Re-imagining the Global Banking Industry | Keshav R. Murugesh in Conversation with Peter Dahlgren

Keshav Murugesh – Group CEO, WNS

Hello, and welcome to this edition of "The Turning Point."

I am Keshav Murugesh, Group CEO of WNS, and the one who has the ability to ask all the questions today.

'The Turning Point', as the name suggests, is about 'stories with a difference that made a difference' – and we will have them narrated by the very leaders who made them happen!

Each one of us have been through turning points in personal and professional lives. What we did at those points, how did we steer ahead is a story by itself. That is the essence of Turning Point, a channel for finding those stories and the individuals in each of these stories.

My guest today is an extremely eminent and successful banker. Let me introduce you to Peter Dahlgren who has held multiple executive leadership positions across various financial services institutions in the Nordics region.

Based out of Stockholm, he is currently the CEO & Founding Partner of Confidus Venture Capital AB. His philosophy is to build and invest in high value and exclusive companies. One such company is EvoluteIQ, a London-based Hyperautomation enablement business, in which Peter is the Chairman of the Board of Directors.

Before making a mark on the investment scene, Peter was the CEO of Nordnet Bank, a leading new age bank in Sweden, where he spearheaded Nordnet's focus on leveraging Digital and Artificial Intelligence for Banking. He was also the Chief Executive Officer and a Member of the Executive Board for the Life and Pension business for SEB, a leader in the Insurance & Banking space in the Nordics.

Thank you, Peter, for taking time to discuss the turning point in the banking and financial services industry from your perspective. We have just 25 minutes for the conversation. So, I will shoot right ahead.

Peter Dahlgren – CEO & Founding Partner, Confidus Venture Capital

Thank you Keshav. Nice to be here. It will be very interesting talking to you.

Keshav : The economic fallout from COVID-19 is being experienced across all industry verticals - Banking is no different. What are you seeing in global banking - and specifically, in the Nordics region?

Keshav Murugesh – Group CEO, WNS

The economic fallout from COVID-19 is being experienced across all industry verticals - and banking is no different. Peter, what are you seeing in global banking - and specifically, in the Nordics region?

Peter Dahlgren – CEO & Founding Partner, Confidus Venture Capital

As you said, banking is no different from other industries. We are in the same storm but are in different boats, I guess. And the thing is that banking is less vulnerable to these things than other industries, and that is basically because it is a regulated business. And since the last crisis, the 2008 Financial Crisis, regulators have put up barriers to entry to banking. So, they are not in natural need and there is no new real competition. So, the ones within the barriers have acquired a nice environment. But of course, it will be short term stress for the banking system because people want credit. The banks need to support their clients otherwise many clients won’t make it. There is a huge difference between doing small enterprise banking, large enterprise banking, private banking and personal banking. So, they are in very different positions.

Peter: But in general, short term stress and need of capital, but the big thing, I guess, is the fast track of the already existing digitalization kind of way. This pushes the banks also in regions where focus on digital hasn’t been so much. But for natural reasons it pushes banks to invest in digital to be able to compete or service the clients. So, a new service model basically. It’s disruptive, totally disruptive I would say.

Keshav: COVID-19 has turbo-charged the shift from brick-and-mortar banking to a more agile and digital-led services model - including online and mobile banking. What are the areas banks should focus on during this turning point in history? What will help them gain a competitive advantage?

Peter: I think that the difference is already seen in the world. And globalization for obvious reasons has taken a step back, especially in banking. First with their crisis, actually making everybody focus on their core clients, on the core areas, where they come from. People started to realize that no friction capital flows will not happen at least for a while. Because the central bank or the central governments have to support their banks, as they want to support the country’s exposure basically and don’t want to bail out to other countries. And that is what was the end of the huge mega banks with the total global model. And that means that local champion banks, at least for a while will be having an easier time to compete. In the Nordic region, it is a small region compared to others, and the banks here in the Nordic region are smaller than the global giants and they are protected by the global giants on their own terms. So, actually the Nordic Banks are pretty well-off and they have been investing heavily in digitalization and are at the forefront in digital offering for all clients- both smaller business clients and the larger institutions, and also private persons. There are some countrywide initiatives making it easier to build good experience for clients. There is a joint system for ID control to know who is who, the bank ID installed. This makes it easier for all banks to create user experiences. But in general terms, people have to invest in UX, customer journeys and creating nice experience. In long term, the branch offices will of course transform completely. Disappear to a certain extent. But not really.

