Saying you’re innovative doesn’t necessarily make it a reality. Nor does spending a lot of money guarantee that your institution will innovate, either. Investing without any clear idea of what to do just burns up resources — both manpower and money.
“All too often, institutions confuse technology with innovation,” says J.P. Nicols, Managing Director at Fintech Forge. The budget tap opens, and institutions just gobble up more tech.
“What they wind up with,” says Nicols, “is a collection of things that don’t tie together — technologies without a lot of connective tissue between them.”
That connective tissue is called strategy. And that should come first. But frequently what happens is that banking leaders hand off responsibility to the institution’s tech chief. For there to be true innovation, as Nicols says, all functions need to play a role.
Brett King, the founder of Moven and one of the banking world’s most respected futurists, says that the debate about “innovation” in the financial industry has evolved.
“It used to be fintech versus banking,” says King. “That’s become somewhat nuanced now.” According to King, some of the problems and solutions to the “innovation riddle” involve fintechs, but some of the remedies solely require internal attitude adjustments.
Jim Marous, Co-Publisher of The Financial Brand, isn’t so sanguine. Absent some critical changes, a skeptical Marous doesn’t believe most financial institutions can succeed with an innovation strategy.
“It’s been hard for banking providers to move things to a point where consumers feel there’s really been a substantive change in the customer experience,” explains Marous.
To accelerate innovation programs, this trio of banking industry veterans — Nicols, King and Marous — offer retail financial institutions the following tips and insights.
1. Stop Betting the Whole Pot and Break It Down
Success with innovation takes more than plunking down a huge chunk of money and declaring that your bank or credit union is going to win big. Instead, this panel of experts cautions that approach may be the best way to ensure that your organization actually loses.
Whenever Nicols speaks to executives in the banking industry, he warns that gambling everything on one big “innovation bet” usually ensures that traditional, conservative banking thinking will continue. Why? Because the stakes are simply too high.
This is particularly true when an innovation effort focuses too heavily on one big make-or-break project. It puts the reputations, careers and egos of top leaders on the line. Creativity and a willingness to fail frequently surrender to the fear of getting fired.
“Chunk it down into small experiments and then it isn’t a big bet anymore,” Nicols recommends. Take a measured small risk with a new idea may that cost thousands, instead of budgeting millions for “innovation.”
Institutions that think small will either have something successful to build on, or (at the worst) have an inexpensive lesson they can learn from. Working small also ensures that all ideas will at least get a fair tryout.
Nicols says using “fire breaks” like this helps contain losses, and leaves funding for new ideas, new iterations of ideas in process, or course corrections.
2. Make Innovation Somebody’s (Only) Job
The wrong moves that thwart innovation at banks and credit unions can arise when board members hear about competitors’ “innovative” advances. They look around at top management and ask, “And what have you got going?” Management opts for the dramatic gesture that appease directors and tickle analysts, instead of focusing on what’s really needed or what might really work.
Generally this results in what Nicols calls the “And ‘Innovation'” syndrome in the org chart. That is, someone ends up with “and Chief Innovation Officer” added to their title — on top of their regular day job. They get the title and all the expectations that come with it, but usually no real facilities, no training, and no funding.
Not much comes of this.
3. Give Up ‘Innovation Theater’ and Spend for Results
Plowing money into an innovation lab or similar physical representation to demonstrate how the institution loves leading edge technologies can be foolish. Many of these facilities look gorgeous, but they soak up money that could instead be used for real innovating.
“I often find out that these labs are funded by the marketing department,” says Nicols. “That’s a bad sign.”
Unless the lab truly serves as a working home for R&D teams, it’s as meaningless.
As Nicols says, it’s no more effecting than management declaring, “We’re going to be innovative!” Bold statements — whether made verbally or architecturally — are little more than rhetoric without the actions, investments and outcomes required to backup such pronouncements.
4. One More Time (With Feeling): Reexamine Your Culture
While many banking executives talk a good game about “agility,” often things aren’t very agile in practice. Moven has worked with traditional banking institutions to adapt its spending and budgeting technology to their operations, says King.
Looking back on Moven’s work with TD Bank’s Canadian operations for its MySpend app, King says that adapting the technology took about three months. That was the easy part. But negotiating with the institution’s purchasing department took nine months. Ninnnnneee months…
Marous attributes such problems to the industry’s risk-averse culture. Whenever risk management enters the room, innovation usually runs out.
Traditional financial institutions’ leadership simply isn’t oriented to innovation, says Marous.
“Technology firms have technology people at the helm,” he explains. But few banking institutions have that kind of experience at the top.
King notes that some institutions, such as Capital One, BBVA, and USAA, count technologists among their leaders, and he credits some of their success with digital innovation and transformation to that factor.
