• Mark Dangelo

Lead, Follow or be Run Over

By. Mark P. Dangelo


We can classify 2020 as a year of extraordinary chaos—consumer, financial, political, corporate, health, social rebalancing and leadership. From social lockdowns to corporate bankruptcies, the business environment realities outstripped all contingencies. What would we have done without Zoom, Teams, Google Meet and the hundreds of additional virtual collaboration offerings that most of us exhibited a lackluster acknowledgement before last March?


Then there is a consumer study released by PWC, which indicates the financial adjustments being made as implications of #Covid-19, only 20% will be discussing life changes with their banks and lenders. Who will the other 80% turn to moving forward when it comes to their financial health and goals? Is it about offerings, capabilities, privacy, digital prowess, brand assumptions, or trust? Or something else?


Is 2021 an Endgame, a Pivot or an Innovation Journey?

It is often asked during times of extraordinary transformation and chaos by financial services and banking organization (#FSBO) leaders, “what is the end game?” Why do we need the technological solution set? What will it cost? What strategic advantage will it deliver? Are we capable of adapting to new business practices? What is the risk? What is the value proposition map and how does it impact our business model? What are our competitors doing? How will our customers react? And being FSBOs, what will the regulatory agencies think and do?


Indeed, there are dozens more good questions that are warranted when transforming processes in a rapidly expanding digital banking ecosystem. As leaders within FSBOs and independent mortgage firms, you have learned to ask questions rather than embrace the latest fad by understanding the rationale, implications and impacts of the choices being presented. In a technology driven industry continually implementing #QoS (quality of service) and efficiency solutions, we know that asking the questions of integration and implementation are as equally important as prescriptive technologies.


Now we are a month away from 2021. The budgets are being locked in (if they have not already been). The projections of topline sales and operating margins by offering are known targets. Thomas Paine and my title take on his famous leadership quote sets the stage for a new year, which will not be a resumption of normal, but a stark new reality where rates, processes, and economic directionality will not snapback once Covid-19 vaccines are rolled out.


And being an individual that dislikes columns where the author tells you to accept what they advocate as the prescription for the future, I will present the trends, research, and events and let you make a decision on their importance for your operational and business models in 2021.


AI (Artificial Intelligence) Advancements into Chip Sets Alters the ROI

How many of us are aware of Moore’s Law? If we cite Wikipedia, “Moore’s law is the observation that the number of transistors in a dense integrated circuit (IC) doubles about every two years. Moore’s law is an observation and projection of a historical trend. Rather than a law of physics, it is an empirical relationship linked to gains from experience in production.” That may have held true for standard chip design, but what about specialized AI chipsets being designed and produced?


In May, new AI specialized chipsets increased their power over 20 times with nearly 55 billion transistors on a single chip—in just 3.4 months. In a market IDC estimates to exceed $100 billion in 2024, this progression (per LegacyResearchGroup) means that training AI systems that once took 11 months, consumed over 600 kilowatts of power, hardware in excess of $11 million (e.g., 600+ processors and 25 server racks) now is “one-tenth of the cost and consumes 4% of the power.” In 2021, AI (and its subfield of #machinelearning) will rapidly witness a movement from data science software into ultrafast hardware where advancements are progressing at four to six times the rate of Moore’s law.


What does this mean for FSBOs? As FSBOs have embraced the rudimentary designs of digitalization and layers of data for some decision making during the last decade, the embedded processes and modes of operating guidelines are being hampered (i.e., paving the “cow path”) by a philosophy that relies on software and hardware raw power solutions to gain efficiencies. Additionally, products and services offered are often commoditized by industry and regulatory assumptions—while customers and competitors of our future recognize this.


Indeed, as Boston Consulting Group notes, just 11% of organizations say that they have reaped significant return on investment from their AI solution sets. Some attribute this low return on the early solutions requiring a heavy lift of capital, advanced skill sets, and cultural resistance. But the real driver it appears for high returns are companies who have merged intelligent capabilities of humans with AI to arrive at a blended approach balancing risks, customer demands, and building block solutions (which allows for continuous AI advancements to be substituted / augmented inside processes, leveraging of data, and improving QoS).


As FSBOs begin to move into production layered software and hardware solutions which have AI (bolted-on or embedded), a radical redesign of touchpoints and workflows will be required. In 2021, these types of offerings will spur the customer demand of mortgage straight-through processing—a quantum shift for many accustom to a high-touch, compartmentalized human approach. For mortgage firms, they should look at other consumer lending markets to see the likely encroachment. And, in an era of limited skills, high volumes, and consumer demands, how long will it be before a vendor or industry leader brings forth solutions based on AI to reduce expenses, reduce errors, and improve topline? The distancing between those with AI innovation teams and the ones believing in tradition, will have profound M&A impacts in 2021.


The Application of Blockchain and DLT

Sovereign digital currency has begun being issues starting in October (first central bank digital currency or CBDC issued was by the Bahamas, the B$). If the projections are correct, #DLT (distributed ledger technology) and blockchain will be used from central bankers in China, the United States and European Union by 2021, 2023, and 2024 respectfully. The arrival of CBDC’s may usher in the seismic shift needed to replace these fiat currencies using blockchain and DLT in 2021 setting forth process and system changes many domestic providers are unprepared to use let alone leverage.


