to be here when they first got here. We typically overestimate the insecurity — we’re natural-born warriors to an extent. Our day-to-day existence is largely stable, hopefully. As an organization, you build for the long term. People individually may come and go, but the important thing is that the people who are here and now have the access to the right tools, learning, and the environment to work in. Part of our workforce is a local workforce and it’s about empowering and upskilling everyone, all colleagues, and making them part of the solution.
Vuk Zlatarov: That’s interesting. There is a long-term vision that you want to deliver, but in order to get the buy-in from different stakeholders and shareholders, and leadership, you need to deliver quick results. So I think prototyping, solutionizing, talking to the customers and making these short iterations are a really important part of the puzzle. You previously mentioned Steve Blank and he has this quote “Get out of the building”. Brilliant guy. You’re applying that to your daily work?
Jameel Khan: I think it's the single most important thing that delineates success or failure for us. Your ability to really hold yourself back from assuming that you know everything. We’re fortunate that bankers are part of our teams, our product owners, and bankers. But that may lead you to a false sense of security that you understand the problem and solutions. We had this example around KYC — we wanted to solve for the corporate journey around KYC renewal. KYC is a regulatory process that all companies have to submit — documentation back to banks to make sure that their shareholders haven’t changed, their trading license information, etc. It’s a documentation-heavy exercise.
We wanted to take the friction out of that process, so we built a customer portal and we had our bankers who are closest to our customers design that process and use them as a proxy to really start with a blank sheet and understand the problem. We quickly prototyped the solution and held a custom around table and brought the customers in. We invited 20 or so customers to bounce ideas off from a prototyping perspective. And they loved the concept — they said they’ve been waiting for exactly this, the simplification of the process. But they said to us that the CFO who is the authorized signatory is never the person in the business who’s actually doing the KYC. So if you only enable access for the authorized signatory to the bank, then we’re still stuck because the person who actually has to do the work has to then work with the CFO. Can you really enable it for the right people? We said okay, that’s a brilliant piece of insight. There’s internal collaboration in these institutions to do this work for us. So we redesigned it so that the X many of people could get onto the portal, do their part of the puzzle, and then submit. It’s really that feedback loop that has been fantastic and our strike rate in terms of the willingness of a customer to submit electronically is phenomenal.
Vuk Zlatarov: I think it’s an amazing example of the ‘Get out of the building’ approach.
Jameel Khan: When you think back on it, it’s the most straightforward thing to do. But actually, so many corporates don’t do this efficiently well.
Vuk Zlatarov: From your perspective, you’re working in the bank as the Head of Digital & Innovation. Where do you see the biggest gap and the most opportunities for new products, services for the outside players or startups?
Jameel Khan: I see 2 areas of huge growth and one is around ecosystem — this idea that you’re helping to create platforms around different parties coming together, so the bank is interested in being a part of that platform. Different niche players simplifying that process and being part of the ecosystem is I think a high-value opportunity. The 2nd part around where the value lies is around data and the convergence of these emerging technology, around AI and blockchain. How well companies can master their ability to get on top of data, clean data, this idea around digital twins… using that with other concepts like a digital ledger and AI. Building solutions that pull these things together is I think where the next generation of killer apps are gonna come from.
