Cash Is King ?

cash-is-kingTraditional experience would teach us that cash is king, but a recent survey reports that most UK adults are carrying less than £22 in their wallets, barely enough to accommodate an evening out.

With multiple ways to pay, including mobile wallets, payment applications, and tap and go credit cards, the crown status of cash is starting to slip. According to Payments UK, an industry body, 2015 was the first year that consumers used physical cash for less than half of their payments.

Contactless payment is viewed by many as a stepping stone to a cashless society, with smartphones becoming the preferred method of payment. As an example, many big retailers accept “tap-and-go” technology for small-value items, with  TfL (Transport for London) at the forefront of the revolution. Since the launch of Apple Pay in 2015, 8 million journeys on London Underground have been paid for by iPhone users tapping their handset at entry and exit barriers. With this trend continuing, many leading economists are now calling for cash to be phased out.

While cash can trace is heritage back to 600 B.C., when King Alyattes from Lydia (modern day Turkey) minted the first official currency, cash has stood the test of time to providing universal acceptance, instant clearing and anonymity.

For many, cash has a comforting effect particularly when catastrophe approaches. Prior to a hurricane encountering landfall, the US Federal Reserve reports an average of 25% increase in currency orders from Financial Institutions that are in the path of the storm.

As the same time, cash does have a murky side – it is the defacto payment for self indulgent or naughty treats, from illicit activities for a cheating spouse through to tax evasion and illegal activities for hardened criminals.

Challenge of a Cashless Society
The rush to a cashless society risks creating a new social economic class of financial exclusion that will directly impact the poor and vulnerable as well as charities.

In Sweden, the migration to a cashless economy had a negative impact on charitable donations as cashless citizens bypassed the collection tin. In order to support a new era of charitable donations, Sweden’s places of worship have set up a digital collection basket to take offerings via text, credit and debit cards as well as mobile apps.

At the same time, the use of cash can be viewed as a class issues. Many middle-class professionals can comfortably operate from one day to the next without using cash. The only time they would use a sizeable amount of cash is to pay a builder to avoid VAT.

People of limited income are potentially far more trapped with using cash and the costs that go with it, such as withdrawing £10 from a cash point and incurring a transaction cost of £1.50.

For mobile banking, the cost of cellular and data services can be just as prohibitive for low-income consumers both in terms of data costs and wireless coverage. In the UK, there is no single killer mobile payments app that can emulate the social success of M-Pesa in Kenya in providing a mobile bank account for everyone.

Premature Death of Cash
In a new economy where payments will require your phone to be charged, cash will never go away completely. It has survived for centuries and continues to be successful with the freedom it provides from universal acceptance, instant clearing and anonymity. High denomination bank notes will always be required when the tooth fairy calls !

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Digital Disruption – Key Pillars for Success (Part 3)

In my last blog Pillars Three v1.1I discussed the key trends of
Digitisation and Digitalisation, and the process of exploiting digital assets to maximise new revenue and value opportunities. In this blog I will be discussing the key pillars for digital success:

  • Clear Vision & Strategy
  • Architect for Digital
  • Innovative & Agile Culture

The digital agenda is changing the very nature of business, making markets more dynamic and putting the customer at the heart of the organisation. It is no longer sufficient to digitise separate end to end value chains by applying a digital veneer to existing activities. Banks need to move from a product centred approach based upon physical distribution to a new customer centric structure based on digital distribution.

Financial services organisations should consider the lessons from the Telecoms industry where AT&T, a large scale government owned monopoly providing local telephony services in the US and Canada, was broken up in 1982 into 3 separate “NetCos” or baby bells. These individual “NetCos” are responsible for the underlying operation with the “ServiceCos” providing the service direct to the customers. In this model, banks would become “Transactional hubs” or “high cost processing platforms” with new  “ServiceCos” (or FinTechs) providing the service direct to the customers and effectively disintermediating the banks.