So how could this impact FSBOs? Introduction of these CBDCs may provide solutions to an issue that has been plaguing customers and institutions for decades—the non-banked and the underbanked. With the growth of smart phones and mobile consumers, the ability to offer banking services not using a traditional bank rises. Within the U.S. alone more than 70 million adults fall into the underbanked or non-banked categories (spread out across 130 million households and 330 million individuals). Those institutions who begin in 2021 devising solutions to capture these new customers and their future opportunities will use digital transformations to move beyond rudimentary digitization and into digital leverage.

Additionally, the rise of DLT and blockchain CBDCs may displace the U.S. dollar and its “world’s currency” status because of the availability of competing currency issues underpinned by consumer encompassing platforms such as Facebook, Apple and Amazon. If these firms fully embrace CBDCs it would further restrict the need for banks and lock consumers into closed delivery environments. The U.S. is accustomed to dollar denominated transactions, but with the rise of CBDCs the use and tracking (for regulatory compliance) they will permanently change the value propositions and processes for all institutions.


Those companies who invest in the capabilities and skills, while preparing their future solutions for compartmentalized technological solution layered via orchestration frameworks, will be the survivors. Those who lack the resources need to start in 2021 laying their lifelines to partners and solution providers who can deliver advanced technological capabilities, or they risk being part of the dwindling pack of FSBOs likely to number under 4,000 by 2024. And, even innovators such as Jack Ma whose (Ant / Alibaba) criticism was too blunt for his sovereign governors, U.S. domestic operators should take note—banking supervision will succumb to innovation leaving those with capabilities to dominate the dogmatic. It appears 2021 may be the year of CBDC and mainstreaming of DLT and blockchain. Oh, and did I mention how these technologies are also in Q3 2020 appearing in smart contract designs, digital signature legal enforcements and U.S. Congressional bills?


Future of Work and Emerging Skills

When 2020 started, the idea of working remotely for successfully processing business functions typically took over 450 days to implement according to a recent report from McKinsey & Company. With arrival of Covid-19, the actual time became 10.5 days. Other notable shifts proving the digital transformation needs for businesses include “increasing customer demand for online purchases” that went from 585 to 22 days, and “increasing use of advanced technologies in business decision making” from 625 to 25 days.


While 2020 has been a horrific healthcare crisis, it proved that the digital technologies exist to rapidly transform enterprises and offerings even as we struggle to understand the longer-term consequences of limiting personal contact. Therefore, as IT and business planners believed that the changes which took place would take 25 to 40 times as long as they did, it was consumers and necessity that changed their value propositions at the impetus of an unanticipated virus. In the end, we had the digital frameworks necessary to advance business and social transactions. Technological progression in 2021 means more layers of offerings, more innovational digital designs, and leveraged digital transformations that are complex and continuously iterative.


So outside of scarce mortgage processing industry skills against record volumes, how will these changes impact organizations? An implication of the last nine months is a resetting of the organizational agenda and workforce composition. Additionally, customers will expect digitally integrated solutions linking traditionally siloed FSBO offerings (e.g., banking customer’s expect you to have access to all their accounts, information, and history BEFORE you try to cross sell or tout your new innovation). With customers not having the tolerance for FSBO digital ignorance and siloed contact points (i.e., people, partners, and omnichannels), corporate contacts must be smarter, trained, and highly skilled.


Moreover, with the need for advanced digitally leverage solutions, the WEF (World Economic Forum) and Mercer note five imperatives that will impact leaders in 2021;


1) Build human centric leadership culture

2) Align new technology and skills

3) Embrace stakeholder capitalism

4) Cultivate health and well-being

5) Transform organization and work designs.


These imperatives coupled with multifaceted data sciences and AI / RPA / VR technologies means that financial firms must embrace their technological transformations or risk loss of marketshare, profitability, and relevance. These technological trends defined before 2019 and now mainstreaming in 2021 mean that higher-cognitive skills underpinned by entrepreneurial and innovation skills will define the future of work and customer offerings.

For FSBOs, the result means that every employee and partner need to be part of reusable building blocks designed to iteratively deliver continuous solutions to customers who are rapidly adapting their behaviors and expectations. As the consumer shifts, so will their traditional idea of loyalty, trust, and future security when it comes to financial institutions, and the value proposition these traditional brands provide to their lifestyle. Only by embracing these skills and assembling them using innovation principles, rationale, implications will FSBOs in 2021 be able to sustain competitive advantage and an innovative brand.


In conclusion, as FSBO and mortgage leaders, you are facing a base of permanent market changes brought on by digitization. These solutions once designed to deliver efficiencies prior to 2020, were foundational and allowed financial firms to address technological encroachment on their markets and consumers.


The events of 2020 have created a seismic shift that cannot be rolled back when it comes to leveraging digital solutions and the proactive incorporation of advanced technologies requiring highly motivated and skilled personnel. So, do we believe that once 2021 delivers a vaccine against Covid-19 that the world will snapback? Do we believe that workforce changes will somehow be erased from employee memories and environmental impacts? As a new administration takes their place in 2021 trying to govern a highly polarized electorate, can FSBO’s stay above / in front of the politics of equal pay, treatment, social justice, and discriminatory practices? We have an opportunity to remake the discussion and shed the traditions of the past if we use innovation to challenge, reinvent, and think about the purpose of our value proposition to a consumer seeking a break from the past.


In today’s age of polarization, corporate and public politicians typically tell you what to think. However, with technological innovation showing no signs of reaching the end of Moore’s Law, the real value proposition for your company may reside with those uncommon innovations and innovators who ask you to think. Coming up in part 2 of the 2021 FSBO transformation series—security, privacy and the risks of innovation singularity.

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