The light of dead stars

If banks are struggling as much as you say they are with digital adaptability. If their unit economics are shot through with the strains of sunk cost and mainframe patches. If digital pricing is loss-making because of the combined cost of the tech estate banks still maintain… why are banks still as profitable as we know they are?

The light of dead stars looks indistinguishable to any other. But it doesn’t prove the star is still thriving. Only that it once did.

Why are they not struggling more visibly where it matters most?

I get asked that a lot, you know.

Because my job is to encourage bankers to make uncomfortable changes. Changes that take people out of their comfort zones, put systems out to pasture and send things we’ve always known to be true to the scrap heap.

So, I get asked that a lot.

By clients and readers, prospects and audience members.

Sometimes the question is anxious. Sometimes it’s angry. Mostly it’s mocking. Like they caught me out. Finally busted.

But I have an answer.

And the answer, sadly for them, is always in their stars.

Stay with me here.

Part of the answer is the man who told me recently that he runs a highly profitable digital-first product and my little impassioned exposé about holistic unit economics does not apply to him because he doesn’t use the mainframe as that’s an IT thing. His calculations are clean of any system he isn’t using, any cost he didn’t incur. Mathematics be damned.

But it’s not his fault.

That’s how he was taught to calculate things. That’s how cross-charging works. That’s how we do budgets and horse-trade across cost centres. I know what he’s doing. I graduated from the same school for learning how to make the numbers bow to organisational propriety ahead of basic arithmetic. Because only in corporate accounting is it OK to double-count. Only in our hallowed halls is it OK to create amortisation schedules that you then treat like real money and an OpEx bucket of cash that you treat like it’s not. Only that bucket is filled with real money while amortisation scheduling isn’t and yet… what do you know, it works, if only because we said it does.

Part of the answer is also that we are always a wee bit behind ourselves.

Like the impact of Covid-era economics was not felt till a good year later because during the worst of the pandemic we were spending last year’s money. Like we always go on a hiring spree six months after we really needed the extra people and, by then, we over-index and by the time we need to cost-cut we go overboard with the cuts because we felt that the organisation was bloated after the over-indexing… and the merry dance starts again.

We may have leading and lagging indicators in place. Of course we do… but they are not treated the same.

Lagging indicators are always more real somehow.

It could be because sales numbers are black and white.

It could be because your CFO always conveniently forgets when looking at forecasts that the numbers should be probability-weighted… and he also forgets that he forgot, when he gets round to looking at sales figures against forecasts when the leading indicators are irrelevant because the lagging ones are in.

It could also be because lagging indicators are not as susceptible to optimism and hope.

But then we go and treat last year’s lagging indicators as next year’s leading indicators and the process starts again.

So part of the answer is that we were taught to do things a certain way and ingrained habits die hard, especially when we were so well rewarded for learning them.

Pavlov, meet dog.

And part of the answer is that we are always a little behind on the learning curve itself, even if we are willing and able to learn, as the data we see is on time-delay.

Three to six to 12 months after the fact, does it become proof of itself?

And is that the whole answer?

Well, no. There’s a little bit more. But that last bit should not be a surprise.

The game is changing.

While we are busy assessing how we are playing it as a team (read: organisation) and how we are performing individually inside the maelstrom, trying to measure and predict and prove and foreshore and protect our place in all this… while we are busy looking decidedly inwards, the game itself is changing.

The rules are changing. What goal-scoring looks like is changing. The shape and size of the pitch and the equipment needed and what crossing the finish line looks like is changing.

So yeah, ask me again why banks are not struggling more visibly, if I am right about all the things I say I am right about.

And I will tell you… well… part of the reason you even ask is that you’ve been trained to look at the world in a way that ensures you miss so much of what is real and only focus on what is immediately useful. That’s why I say the things I say, you see, to help change while there is still time for it.

And part of the reason is that we are a little behind ourselves.

The things we measure are always celebrated after the fact.

Deals signed years ago, clients secured years ago, bets made years ago, finally coming good.

The money is still good in your pocket. The revenue line is still delivering the goods.

How long for, though?

That’s the question I am asking, you understand. Not the one I am asked.

Because money is real and last quarter’s numbers are used as a leading indicator that proves the likes of me wrong, when we say the world is changing.

Not a lagging indicator of bets made long ago.

You know, when you look at the night sky, the stars you see without a telescope are possibly, maybe still shining bright, but the light you see left them approximately 10,000 years ago.

And in that time a lot may have happened to the star. Things that would not affect the light you see.

Because ultimately, to the untrained eye, the light of dead stars looks indistinguishable to any other. But no matter how real the light feels today, it doesn’t prove the star is still thriving. Only that it once did.

#LedaWrites

Leda Glyptis is FinTech Futures’ resident thought provocateur – she leads, writes on, lives and breathes transformation and digital disruption.

She is a recovering banker, lapsed academic and long-term resident of the banking ecosystem. She is chief client officer at 10x Future Technologies.

Leda is also a published author – her first book, Bankers Like Us: Dispatches from an Industry in Transition, is available to order here.

All opinions are her own. You can’t have them – but you are welcome to debate and comment!

Follow Leda on Twitter @LedaGlyptis and LinkedIn.