I had the opportunity not long ago to moderate a workshop of payments executives in which we discussed how technology is changing their business. At one point during the discussion, I made the point that because of the influence of technology on their business that they were -- or should be -- becoming technologists themselves. They politely, but forcefully, disagreed. Rather, they felt as though their primary function as bankers was to manage and price risk. A powerful and concise description of the essence of banking, and at its face, I couldn't disagree.
There may be solid reasons for their opinion, not the least of which is that the financial downturn and regulatory attention was heightening their focus on effective risk management. Nevertheless, new business risks and opportunities have begun to emerge that are directly associated with technology use, so much so that the banking industry's future may indeed depend on its ability to fuse the capabilities of a banker with those of a technologist.
As the industry turns its eyes to growth once again, fundamental competitive risks are increasingly technology-based. One only need think of all the tech startups in the peer-to-peer lending, payments, and financial advice space to understand this dynamic. Bankers are casting a wary eye at these innovators, and are perhaps more concerned by the larger technology companies that are increasingly edging their way into the banking business. For them, disruption will be achieved precisely through the development and deployment of more modern technologies that perform bank-like functions that are simple, visually attractive, and truly different.
Unfortunately, bankers are still trying to free themselves from the burden of their early successes in technology implementation. So many legacy systems are still running -- and running pretty well, given the purposes for which they were developed. Unfortunately, these systems are in many cases not able to support the kind of product innovation required to combat the competitive threat of these new companies. Bankers will need to understand how technology is changing their business, and meet these competitors on the fields that they themselves are defining even as we speak. If they don't, they may run the risk of falling farther behind where the market is going as a result.
The digital banking revolution is also driving new risks into the banking ecosystem. Even as bank customers are taking to these new, innovative technology offerings, cyber criminals -- from bored teenagers and petty thieves to more organized crime rings and nation states -- are also eager to take advantage of these developments. Witness the discussions regarding the Svpeng mobile Trojan that puts mobile devices at risk for malware infection.
These themes were reinforced during a recent financial services cyber security event we hosted in New York. On multiple occasions, the notion that cyberrisks have moved from a mere technology risk to a first-class business risk were noted by speakers from major financial institutions and law enforcement.
Finally, technology-business fusion is not just a discussion of opportunities and risks. It's also important to consider how the technology function could be managed as a business in its own right. There is increasingly a view that the technology platforms and data that are found in banks are themselves assets to manage. CIOs are encouraged to think about the value that these assets provide to the bank, and manage their technology decisions based on a more balanced view of risk and reward for those investments.
So while banking is, at its core, a business that manages and prices risk, the risk to the business of not fusing the mind of a technologist with that of a banker may be one that they would ignore at their peril.
Jim Eckenrode is the Executive Director of the Deloitte Center for Financial Services (DCFS), where he is responsible for defining and guiding the marketplace positioning and development of the Center's eminence and key activities. The DCFS, which supports the firm's U.S. ... View Full Bio