Banks are much more nervous about being left with high costs, highly-commoditised processes and not much growth” Morgan Stanley.

Fast forward to 2016 and banks are facing significant structural reform, such as Basel and Dodd Frank legislation, but at the same time have the opportunity to embrace the new digital eco system.

In this new digital ecosystem, commerce and future business success is highly dependent on 3 key pillars of a (i) Clear Vision & Strategy that is (ii) Architected for Digital from the ground up coupled with (iii)  an Innovative and Nimble culture.

1. Clear Vision & Strategy
A clear vision and strategy underpins the digital roadmap and is paramount in order to articulate how digital will support and enable business to reach its strategic goals and aspirations. This needs to be owned by the CEO to drive execution, promoted through opportunities such as digital visioning road trips, to secure buy in and commitment across and down the complete organisation.

2. Architect for Digital
Today, Digital goes beyond mobile and the conventional mobile app. It requires the process of Digitalisation to change a business model and provide new revenue and value producing opportunities.

Digital and the ability to innovate at the core of the organisation is a critical skill set that will require new talents, pioneering capabilities and creative competencies.

Digitally Proficient Workforce
New digital skills will be required especially in new emerging technologies, such as data analytics and connected commerce (IoT). This will require investing in and up-skilling existing teams as well as bringing in skilled and focused expertise in to the organisation.

Arup the engineering consultancy famous for the Sydney Opera House and many of the world’s most iconic bridges is training 3,000-4,000 employees in digital skills.

Operating Model
Critical to success is adopting an agile and iterative operating model, transforming IT development to deliver the speed and agility business users require.

This should be underpinned by a flexible sourcing strategy to utilise increasingly commoditised technology services based on cloud technology, from multi channel commerce enablement and mobile payments through to customer journey analytics.

A streamlined digital operating model will require new governance frameworks to embrace all key business units and ensure that key risks are managed and mitigated efficiently. This will include appraising the risk from the wider technology ecosystem, managing new emerging opportunities and mitigating threats in a well informed and cognisant manner.

3. Innovative & Agile Culture (Digital DNA)
The new digital world is a multi mode, omni channel, multi device ecosystem where the customer is king and innovation, speed of delivery and quality is highly prized.

As part of its new Digital DNA an organisation has to think digitally first and foremost across all its key processes. To support this pace of change an organisation has to adopt an innovative and agile culture, underpinned by cross functional teams that can embrace collaboration and is willing to takes risks to build new capabilities at a faster pace.

In Summary
Digital is all about innovation to put the customer first and foremost at the centre of the organisation.  This can only be achieved by establishing a (i) Clear Vision & Strategy  (ii) Architecting for Digital from the ground up and building (iii) an Innovative and Agile culture.

If you are struggling to understand digital and how it impacts your organisation, please get in touch with me.

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Digital Disruption – Digitisation and Digitalisation (Part 2)

In my last blog MakeItDigitalI discussed a new wave of digital disruption where existing business models are being challenged by agile new disruptors that have been built for the digital age, putting the customer in charge, with social, mobile, data analytics and cloud technologies at their core.

In this blog I will be discussing the key trends of Digitisation and Digitalisation.

1. Digitisation
Many organisations are anxious to get ahead of the curve on digital which is changing the very nature of business and making markets more dynamic, putting the customer first and placing data at the heart of the organisation.

In reality there is no instruction book or  bible on best practice. Digital commerce implementations are dependent on a complex ecosystem of technologies, data, tools and vendors.

To date, many banks are focusing their digital initiatives on “Digitisation” :

Digitisation: “Moving what you did offline (analogue) to online (digital)”

Historically, this has occurred across 3 distinct phases and has mirrored banks internal core systems  by applying a digital veneer to existing activities in order to reduce channel costs and improve operational efficiency :

3 phases of Digitisation

  • 1980 – 2002 Payments, ATM cards and tele banking
  • 2000 – 2010 Access banking remotely 24 /7  improving convenience and cost efficiencies
  • 2010 – 2015 Full digitisation of  sales and after sales

Although worthwhile, digitisation of separate end to end value chains is no longer sufficient by itself to justify future digital investment.