Peter: I believe that one of the strengths of the bank, this was something which I was advocating very strongly when I was a banker in the executive board of one of the biggest Nordic Banks, SEB, the oldest bank actually – that was, we need to change how we operate with the branches. Don’t have many but we need branches because they are important branding tool. We should do different things on the branches. We should digitalize the whole process. People should be relationship people in the branch. Not credit people or investment people or administrative people. Nothing like that. It should just be a branding tool and a relationship tool. But it is very important to be able to compete with all the pure digital models if you want to have a bigger market impact– if you can’t have the absolute sharp offerings in each segment at least you want to have a broad impact, you need to have some sort of local touch, not in all cities but in the major cities. So, it’s not zero branches for most people. But it’s less branches and other things being done there.

Peter: So, that means that banks need to invest heavily in digitalization. And that goes from front to back. And I think now, at least in the Nordics but also many areas in the global landscape, it is all about hyperautomation. It is all about how to use the new technologies to automate in a way where you not only have less costs but also you are faster to market and develop new products. So, the new products should create new experiences, use cognitive, ML, AI and fractal science. And one of the biggest things, is not just use all these things, but get structured data out of unstructured data. I think that is a big game-changer for banks.

Keshav Murugesh – Group CEO, WNS

As companies run the risk of fraud more than ever today, regulators are becoming stricter with issues such as KYC and AML. What are the new opportunities here for technology to help the banking industry?

Peter Dahlgren – CEO & Founding Partner, Confidus Venture Capital

Banking is quite the most stable of businesses you can imagine. Creating credits for enterprises and private persons will always be demanded. And the governments want to control that process. That means banks are here to stay and will not be disrupted. They will be making new names and new ways of doing it but it will be the same structure. However, Bitcoin and Blockchain or whatever it is, it will be the same kind of system because that is the way we can control the economy and who is financing what. So, we don’t have people doing crime with money.

Peter: The business is stable, but it is two major threats. First and the biggest is actually Cybercrime. Because all these new technologies are not only used by the good guys unfortunately. It is increasingly used by the bad boys too. And the whole crime scene going from robbing the cashier because there is no cash, to robbing the banks with digital tools. And there are factories all over the world. You know that as good as I do, which is trying to penetrate banks thousands of times every second. It is a constant battle and a battle about using technology to win. So, banks have to invest in this heavily. And that means massive businesses to do for tech companies because banks have to be able to compete and win this war, to be able to have very strong ecosystems with best-in-class tech providers. Banks have to be better in managing this, and become more tech player. So, they are shifting their cost base from operational and staff cost to technology in a massive way. Been doing for a decade or so but it is continuing in a more accelerated pace. So, that is one – Cybersecurity.

Peter: The second is that you don’t invest enough in technology, so you will be left out when everybody gets this hyperautomation going. So, you get the efficiency just not in terms of cost terms, but also in productive elements. This has started already but it will be escalating when the technology is mature enough to rescale on a big level.

Keshav: Excellent! Moving quickly to how the traditional banking world can collaborate with new-age digital providers in the Fintech and the RegTech space. Any points of view?

Peter: Obviously, I have because, I have been doing this for many years and I have always been investing in technology. Also, being a banker, I have seen the world coming together and banks becoming technology companies. It has been clear to me for 10 years or so that this will happen. And the thing is that banks have to build strong ecosystem. Put themselves in the middle of the very strong ecosystem. They have to partner with the best, and add a view on what they want to create - The total experience they want to create. But you know being yourself, one man is strong, is not really the way to go. You have to be open; you have to open architecture; you have to work with the best-in-class. Otherwise you won’t be able to compete.

Peter: So, that gives a lot of opportunity for FinTech’s to thrive and build fantastic tech companies, not only in KYC and AML but in all aspects of the service. Banks have to choose what they have to do themselves. That’s the core of the whole thing. And then have a flexible ecosystem which is their partners which is more long term but they also have the shorter-term partners. The important thing is embracing all this technology without killing it.

Peter: Twenty years ago, banks said let’s buy this technology and put it in our IT department. Nobody does that anymore because they know that the whole will be killed by that. Also, big banking operations are something completely different from this innovative culture. So, everybody is trying to have this investment but let them have their own lives so they can contribute with innovation to the banks. And I think that is the way to go and I see the most successful banks are doing that in big scale.

Keshav Murugesh – Group CEO, WNS

Great! In the aftermath of COVID-19, what is your advice to leaders in terms of changes that must be made inside banks and financial institutions that will impact talent recruitment and retention?

