The Great Divide

Banks are filled with highly qualified technical talent. Financial Services firms spend a significant amount of money on Technology and have been doing so for a very long time.

Why is it then that a consumer electronics company can come along and disrupt the electronic payments market the way Apple has with Apple Pay?

Let’s let that sink in for a minute.

How is it possible that a group of companies whose only focus is electronic payments, get blindsided by a company that is doing electronic payments as a new side business?

I believe that the answer and the major difference between these companies is: the role and place of technology in the company.

Financial Services firms have a very warped view of how their business operates. This view has prevailed for many years and has been reinforced due to the incestuous nature of the industry. A widely held view in these firms is that there are two groups of people in these companies:

1. “The Business” or commonly referred to as the “Front Office”

This is the group of people who are the first line of interaction between the company and its external customers. This could be a salesman who sells financial products to customers (such as a credit card, or an investment strategy), a banker that closes debt or equity deals, or a trader that executes a trade on an external exchange for a profit or loss.

2. “The Back Office”, “Support”, “Middle Office”, “Control Functions”, “Operations” .. aka everyone else

This is the group that “supports” the Front Office in their endeavor to generate revenue and their sole purpose is to digest and process whatever work is required to operate the “Business”. Functions that are included in this category are Operations, Technology, Reporting, and various other activities that are not directly interfacing with clients.

This unfortunate classification leads to many challenges that significantly hamper the effectiveness of the company as a whole. Those in group 2 feel that they can take a back seat, turn off their creativity, and just do whatever group 1 asks for. Group 1 is expected to have all the answers when it comes to expanding the business, creating new and innovative ways to engage customers, and taking advantage of changes in the industry.

Those in group 2 often lose touch with the core aspects of the business, do not innovate, and hardly ever think about how the company generates revenue today or could generate more revenue tomorrow.

Going back to our original question regarding Apple Pay: Apple Pay is primarily an innovation in Technology and Operations. Companies can hardly expect innovation out of their Technology and Operations teams if nobody in them feels vested in the business.

Any company that feels like its OK for a majority of its workforce to be out of touch with its business is ripe for disruption and is not in control of its own destiny.

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