5. Being a ‘Fast Follower’ Doesn’t Work Anymore
Few banking institutions are pioneers. Most opt instead to be “fast followers.” Jim Marous says that won’t yield the same results anymore, given the pace of change in financial services.
“95% of U.S. banks can’t enroll a consumer digitally. Yet every fintech has that ability. It should be table stakes.”
— Brett King, Moven
“The train is going 90 miles an hour,” says Marous, “and it is not slowing down. Banks have got the ‘follower’ part nailed, but not the ‘fast’ part.”
Banking institutions have no choice but to crank it up, Marous warns. They have to be prepared to move quickly when new opportunities to innovate arise. Voice-operated services — such as the “skills” that drive Amazon Alexa technology — are already achieving significant consumer acceptance, says Marous, but few banks have solutions use this technology.
Digital account opening is another major weakness.
“95% of U.S. banks can’t enroll a consumer digitally,” says King. “Yet every fintech does that. To me, it should be table stakes. It shouldn’t be that hard.”
6. Temper the Corporate Immune System
The trio of experts agree that the banking “body” is genetically programmed to fight innovation like a virus.
Nicols says the typical traditional financial institution is rife with “corporate antibodies” like the compliance department — something King dubs “the Land of No” — that drum up countless reasons to halt innovation.
Much work goes into something and then the “antibodies” converge to kill it. This happens when ideas are developed in a vacuum by one department or team working in isolation. The idea is subsequently regarded as a “foreign entity” — a threat to the survival of traditional banking organisms.
Marous says successful innovators in the financial industry solve this by pulling everyone into one room. Their mission being to stay there until they’ve come up with a way to meet the challenge posed by management. That gets all viewpoints out on the table at the same time.
7. Have a Fresh Look at Your Omnichannel Thinking
A tug of war between physical and digital strategy has been going on for over a decade in banking, when people like Brett King and Jim Marous began predicting the ascension of digital services would eclipse branches. Even so, study after study indicates that, for various reasons, consumers still want to visit branches, often in order to open new accounts.
Marous believes such research may be flawed. For example, even though most banks offer some form of digital account opening, bankers continue to think “consumers don’t want it.”
Marous believes that view is based on incorrect data. He says it is not unusual for an account-opening transaction that begins digitally to have to be completed at a branch. When that interaction ultimately gets booked into the system, he says, the branch employees record it as a “branch-based” opening. The statistics this generates cloud the reality, Marous contends.
Part of the problem, he continues, is that banks and credit unions generally do a poor job — if at all — tracking the customer journey.
“No one really owns the customer journey,” Nicols chimes in.
Until someone takes ownership, recognizing what’s really happening and why it happens that way won’t occur.
8. Take Advantage of Mainstream Vendors’ Fintech Outreach
Smaller banking institutions have historically complained that their core technology vendors and other tech suppliers hold them back from innovating. And some also believe that the big tech firms can engulf startups, pulling their new tech under a corporate umbrella to be developed when they are ready to do so.
Marous says this image is becoming dated. More major vendors have begun vetting fintech players for their client banks and credit unions, providing the kinds of evaluations that smaller organizations can’t do on their own.
He thinks this can help banks and credit unions to begin using the new tools that fintechs can bring them. This can overcome the slowness of traditional banking culture, he suggests.
9. Work — Really Work — With Fintechs
It’s been said more than once that more articles have been written about the need for banking institutions and fintechs to partner up than there are partnerships.
“Fintechs and banks working together isn’t happening as much as it should,” says King. The benefits are clear to him: Fintechs have intriguing new products and services but many have had trouble finding the scale that will make them pay, while banks and credit unions have established customer bases.
Nicols cites two institutions that he thinks are getting this right. One is Lincoln Savings in Iowa. Recognizing that its own market offered limited growth potential, he says, Lincoln Savings became the issuing bank for Square’s credit card. The savings institution earlier this year provided the banking muscle behind the fintech’s mobile deposit capability, enabling consumers to put paychecks and other payments into the Square Cash App accounts via mobile device.
Another institution on the right track, according to Nicols, is NBKC Bank, Kansas City. The company established Fountain City Fintech, an accelerator it runs in partnership with several other organizations and which it says draws on a broad fintech expertise many don’t know Kansas City has.
Brett King says the popular idea of financial insitutions hosting hackathons where fintechs can strut their stuff was a good idea for its time, but that more financial institutions and fintechs need to start working on real projects together.
Nicols thinks the idea of fintech accelerators can be internalized. Different parts of a traditional bank or credit union can come up with ideas and try them out on a test basis in an “internal accelerator,” as he termed it.
“That’s where a nascent idea can become a viable company,” says Nicols.