In his book, The Innovator’s Dilemma, Clayton Christensen recognized that outstanding companies can do almost everything right and still lose market leadership – or disappear altogether – if they don’t challenge or abandon traditional business practices. He identified that in order to protect market position, dominant firms (or industries) tend to underestimate or dismiss competition, or they react slowly in order to protect more mature and lucrative markets.
Many believe this is the position that the banking industry faces today. By not providing the foundation or internal support for disruptive innovation, banks and credit unions play into the hands of new competitors and fail to make the bold moves necessary to react to disruption already under way. Christensen called this reaction ‘The Innovator’s Dilemma.’
To succeed or possibly survive, financial institutions need flexibility and a willingness to change and try new things. Banks and credit unions need to be aware of changes in the marketplace and be willing to experiment with new ways to deliver services and possibly even build partnerships with non-financial firms to remain relevant.
Some financial firms and bank and credit union executives ‘get it.’ Others don’t. Eventually, the outcome of these decisions (or lack of decisions) will become more clear. The question is whether to get engaged as a fintech innovator or to remain on the sidelines watching others.
Bank Innovators Council Road Show
To help address the challenges that surround the building of an innovative culture in banks and credit unions, and to provide a forum for sharing and creating new ideas, the Bank Innovators Council has announced a twenty-two city Road Show beginning later this year. Under the theme, ‘Thriving in an Era of Digital Disruption,’ the Road Show will consist of half-day workshops in 22 cities across North America to share research and insights and to inspire more innovation in banking.
The workshops have been jointly designed and developed by the Bank Innovators Council (BIC) and Innovation Cafe and will be facilitated by Innovation Cafe CEO Jay van Zyl, PhD, and BIC co-founder, JP Nicols. Dr. van Zyl is an internationally accomplished entrepreneur and adjunct faculty at the Gordon Institute of Business Science at the Pretoria University with a specific focus on innovation in financial services, and Nicols is a former senior bank executive who has also been recognized globally as a leading voice for innovation, strategy and leadership in financial services.
To find out more about the Bank Innovators Council and the upcoming Road Show, The Financial Brand conducted an exclusive interview with JP Nicols.
Read More: Disruptive Innovation In Banking
What is the Bank Innovators Council? What is your mission and vision and why would an organization want to get involved?
JP Nicols: We started the Bank Innovators Council in the Fall of 2013 because we saw that FinTech entrepreneurs had a lot of support to help them create new ideas from incubators to accelerators to venture capital – but nobody was helping the banks and credit unions.
We are a membership organization that helps support, promote and facilitate innovation within and amongst our member organizations. We provide a 24/7 ecosystem to help members gain insight and perspective to assist them in keeping their organizations relevant for their customers. This means that members can share best practices and develop and test new ideas outside of the day-to-day demands of their existing businesses. We have been fortunate enough to have the sponsoring support of ARCA and Yodlee to fuel our growth and the Road Show.
How many members do you currently have and what is the composition of the membership?
JP Nicols: While we don’t disclose our specific numbers, we currently have members in 35 U.S. states and 51 countries on 6 continents. About 60% of our membership comes from directly within the banking industry – bankers and credit union executives from all levels and from institutions of all sizes, and the rest are FinTech entrepreneurs, service providers, industry analysts, etc.
When you think about where change and innovation has been coming from in financial services, the composition isn’t really surprising. Long term, we would like to expand the banker and credit union executive membership to around 75%. We will also be rolling out institutional memberships for the banks and credit unions themselves, which will focus on the research and content that we generate and curate.
What challenges have you faced over the course of the past year?
JP Nicols: The biggest challenge so far has been to change the conversation and the culture at many of the smaller, community organizations. The word “innovation” to many of these firms sounds risky, scary, and even a ‘luxury’ – something they might get around to some day.