2. Digitalisation
These early digitisation pioneers, have given way to a new wave of “Digitalisation” :

Digitalisation: “Process of exploiting digital assets to maximise business success”

Alternatively Gartner defines Digitalisation as “the use of digital technologies to change a business model and provide new revenue and value producing opportunities”.

New competitors are aware that they can offer customers a more convenient and less expensive proposition by exploiting new service models and industrialising digital assets such as data, cloud and mobile.

Technology is now being used at the forefront of the user experience increasing customer centricity as well as driving innovation in new Omni channel products and services.

This approach relies on offering new technical capabilities (APIs, apps, functionality and connectivity) that support a broader customer use case — one that extends beyond simple financial services transactions such as mortgages and savings.

Digitalisation has already disrupted digital wealth platforms with the advent of new platforms such as Nutmeg and Simple to enable people to manage their money and investments online. The rise of new robo advisors will further accelerate change in this sector.

In addition, consumers are now choosing to invest their savings into small businesses through crowd funding or peer-to-peer lending platform such as Funding Circle and Zopa.

3. Walled Gardens / Digital ecoSystems
Powered by extensive use of big data techniques, data analytics and massive data pools, new digital disruptors are creating new digital eco systems or walled gardens to further accelerate the customer proposition and potentially disintermediate existing players.

These new digital walled gardens, such as Alibaba, Alipay and MyBank, promote both increased customer lock in as well as locking out traditional financial providers.  As an example Alibaba via its Alipay alliance now controls 82% of China’s online payments.

MyBank, an Alibaba backed online bank, uses big data techniques and a data trove of 40 trillion retail customer records to generate a unique competitive insight using predicative analytics of customer behaviours, business sentiment and commercial risk exposure.

4. In Conclusion
Applying a digital veneer to existing operations to make the service more attractive to the customer, is no longer worthwhile in the new digital eco system.

Banks now need to fully exploit their digital assets and update their structure, services and products to remain competitive and relevant in the new Digitalisation ecoSystem.

In my next post I will discuss the key pillars for digital success.

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Digital Disruption (Part 1)

 1. Technical Innovation
For centuries banks disruptionhave been a strong force in driving technical innovation, from the development of the first credit card in 1966 followed by the ATM in 1967, through to the introduction of telephone banking in 1980 and faster payments in 2008.

Fast forward to 2016 and existing business model are being challenged by agile new disruptors that have been built for the digital age, putting the customer in charge, with social, mobile, data analytics and cloud technologies at their core.

These new digital disruptors can quickly build scale and often face fewer regulatory challenges than more established players.

2. Cost of Inaction
In this new digital world, the cost of inaction almost exceeds the cost of action.

The retail sector presents a cautious tale, for example Borders book stores (sales $3.3bn 2001) and Kodak (sales $15bn 1999) paid the ultimate price for failing to anticipate how digital could destroy well established business models.

Blockbuster famously passed on the opportunity in 2000 to purchase Netflix for $50m as it was felt that the on demand / streaming service was too niche, only to see Blockbuster’s eventual bankruptcy in 2010.

Having killed off the DVD market, digital continues to challenge the revenue streams of established cable and satellite providers as customers continue to “cut the cord” and stream TV content over the Internet.

Late action can be just as costly.  WM Morrison, the fourth largest grocery chain in the UK, did not introduce online shopping until 2014, forcing it into a costly shotgun wedding with one of its competitors, Ocado, for which it pays an annual fee of £45m per year.

3. New Wave of Disruption
While digital disruption to date has typically focused on the retail sector, new levels of digital disruption are being focused on the financial services sector. From new Robo advisors for Asset Management through to Online peer to peer lenders and payment platforms, the level of digital change continues to accelerate.

