The demand for innovative financial services has never been stronger, with consumers testing new solutions from legacy banks and credit unions, fintech firms, technology companies and other non-traditional players. The need to rethink existing business models and innovate quickly and at scale is the only path to being future-ready.
Innovative financial institutions must support an externally-driven, internally-focused ‘creative destruction’ process, where ideation across the organization is encouraged and funded. Rather than trying to build the ‘next big thing’, it is better to deliberately dismantle components of existing products and processes to make way for improved ways of serving the customer more effectively and efficiently.
Bank and credit union innovation efforts must leverage internal and external data, advanced analytics, digital technologies and new delivery alternatives. While much of the investment will be centered on technology, the winners will be defined by how well their leaders embrace change. This will require a paradigm shift from a product orientation to a consumer-centric culture.
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1. Innovation in Digital Delivery
When we asked financial institutions globally what areas of banking will see the most innovation over the next five years, innovation around product delivery was the overwhelming response. This response is aligned with the level of investment financial institutions plan to make in this area, and the belief that most digital processes are not currently up to par with challenger organizations.
Of immediate focus will be the virtualization of processes and engagement, as the wave of processes that traditionally required face-to-face interactions go digital. This includes the solicitation of prospects, opening of accounts, onboarding relationships and building solutions across the entire customer journey.
Most organizations need to start with a blank sheet of paper to create a digital journey desired by the consumer. The elimination of outdated processes, and the automation of other back office operations, will go a long way towards improving product delivery.
Another important component of service delivery innovation will be the the integration of humans and machine learning within the customer journey, making every step of the process more user-friendly and channel agnostic.
2. Contextual Engagement Innovation
Financial institutions will significantly increase experimentation with artificial intelligence to create personalized, contextual, and engaging experiences. As 5G communication networks become the norm, AI will enable adaptive content and engagement, offering more personalized products, services and recommendations based on individual patterns of banking behavior.
Instead of traditional segmentation, financial institutions will increasingly target consumers based on lifestyles, values, aspirations, mindsets and underserved needs. This will include individualized content and communication for a segment of one – scaled for many. This is the desired level of innovative personalization enabled with data, advanced analytics and digital technologies.
Contextual engagement and proactive solutions will become the norm, with human-centric, design-thinking pillars and CRM tools helping banks and credit unions match needs to solutions in real-time. Done well, this higher level of personalization and stronger recommendation engine will create a value transfer that builds trust and revenue opportunities.
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3. Partnerships to Increase Speed and Scale of Innovation
The banking industry does not lack the knowledge that the innovation process must be improved. What has been lacking in many cases is the commitment to the building blocks to make innovation happen.
From the lack of skills and budget, to the inability to deploy innovations at the scale and speed required due to outdated data and technology infrastructure, the good news is that many organizations are becoming increasingly aware of the power of third-party partnerships. in fact, the Digital Banking Report found that banks and credit unions looked outside their walls for talent by contracting with both existing (50%) and new (43%) providers to get the skills needed.
Building external partnerships is increasingly helping banks and credit unions experiment, learn, and import capabilities that are necessary to adapt to acute and chronic disruption. This increases the volume, quality, and risk tolerance of experimentation and learning.
When banks and credit unions want to improve a process, add a new solution, or completely change existing business models, working with third-party organizations that have already built a viable solution for other institutions will increasingly be considered. It allows for focus to be moved to other initiatives that may need greater internal resources, while allowing for solutions built at scale and with speed.
4. Explosion of Low-Code, No-Code Platforms
It is expected that there will be an exponential increase in the deployment of low-code, no-code platforms in the near future, enabling internal and external parties to build apps, even if they have little or no formal training in coding. These tools reflect the democratization of technology — and a considerable shift in how financial institutions support, promote, and cultivate innovation in banking.
Beyond using low-code, no-code applications to automate routine tasks, there is also the opportunity to respond to marketplace opportunities fast. More of an iterative process, these applications are developed, released, and refined at a cadence never before achieved. These applications also help to address the shortage of skilled coders that slows innovation currently.
5. Movement to the Metaverse
Major tech companies, the biggest financial organizations and startups are beginning to test the parameters of what the metaverse may entail with technologies such as virtual reality (VR), augmented reality (AR), blockchain, and artificial intelligence. At the same time, third party service providers are beginning to develop tools that will potentially assist financial institutions that want to test the parameters of the metaverse.
As the concept of the metaverse is defined, leading banks will begin to take action. Use cases will be defined on ways to make business operations more personalized, improve customer engagement and increase revenues. Even though challenges will exist — cybercrime, privacy, data integrity — they won’t stall the testing of what is possible.
According to PWC, “Many of the key concepts that would underlie a true metaverse are already maturing quickly. Innovation is currently accelerating to transform the digital economy, enhance interoperability for digital environments, create digital identities that consumers and organizations can fully own, set new rules for governance, create more immersive digital experiences, and make these experiences more persistent.”
Leading financial organizations will use the time before the metaverse is fully defined to test what is possible to avoid being left behind
Leveraging Innovation to Become Future-Ready
Becoming future-ready means improving an organization’s capabilities to be competitive against current and future competition. With the future unknown, the ability to be future-ready implies an organization has made the adjustments needed to respond to the vast majority of potential future scenarios that may occur.
More than ever before, being future-ready means that there has been a significant investment in data and analytics that will drive the innovation and digital transformation processes. The insights created, deployed across the organization, support a culture of democratized innovation that is focused on the customer experience.
Becoming future-ready does not assume in-house development. In most cases, innovation will involve outside parties that enable the speed and scale needed to win. Finally, unlike the past, being future-ready is less dependent on quarterly financial results than on the leadership and culture driving the organization.