We are trying to convey that ‘innovation’ doesn’t have to be a cutting edge piece of technology … it may be as simple as turning ideas into outcomes. Whether it’s growing new revenue streams, finding more efficient ways of doing business or simply keeping up with ever-increasing consumer expectations, banks and credit unions have to move forward or risk the world passing them by.
On the other hand, there have been a few pleasant surprises over the past year, but two really stand out. First, when we launched, we thought the big bank innovation needs were already well-served with internal and external resources. What we found was that these firms have an insatiable appetite to learn from others and contribute to the conversation. Some of the largest financial organizations in the world have attended our events, and their feedback has been very positive.
Secondly, we thought we would be, more or less, a domestic organization. Instead, our message clearly has great appeal globally. We have developed relationships with organizations all over the world, and we already have a chapter in Australia. Our goal is to create vibrant local chapters all over the country and all over the world.
Read More: Bank Innovation Through Collaboration
Who do you hope attends the BIC Road Show and what do you want the attendees to walk away with?
JP Nicols: We are inviting bankers and credit union executives from institutions of all sizes to join us for a series of hands-on, intimate workshops. We are limiting participations to the first 25 financial executives in each location, so each person will have a unique opportunity to join directly in this global dialogue in their local market, in their local context. We will be sharing research and best practices, and we will be engaging them in activities to help them focus their thinking and their actions to turn ideas into outcomes.
Our lead facilitator, Dr. Jay van Zyl, has a PhD in Innovation and he is accomplished as a professor, an author, an entrepreneur and a consultant to some of the world’s most innovative financial organizations. Participants will walk away with new perspectives on their most urgent challenges and opportunities, plus some practical, tactical tools as well.
Why did you decide to go on the road as opposed to bringing everyone together in one place?
JP Nicols: We will be visiting 22 cities as part of the Road Show, kicking off on September 3rd in Birmingham, AL and conclude in Los Angeles in mid-December. We will also visit New York on September 22 for our Bank Innovators Lab Day right before FinovateFall. Our Lab Days include a larger and more diverse group, and the focus is on helping banks gain context and perspective around the dozens of new product demonstrations at Finovate.
The purpose of our Road Show is to reach bankers and credit union executives we might not otherwise reach. Some financial executives can’t attend events like Finovate, Next Bank or the Financial Brand Forum, and our Road Show gives them a new way of learning and networking in their own back yard.
The theme is ‘Thriving in an Era of Digital Disruption,’ and the focus is a little less on specific FinTech ideas and more broadly on what organizations have to do to stay relevant to consumers to fuel growth. All workshop locations and dates, as well as registration information can be found at bankinnovatorscouncil.org/RoadShow.
Will you and your team be collecting insights as part of your tour?
JP Nicols: Yes, more than a one-time event in each city, we will be learning about challenges across North America. We know some challenges will be unique to each location, but some will surely be universal. As a result, all attendees will receive a post-tour recap, allowing them to learn how others are facing similar challenges and gaining insight from organizations not otherwise available. Our aim is to build a global and relevant community around banking today that is highly inclusive of all organizations regardless of size or type.
What are the biggest hurdles you see within organizations in trying to move the innovation process forward? What recommendations can you provide?
JP Nicols: The process of innovation is very different than most of the activities that bankers and credit union executives perform on a daily basis. Most financial executives are selected, trained, rewarded and promoted based on their ability to identify, quantify, manage and avoid risk. The innovation process involves taking a bunch of small risks and trying things that are hard to identify, quantify and manage … the Innovator’s Dilemma.
Financial leaders have to recognize that, despite the tendency to continue with ‘business as usual,’ it’s possible to take small, measured risks with new ideas that won’t put their institution at risk. They have to create an environment where some appropriate creativity and risk taking is not only allowed, but encouraged and rewarded.
Some of the most successful innovators in banking have come from outside our industry. They have an outsider’s perspective and they haven’t been marinating in a culture that looks for ways that things could go wrong. I applaud Capital One for bringing in Dan Makoski from Google to be their first Vice President of Design.