Increased competition from emerging peer to peer lenders, which were first established in 2004 to connect investors to borrowers online, continues to grow at a rapid pace. Organisation such as Funding Club and Zopa continue to challenge legacy business models, offering improved returns for borrowers and investors alike.

Peer to peer “marketplace Lending is in Liftoff, with a 123% Compound Annual Growth Rate from 2010-2014” Morgan Stanley June 2015

New digital disruptors are not weighed down by legacy infrastructure and higher regulation facing the more established players. Operating costs are significantly lower at  2% compared to 7% for traditional banks, enabling digital organisations to rapidly transform, grow and expand new business opportunities.

At the Gartner Symposium in Barcelona this year is was reported that digital organisations allocate a far higher proportion of their investment budget to Transform and Grow new business opportunities (25% / 25% respectively) when compared to a typical enterprise (13% /  20%) as shown in the following schematic:

4. In Conclusion
While digital disruption has been successful in breaking down the barriers to entry for new players such as peer to peer lenders and payment platforms, the question remains will established banking business models face a similar prediction as when Uber disrupted the 400 year old taxi market?

In my next post I will be discussing the key trends of Digitisation and Digitalisation.

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CIO Dialogue

November 2015

CIO Dialogue

Ian is excited to be confirmed as a keynote speaker at the leading CIO Dialogue conference on 2-3 November 2015.

Ian will be presenting a thought provoking session on “Cost optimisation in 2016: Creating long term sustainable value for your organization”.

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Ian Alderton finds a warrior instinct in banking at Bank of Tokyo-Mitsubishi

Check out my interview with Mark Chillingworth (Editor in Chief)  in the leading CIO industry magazine (





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Reducing Enterprise Costs (Part 3)

In my previous 2 blogs on the Key Priorities For The CIO of Tomorrow I discussed Increasing Enterprise Growth and Delivering Operational Results.

In this blog I will be discussing Reducing Enterprise Costs.

In the aftermath of the credit crisis, businesses have suffered a series of major shocks from the Euro zone crisis, such as a challenging credit environment and a lack of market liquidity, significantly impacting business confidence.

Combined with continuing uncertainty, the ability to reduce enterprise costs is now firmly entrenched as the number one priority to re-position and invigorate today’s organisations for success in a new economic landscape.

In the current environment, I.T. is a critical catalyst for reducing enterprise costs. With this comes new challenges and tensions. The technology platform has to be flexible and agile, supporting reduced business costs while at the same time enabling the enterprise to emerge stronger, fitter and leaner for the challenges ahead.

Market trends indicate that the number of companies now cutting costs has climbed to over 50% of organisations, where the magnitude of cuts is often in excess of 20%.

With this comes the critical constraint of how to meet the demand for improved business performance, flexibility and agility while at the same time reducing costs?

In my experience this can only be achieved by seeking out significant and sustainable cost reductions through a process of:

1. Cost Compression
2. Optimisation
3. Re-architect and Re-platform

1. Cost Compression, aka Minimisation
The first step of the process focuses on the quick wins for dramatic cost compression. From renegotiating vendor contracts through to optimised processes to reduce enterprise technology expenses.

This is often achieved by focusing on reducing sales and servicing costs by introducing customer segmentation based on profitability and value, through to industrialising high touch processes through the introduction of self-service digital channels.

New levels of industrialisation can be achieved through the use of new technology, from standardising enterprise applications, such as CRM, through to redesigning IT processes to make use of commodity based SAAS and cloud based technology.

In one of the biggest examples of standardisation and virtualisation to date, BBVA, the Spanish bank, migrated all of its 110,000 employees across 26 counties onto Google Apps to drive increased efficiency and innovation for its global workforce.

These opportunities need to be prioritised according to their potential returns and risks and will typically enable organisation to realise savings in the range of 10% – 20%.

2 Optimise
The second step is to Optimise – to make current process better, faster and cheaper. By making effective use of technology assets, through rationalisation, simplification and automation, organisations can be migrated to a lower cost base to dramatically improve their operating margins and overall profitability.

