The banking industry is increasingly competitive, with product development, delivery and consumer engagement all being driven by the need for a more mobile, social and data driven experience. To this end, banking innovation needs to focus on creating a customer-centric business model and an infrastructure that is seamless to the customer.
In a world where empowered, always-connected consumers expect to interact with companies in real-time – and no longer rely solely on traditional channels – banks cannot be focused on today and must think about serving the customer of the future, lest they risk irrelevance.
That was the warning from Kevin Hanley, Director of Design, Services, at Royal Bank of Scotland, when he spoke about innovation at a Financial Services Forum. “We spend most of our time in this industry fixing today, and making incremental improvements,” Hanley added. “Innovation is different, it’s thinking about what tomorrow holds. And about making disruptive change happen.”
Hanley noted some oft-repeated facts, such as that the world’s largest taxi company owns no vehicles (Uber) and its largest accommodations company owns no real estate (Airbnb), and said the same disruption is happening in banking. “Banks don’t own the end-to-end chain anymore,” he said. “You don’t need a bank to raise funds, to buy or sell currency, or to get a loan. Around 15% of payments currently are done through non-bank payment providers.”
To that end, RBS is actively engaged in prototyping and building technology it believes will power the bank of the future, as well as examining the fintech landscape for firms to potentially partner with or acquire to achieve that goal. Hanley said RBS looked to companies that have an innovative culture to aid in its attempt to become more innovative and agile despite being a large organization.
He recalled a recent meeting he had with Tom Chi, co-founder of Google’s skunkworks lab Google X, who said the amount of time between the initial idea for Google Glass and creating the first, albeit rudimentary, prototype was only six hours. That was a wake-up call for Hanley, as banks do not work nearly as fast on innovation, which often gets stifled internally due to a perception of risk or uncertainty and a lack of a sense of urgency. That’s why RBS ramped up its internal technology innovation division in order to try and stay ahead of the game.
Hanley noted some of the technologies RBS is looking at and that he believes will impact the future of banking. A major one of these is cognitive computing, which can understand, analyze and solve problems without humans. This type of technology is already in use in wealth management with so-called “robo-advisors” and will continue to impact financial services.
He also called the blockchain “the most disruptive of any new technology” and equal to the invention of the internet in terms of impacting the transferring of information. Hanley also pointed to biometric authentication as soon to replace passwords for security purposes.
Ross Wainwright, Global Head of Financial Services for SAP, said that the rise of investment in fintech is proof that the future of banking is changing, and soon. He noted that fintech companies raised $2.3 billion in capital across 25 deals in 2015 alone.
“Fintech providers are changing financial services through delivery and consumption,” he noted. “They’re targeting millennials and leveraging innovation to attack a pain point.”
And banks who are smart are partnering with or acquiring these companies, or incubating their own fintech startup capabilities. As an example of banks already planning for the future, Wainwright noted that ANZ Bank of Australia is trialing a mortgage application done entirely via a smart watch.
Ultimately, Hanley said, banks need to greatly change the speed with which they innovate and bring new products to market.
“If we don’t find new ways of innovating, and co-innovating, we run the risk of becoming ideally suited for a world that’s passed us by,” he said.
Wainwright agreed in a pre-conference post saying, “As digital technologies play an ever-greater role in the way that the financial industry interacts with customers and its workforces, firms must ensure that they build a foundation for digital change. Fail to do this and firms risk becoming disenfranchised from customer bases and losing market share to smaller, more agile players that can better harness technology to deliver a customer experience more aligned to customer expectation.”