Peter Dahlgren, CEO & Founding Partner, Confidus Venture Capital

They need to very structurally try to get the culture of innovation into the bank. Basically, they need to invest heavily in intelligent hyperautomation. That’s just number one. And second is security. These two they need to invest in as a core. And live that culture of using this technology. And I think that in itself will bring out the innovative culture.

Peter: But of course, we need to do a lot of more things, like have the digital labs and educate the employees. Because many people are brought into banks to do risk control and not innovation. And that parallel is very important to deliberately manage.

Peter: Without an innovative culture, eventually, even the banks will die. But as I said, this automation will be much harsher on industrial companies, and large enterprises running the old business model. And that will be extremely fast and painful. I used to say – tech has come to a position where they have created a lot of value. More in the US than the rest of the world, because US has embraced this technology in most companies and invested much more heavily in technology than for instance in Europe. But it’s just now the pace of this has accelerated. The value creation will be enormous.

Peter: The next 10 years there will be more wealth created than the last 100 years, thanks to these new technologies bringing out new products and businesses. But the problem is not all business models will survive. And I think COVID-19 is just pushing this. So, it becomes much more evident which models are dying and which are not. And that is just a very hard and painful fast track of the whole process. Now that process in itself won’t slow down after COVID-19, it will rather accelerate because of the mind-blowing efficiencies humanity will gain out of using AI, ML, fractal science and all of these technologies.

Peter: And now is the moment as I see it when banks, and even more so industrial companies embraces technology and its efficiencies which they will get in couple of months would be amazing once they implement them. And that is so exciting to be part of. But it also has a flip side of that coin. Enterprises will not be able to compete which are not investing, don’t see this trend coming, which are too slow on this, will just not survive. And that means we will have a divided society of the winners and the losers. Much faster and harder than ever. It has always been there but this time it is faster and the magnitude and the wealth is bigger. And that is what I see. You can see it as a very positive position but it is also going to bring problems later. And I am happy that I am not a politician.

Keshav Murugesh – Group CEO, WNS

I mean this is the time Peter for us to move into what we call our rapid-fire round. I will ask you some quick questions but we need you know one word or two-word answers, not more to maintain the spirit of rapid fire. So, first question.

Keshav: 2021, doom or boom?

Peter Dahlgren – CEO & Founding Partner, Confidus Venture Capital

I would say doom for the non-digital business models and boom for the business models which will survive.

Keshav: Excellent! You used both the words.

Peter: I am a positive person. So, I say boom.

Keshav: The one thing that COVID has changed about you and your business.

Peter: Actually, Confidus Venture Capital has been focusing on this because the industrial revolution 4.0 is what we invest in. So, we have seen this coming as no surprise. This wave will be a monstrous wave. It is like a wave which we have never seen. And it is all about getting on top of that wave. Because it is building and it is building fast and it will be creating all this wealth. We have seen that, we have positioned ourselves for that, we have trained for that, and we have done the right investments and we will keep on doing the right investments in it. So, I think it is just happening a little bit quicker than even I thought and I thought it was happening faster the whole digitalization. But I am sad COVID-19 has brought it down because it is terrible for the and humanity and many people getting caught by this. But it just accelerates everything we have been building for.

Keshav: What gets you out of bed in the morning?

Peter: To create a fantastic management team and create value.

Keshav: One thing which every business should be thinking about in 2021.

Peter: How on earth am I getting on top of this wave? Because I don’t want to be under it as I will be killed in no time.

Keshav: Excellent! And what is that one thing that skiing teaches a banker like yourself?

Peter: Actually, skiing is for me the only thing I do in life when I have no pressure on myself to be good or to achieve anything. I am just skiing. So, for me it is just a very relaxing thing to do. It is a lifestyle I have.

Keshav: Aurora Borealis or the Scandinavian Mountains for you?

Peter: I am brought up in the Arctic Circle actually. Arctic Circle - Northern Sweden – Northern Stockholm. The Northern Light is something you see every year, very often. So, it is just it is like seeing the Sun. It is just not a big thing to us. But I understand it is not too many people. So, I must say that I am happy to have it but I really love the Swedish Mountains.

Keshav: Wonderful! I think time to wrap up now Peter. Thank you very much for some fantastic perspectives. It’s been great listening to all your views. Life’s turning points indeed happen at the edges of one’s comfort zones. From someone like Peter who has voluntarily crossed comfort zones even without a crisis, it has been an incredible insight into how the banking and financial services industry can go beyond reacting to and moderating the economic impact of COVID-19. I hope you enjoyed this story behind theTurning Point. From an industry agnostic point of view Peter’s responses are a positive reminder that businesses need to look beyond the crisis and use it to reimagine their purpose and roles in the new reality that awaits us.