Innovation ranks higher than ever in banking. The majority of financial institutions place it close to the top of their digital transformation strategies. Many teams understand innovation as a project or task, but it’s actually the way to make customers’ lives better.
While prioritizing innovation is certainly prevalent at most financial institutions, actually fostering innovation in their processes and products is a complicated issue that digital banking teams struggle with.
Additionally, customers today expect their primary banking provider to offer seamless and convenient experiences similar to those of Apple, Google and Amazon, or the various digital-first challenger banks. Only a small percentage of traditional banks manage to somehow meet these expectations. This makes fostering innovation all the more pressing.
First, Understand the Obstacles
Innovation is often thought of by digital banking teams as something that takes too long and costs too much. Before this view can be changed, team leaders must first understand the reasons that hinder the implementation of innovation.
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There are four common roadblocks that digital banking teams face when it comes to infusing innovation into their work:
- They don’t know what’s feasible and are unable to justify their business case.
- They believe regulation doesn’t allow them to actualize their innovation goal.
- They believe legacy infrastructure over-complicates the process.
- They are overloaded by trying to reach competitive parity.
Below we explore each of these in detail and offer suggestions for removing or overcoming these obstacles to innovation.
Obstacle 1: Feasibility and Business Cases
One of the primary reasons for digital banking teams struggling to innovate is not knowing what is actually possible to be achieved. They often don’t have actionable data or knowledge of the various technological capabilities, latest implemented innovation and best-practices worldwide, which could serve as inspiration for their work.
Read More: Why Most Banks Fail at Innovation (And Why TD Bank Doesn’t)
Also, the lack of resources and poor business cases — missing a holistic approach and a realistic implementation plan — make it impossible for financial institutions to actualize their innovation initiative.
Consequently they have trouble effectively calculating the risk.
What to Do:
Study how the most innovative banks have tackled the same user needs. In that way, your teams will be able to see what’s applicable to their case and what best practices they can adopt, which can help them convince management of what’s feasible and to size up the risks.
Obstacle 2: Regulation
Regulation is always an impediment to digital innovation. Complying with regulations, while necessary and unavoidable, should not, however, prevent you from innovating.
Tackling regulation appropriately, but also smartly, so that it does not confound your innovative processes is difficult, yes. But consider that other banks and fintechs worldwide have managed to successfully offer compliant digital financial products and services that customers truly respond to.
What to Do:
Banks and credit unions should build a hybrid team between Digital and Compliance. This team should put themselves in customers’ shoes and work together to find workarounds by combining different solutions that offer a more frictionless user experience.
Obstacle 3: Legacy Infrastructure
For most financial institutions, supporting and sustaining legacy systems takes much of their allocated technology budget. Changing that is a process that can take years to complete and might be equally exhaustive of your budget.
“Customers don’t care what your core banking technology is. They only see the outcome of your work and how that relates to what they need.”
This shouldn’t be a reason, though, for not making replacement of legacy infrastructure a priority. It should be a priority, but not at the expense of your customers’ experience. Understanding and catering to their needs should remain the ultimate priority even during the challenging time of an institution’s digital transformation.
We’ve seen great examples around the world of traditional banks that have achieved the roll out of innovative features and journeys. They’ve done this by embracing fintech partnerships and smart technologies.
While legacy infrastructure might place roadblocks towards infusing innovation, it is paramount to work around it to offer innovative digital products.
What to Do:
Get rid of the old-school practice of doing everything internally. It doesn’t work anymore. Embrace technology providers and fintechs that have already invested in modern technology.
Obstacle 4: Overloaded Teams
Last but not least, the most common issue across all digital banking teams, regardless of the size of the bank, is being overloaded just covering the basics.
These teams strive to develop the absolutely necessary digital banking products — with little knowledge of how others have already offered them — leaving no room for creative thinking and innovation. Teams of this size are stuck trying to re-create experiences that others have already created, and trying to push past obstacles others have already cleared.
On the one hand, this is due mainly to limited resources that will help teams speed up their product development process and sharpen their competitive edge. On the other hand, many institutions have never invested in creating an environment that empowers employees and teams to think outside a very constrained box.
What to Do:
Ask for tools and resources. That can let you focus on what really matters, not the basics. Improving the product development process will have a direct impact on your team’s availability — and ability – to start thinking more creatively and introduce innovative journeys and features.
So before advocating for more innovation it’s important to understand the factors that are hindering the process right now. Then by tackling each of these issues, digital banking teams will be able to start introducing innovation into their everyday work.
This will be reflected in their digital banking products and place them ahead of their competition and inside their customers’ hearts.