HSBC - banking at the speed of digital while carrying a snail's shell

How does a bank that is 150 years old become a fully digitised financial institution, especially when its Chief Information Officer admits the bank is slow to adopt technology? At the Huawei Connect conference in Shanghai last week Darryl West, the CIO of HSBC, gave some insights into the aspirations and challenges of adopting 'banking at the speed of digital.'

Customers' expectations are driving the bank's transformation, West says, coupled with HSBC's strategy to capture value in the company's operations announced in June 2015 that flagged up to $5 billion in cost savings along with growing the firm's digital presence in Hong Kong and the surrounding Pearl River Delta region.

Those aspirations are hamstrung by the bank's indifferent reputation as a technology adopter, West believes, although the bank expects to invest two billion dollars in its digital transformation.

We have a reputation of being slow to respond to market changes when it comes to technology. While we've been innovative in the development of financial products, we have not been that innovative in the adoption of new technology, particularly when it comes to customer experience.

However adapting to the needs of consumers around the world requires banks to more digitally savvy. West cites McKinsey's researchwhich found many Asia-Pacific markets, particularly HSBC's, are almost fully online.

A key area where consumers are particularly keen to adopt technology is in security, something that nicely dovetails with another of the banks' value capture strategies. West sees the combination of smartphones and more powerful networks as being able to deliver both costs savings, more secure banking services and a better user experience.

The big recent shift in the last couple of years I've noticed is biometrics, people are now becoming comfortable because of the fact we have the Touch ID on the iPhone and voice recognition is mature our customers are comfortable with us recording their identities in a digital form so when they interact with the bank it's a much more natural experience.

My objective when I finish my career in this industry is to eliminate passwords completely. They are the biggest pain in the world. You can just make it easy to interact with the bank through whichever channel they use and, as long as we've recorded their fingerprint, their voice, their retina, we can identify them through natural means.”

Voice biometrics are very interesting. In the UK we've been trying this out for several months with voice recognition. If you are prepared to register your voice with us, if you're prepared to talk naturally to the operator you don't need to tell them who you are, they'll recognise you immediately. It's a very natural experience.

The holy grail for West and HSBC though is in driving down costs with the board's promised five billion US Dollars in operational savings being something that would concentrate the minds of executives. The CIO sees digitisation as on opportunity to cut both staff numbers and streamline processes.

We're going to restructure the cost base of the bank by digitising everything. We are on a mission to take every customer interaction and every process of the bank and digitise the whole thing. There will be no paper.

We've done some amazing things already, we've focused on 'mobile first' strategy for our customer interactions, we've launched Apple Pay and Android Pay which have proved enormously popular in the markets where they're available. We have WeChat integration underway in the Pearl River Delta.

The promised benefits of technology are always impressive but on the other side of the ledger are the risks, not least the security aspects of digital banking. West flagged these along with opportunities to use analytics not only to identify potential IT security breaches but also meet the bank's diverse regulatory and compliance requirements.

It's all very well to be adapting this technology and it's great for customers but we have to be aware there are risks. We've seen a hundred percent increase in cybercrime in the market which we operate.

We have large commitments in Big Data and real time analytics with cognitive computing where we have some proof of concepts running in this space. We have a large data lake which we've created to do our analytics for our financial modeling.

As with every financial institution, innovation and startups are the fashion of the day with HSBC being no exception. West explained how the bank has its own startup investment fund and is establishing its own technology incubators.

I can make investments in things that I think that can be deployed in the bank.

We are also setting up a series innovation labs in the major innovation centres around the world and making partnerships with major companies. I think this is a major shift in the company over the last year.

Banking in five years is going to look very different in five years, West believes, as financial institutions apply AI to their data and operations.

I think you can tell from my enthusiasm it's going to be very different. As we digitise the way we work and deploy robotics into our operations – we have proof of concepts running around machine learning and artificial intelligence – I suspect there will be no paper, no passwords, there will be fantastic experiences for our customers.

Finally West's view is the key to leading a bank down the path of being fully digitised is about the institution itself.

All of this reinforces the point that the technology is important but what is even more important is the culture and the people.

My Take

West should be congratulated for giving such a frank overview. Many CIOs would be cagey about laying out their company's technology roadmap, particularly given his board's public commitments. But then when the bar is already low in your technology landscape it is useful to set low expectations.

The aim of saving money through digitising processes isn't new and historically the banking sector's track record in achieving this goal hasn't been stellar. However today's tools and IT management practices may give initiatives like HSBC's a far better chance of success even though one suspects the path will be more tortuous and expensive than planned.

West's enthusiasm about cutting costs is shared by executives in many industries, however one challenge that seems to be regularly missed in that conversation is the effect on management numbers. A fully digitised organisation needs far fewer clerks but it also requires even less managers. It seems to me culling those executive ranks may well be the harder management task than the digitisation process for many organisations.

Having said that, HSBC has got track record in this area, having gutted its UK retail banking operation and now relies upon a combination of 'relationship managers' and the call center, rather than banking experts. How well that goes from the customer perspective is open to debate.

Digitisation also presents a challenge in managing the resultant 'data lakes' and information flows. Security is probably the biggest aspect for a bank, but privacy concerns, compliance and data lifecycle management all seem to be expensive and sizeable risks to every financial institution.

Despite these challenges I found West's keynote to represent an optimistic view on the evolution of banks in a digital age. The key message from his presentation though is genuine digital transformation of any large organisation requires the continued support and understanding of senior executives and the board. Keeping that focus when they have other priorities will take a steel will and firm resolve.