By reducing operating complexity, such as consolidating and rationalising servers through to standardising and industrialising operating systems, organisations are better able to respond to new challenges and growth opportunities.

New tools such as virtualisation enable organisation to drive greater levels of optimisation through a process of standardisation. By eliminating processes that add little value and outsourcing non-core services, organisation can reduce overall fragmentation, complexity and waste throughout the enterprise.

At the recent FS Tech 2013 awards, the Solstice Programme from Lloyds Bank was recognised as one of the largest network optimisation programmes to date, driving greater levels of efficiency and optimisation, through a process of standardisation, consolidation and industrialisation of enterprise infrastructure.

During the optimise stage, organisations can often achieve cost reductions in the range of 15- 30%, enabling the organisation to be successfully position itself for the third and final phase.

3. Re -Architect and Re-Platform
The third and final stage is to Re-architect and Re-platform the technology proposition. Only by addressing the legacy of aging technology can organisations truly drive strategic and structural cost reduction.

Ageing technology consumes a disproportionate amount of energy, effort and cost thereby depriving the organisation of the very ingredients it needs to flourish. Legacy technology should be reengineered for the future. Mainframe platforms should be retired and ageing core banking platforms should be replaced. In addition, enterprise wide processes such as CRM and document generation need to be restructured to drive new levels of integration, automation and efficiency.

Only by rewriting legacy platforms and restructuring enterprise wide technology can organisations be in a position to drive sustained strategic and structural cost reduction.

This new wave of IT enabled cost reduction will create organisations that are lean and adaptable. These organisations will be built on a platform of sustained strategic and structural costs reduction, driving new levels of competitiveness and benefits to the wider enterprise.

In today’s new world it will be the leaner, low cost, organisations that will survive.

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Biting The Bullet – Delivering Operational Results (Part 2)

In my first post in the series of Key Priorities For The CIO Of Tomorrow, I discussed Increasing Operational Growth.

In this post I will discuss how organisations need to bite the bullet and transform their complex and highly inter connected enterprise architecture to deliver increased operational results.

2. Delivering Operational Results
In today’s world, enterprise technology is typically over complex and inter twined with intricate processes. In a challenging landscape where wholesale replacement is not feasible, changes are bolted on decreasing channel efficiency, driving up operational costs and introducing increased risk of IT failures.

Overall, the complex and inter twined enterprise architecture restricts an organisations ability to breathe and successfully serve its customers, shareholders and the wider economy.

Cross Enterprise Process Efficiencies
A recent Gartner survey identified that :

“Enterprises realise on average only 43% of technology’s business potential”

Furthermore, typical business as usual activity consumes up to 70% IT budget just to maintain the status quo.

Today’s organisations need to exploit new and powerful synergies across the complex enterprise architecture through a process of specialisation.

Transformed Infrastructure
One of the early pioneers in this field were energy companies with vast high voltage infrastructure assets, connecting the length and breadth of the nation.Through a process of specialisation, new synergies were exploited by transforming their infrastructure assets to deliver a new nationwide data network, at minimal incremental cost, by transmitting data over the existing power network.

Similarly large telcos are continuing to transform their infrastructure. In a world where traditional voice calls are declining, telcos are moving from the analogue and cash world to the new digital economy through a process of specialisation. One of the biggest assets owned by the telcos is their billing relationship with the customer. This represents a significant commercial opportunity for telcos to establish new and exciting propositions, such as mobile payments and mobile wallets, potentially disrupting established payment providers.

Japanese telecommunications organization NTT DOCOMO successfully exploited its billing pedigree and created a critical mass of 35m users for its mobile wallet by leveraging existing customer billing relationships.

NTT DOCMO’s mobile wallet, or Osaifu-Keitai as it is known locally, provides identity card, loyalty card, public transport ticketing as well as electronic money by transforming its commercial assets to deliver highly competitive and compelling operational results.

