Innovation is nothing new in banking. Think about it. Without bank innovation, we wouldn’t have credit cards, debit cards, lines of credit or ATMs — and the list goes on.
Despite that longstanding history of creative change, innovation has never been more required of banks and credit unions than it is today as fintechs and consumer brands branch into banking with next-generation technology. In the modern, digital world, financial institutions need to act and think like technology companies in order to stay relevant and successful.
And there’s even more to it than that. The name of the game isn’t just innovation, but speed of innovation to meet the ever-changing demands of end-users and drive growth. Banks and credit unions that innovate faster to deliver differentiated digital experiences have the greatest chance of thriving in the modern world of financial services.
Let’s take a look at three trends that financial institutions need to capitalize on to be successful now and into the future.
1. Let the Data Drive Innovation
According to a 2021 Accenture survey, 89% of banking executives believe that their business value is tied to their technology advances, and 68% say that the pace of digital transformation is accelerating in their organization.
The best technology companies in the world are masters of utilizing user data to create personalized experiences that set them apart. Financial institutions have some of the most extensive pools of data available — so, why can’t they use their data to do the same?
The short answer is: they can. But it can be difficult to put that much data into smaller collections to discover trends and traits while keeping the data large enough to matter. Expect to see banks and credit unions around the country developing strategies to make their extensive data collections fully actionable.
And as more consumer brands like Netflix, Amazon and Uber raise the bar for personalized user experience (UX), it is imperative banks and credit unions keep up with consumer expectations — and even better if they can surpass them. Context is key to effective use of data.
Path to Success:
When data is properly leveraged, banks can provide a personalized user experience people will engage with.
But differentiating themselves from the market isn’t enough. Financial institutions must also differentiate their users from each other. Treating customers as individuals instead of numbers or categories is a must if financial institutions want to offer an experience tailored to each unique customer.
Better utilization of data allows banks and credit unions to offer a more personalized, differentiated UX — and a better UX keeps customers more engaged. Every interaction provides valuable data, which then helps inform how a financial can better personalize the experience. And that, in turn, deepens the relationship, and the cycle perpetuates itself. But it all starts with knowing how to effectively use the data you collect.
2. Meet the Digital Banking Needs of Small Businesses
From March through May 2020 — during the onset of the Covid-19 pandemic — communities around the country rallied to help small businesses. Take-out dining and drinks, tables set up in the street for social distancing, and other adjustments became a common sight in small towns and big cities. As a nation, we fully grasped the importance of small businesses in keeping our communities and economy thriving. And the importance of small businesses in America is only increasing.
Like individuals, small businesses shifted to digital banking and away from in-person interactions during the Covid era, and analysts expect that trend will persist in 2022 and beyond. Financial institutions, especially at the community level, will need to evaluate their digital business offerings and ensure that they can keep up with the demands of small business owners, and go well beyond simple financial transactions.
Expand Your Horizon:
Banks and credit unions can’t apply innovation to just the consumer market. Small businesses want (and need) innovative digital tools too.
Accounting and invoicing technology, modern payroll solutions and intelligent loan payments are all services small business owners need — and financial institutions must figure out how to create a digital ecosystem that can offer those essential services to keep these valuable customers engaged.
3. Embrace Embedded Fintech
An increased focus on digital offerings expands revenue streams beyond banking. Linking digital banking to third-party services like financial wellness, credit monitoring and other best-in-class innovation for financial services gives the end user a versatile and convenient choice in the market. Even smaller financial institutions have an opportunity to take advantage of this tactic through integrated platforms like the Q2 Innovation Studio, which partners fintechs and other innovative digital solutions with traditional institutions.
These pairings help all stakeholders involved. The bank acquires and maintains more customers, the fintechs and other technology partners attract new users though a large captive channel and the end user gets more options to diversify their financial experience, all in one place.
Fintechs are booming. In 2021, they brought in over $90 billion in funding, more than double what they brought in collectively in 2020. And although not all fintechs are created equal, traditional financial institutions would be wise to partner with the ones that have shown market staying power, and more importantly, solve real problems for their end users.
Partnering with these established fintechs is a key to entry when it comes to the innovation race. The good news is, there are plenty of opportunities to form these partnerships and mechanisms to quickly deploy these solutions to a financial institutions end users.
Banking culture is traditionally and appropriately risk averse, which is an inherent speed bump that can make a financial institution reluctant to forge these fintech partnerships. But that’s counterproductive. Banks and credit unions absolutely must hop on this trend sooner than later.
In the present reality, change will happen, and it will happen quickly. The key is for financial institutions to be at the forefront of that change rather than be late to the party.
Innovation in Banking Isn’t Simply Improving What Already Exists
There’s a famous quote many attribute to Henry Ford: “If I’d asked people what they wanted, they would have said ‘faster horses.’” In other words, it isn’t always about improving what exists. Sometimes, it’s better to build something completely new. In the world of digital banking, financial institutions have to adopt technology that can quickly integrate and fully utilize customer data.
These trends will carry on well past this year, setting the stage for a continually advanced digital banking experience and creating expectations for years to come. For true success, banks and credit unions must be prepared to innovate, instead of playing catch up in a growing market.
While Ford may or may not have said the above quote, he did say, “Be ready to revise any system, scrap any method, abandon any theory, if the success of the job requires it.” The necessity of innovation was as evident then as it is today, and traditional financial institutions have to adjust their view of banking to continue operating in the modern world.