We’ve also seen a similar approach at two very different institutions in Boston. Cambridge Trust is a $1.4 billion community bank, and Brown Brothers Harriman is the oldest and largest private bank in America. They both took a very pragmatic approach to innovation and brought in new people with a mandate to deliver financial results from new products. Jane Mason, VP and Manager of Innovation Banking at Cambridge Trust had a background in technology and finance, but she wasn’t a banker. Phil Swisher, SVP and Head of Innovation and Brown Brothers Harriman, is a former Goldman Sachs analyst and serial entrepreneur.
Read More: Banks Ramp Up Investments In Innovation
Within the US, which institutions do you think have the best innovation process within their organizations?
JP Nicols: I still have an affinity for my alma mater U.S. Bank, and I was there when their CEO Richard Davis drew a line in the sand in 2007 and decided that it was time for the bank to be “more innovative”. They were then, and still are now, one of the very best performing banks of any size in terms of ROA, ROE and Efficiency Ratio.
Today, many of their new services, including their photo bill pay and augmented reality phone app have received critical acclaim. They created a new creative and experimental culture and fit it into their incredibly disciplined management process. A lot of small experiments fail cheaply, but those that show promise are funded and expanded quickly, and they are still a top financial performer.
I’m definitely a fan of Capital One as well as Bank of America, Chase and Wells Fargo. It’s not lost on me that these are some of the world’s largest banks. But I also look at how Umpqua Bank has grown from a $2 billion community bank from a small town in Oregon into a $22 billion regional powerhouse. Their embracing of innovation has certainly helped drive their outsized growth.
Finally, Mercantile Bank of Michigan is doing a number of innovations around partnerships with companies like PayPal, MoneyDesktop and Bill.com … definitely punching above their $1.4 billion weight class.
Read More: Innovation Continues at Simple
Why does it seem that more innovation is coming out of countries other than the US?
JP Nicols: Interestingly, I’ve had the chance to spend time in 10 countries in Europe and Asia in the past year and I’ve talked with hundreds of people from dozens of other countries on those and other continents, and everyone is convinced that the innovation grass is greener somewhere else.
I don’t think that any country or region has the market cornered on good ideas, but I do think that more than anything else, markets viewed as innovative have an active entrepreneurial community. People are still flocking to Silicon Valley to launch, grow and fund their FinTech ventures, but there is plenty of great competition heating up from New York, Boston, Austin, Seattle and Charlotte in particular.
London has crowned itself the global capital of FinTech for good reason, but the British complain about their regulatory constraints every bit as much as Americans do. Accenture just opened their third FinTech Innovation Lab in Hong Kong (after London and New York), while Singapore will continue to be a strong rival for them in Asia.
I think that regulatory bodies will always lag the market, and while not a good excuse for not moving forward, I think the regulators need to take a broader view of what consumers want and need in financial services and encourage financial institutions to find new ways to meet those needs.
What do you see as the future of the Bank Innovators Council?
JP Nicols: As far as our organization goes, we want to have engaged communities of financial executives in every city, and we would ultimately like to have membership from virtually every financial institution. We also will be continuing to build our social research and content platform through our partnership with Innovation Café.
More broadly though, our ultimate goal is to change the culture in banking and spur more innovation all across the industry. Turning ideas into outcomes!
Sideline Sitter or Engaged Innovator
From the discussion with JP Nicols, it is clear that bankers and credit union executives need to decide whether to remain on the sideline or to get engaged as a fintech innovator. Much more than a decision whether to participate in the BIC Road Show (or our Financial Brand Forum), the decision financial services executives face is whether to rest on our collective laurels or become part of the disruptive innovation that is occurring in financial services.
The Innovator’s Dilemma is real, but it’s the reaction to disruptive pressure that defines leadership and organizations, not the pressure itself. If financial services organizations can make use of their expertise, smart people, relationships within and outside the financial services industry and opportunities to expand horizons through workshops and conferences, they can find ways to move forward and fight the Innovator’s Dilemma.