New Operational Opportunities
Only by transforming existing enterprise assets can organisations exploit new synergies and drive new levels of operational results through a process of specialisation. Where power companies and telcos have led, other organisations now need to follow.

In the next blog, I will discuss the third part in the series –Reducing Enterprise Costs.

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Key Priorities For The CIO Of Tomorrow

Consumers are driving the digital economy and mobile revolution, requiring a new level of customer experience and service.

At the same time, the current low interest rate and low margin environment is stagnating growth requiring organisations to aggressively look at new ways to increase their top line revenue growth and bottom line earnings.

In a recent report from Gartner, the top business priorities for 2013 were identified as :

1. Increasing Enterprise Growth
2. Delivering Operational Results
3. Reducing Enterprise Costs

In this first of a series of key skills for today’s CIOs, we discuss Increasing Enterprise Growth.

1. Increasing Enterprise Growth – Next Generation Remote Banking Solutions

In an environment where revenue growth continues to be sluggish, clients are demanding innovative products and greater service. Customers have now come to expect a digital approach to conducting business that is online, mobile, social and real time.

Banks have to respond by focusing on Next Generation Remote Banking Solutions to drive new forms of customer engagement and experience, such as personal finance management and self service capabilities. These new innovative services will deliver increased customer confidence and loyalty while at the same time accelerating the reach and market penetration of new digital banking services.

Furthermore, the next generation of Remote Banking Solutions will offer increased operational efficiencies and effectiveness. From new forms of client engagement, such as new self service channels, through to streamlining the user’s cross channel digital experience, reducing operational costs and driving bottom line earnings.

Only by developing the next generation of Remote Banking Solutions, to drive customer engagement, customer experience and financial efficiency, can banks truly deliver new forms of enterprise growth.

In the next blog, I will discuss #2 – Delivering Operational Results.

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The Rise of The Digirati – A new form of Digital Maturity

In a world where the pace of change is accelerating, a recent report from Cap Gemini ( ), identified the creation of a new class of digital organisation, the “Digirati” that are leading the new digital economy.

Digirati organisations were identified as significantly outperforming their industry peers:

• The new Digirati were 26% more profitable than their industry counterparts.

• They generate 9% more revenue through their employees and corporate assets

• In addition, Digirati create 12% higher market valuations than their peers.

Digital Maturity
What is unique about the Digirati organisations, is that they have developed a new form of competitive advantage in the form of digital maturity or DNA. The report goes on to identify that this new digital DNA has been created as a combination of two separate capabilities – Digital Intensity and Transformation Management Intensity, as shown in the following schematic.

Digital Intensity is the investment in technology enabled initiatives to change how the company operates from customer engagement initiatives, such as location based marketing and social media through to internal operations, such as optimised pricing and real time monitoring.

The second dimension is Transformation Management Intensity, creating the leadership competencies, culture and capabilities to drive large scale digital transformation across the whole organisation. This consists of shaping the vision of the future organisation and joining up disparate and disconnected digital silos, such as a marketing, customer on boarding etc into a unified digital organisation

These organisations have successfully evolved their digital DNA, through a combination of Digital Intensity and Transformation Management Intensity, successfully changing customer engagement models and business operations to drive increased completive advantage.

Companies recognised as having a high level of Digital Maturity, such as Zappos, American Express and ZestCash, have built their success on a number of customer facing processes, such as Social Media, Customer Experience and Operational Processes to define their digital vision and transformation journey.

For large organisation, this can represent many millions of pounds to both top line earnings and bottom line revenue growth.

In a world where there are no digital signposts to follow, the majority of successful stories focus on fast moving start-ups such as Instagram and Piterest.

More established organisations are now starting to respond. Out of the digital haze a new form of organisation is emerging – the Digirati, an organisation that can holistically build new forms of digital DNA, transforming customer engagement models and operational processes, to consistently outperform its industry peers to deliver new forms of digital productivity, profitability and proficiency.

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