For decades, the products offered and the channels used to deliver financial solutions have changed very little. There was small risk to being complacent, because the consumer was modestly satisfied with what the industry provided. With little competition, the only time a banking relationship was “in play” was when a consumer moved or was in the midst of a major lifestage change.
Modern digital technology has disrupted this legacy banking model on all levels. First, it has dramatically altered the balance of power between consumers and their financial institution(s). In a relatively short period of time, consumers have more insight and choice at their fingertips. The competitive playing field has expanded exponentially, with thousands of new non-traditional organizations leveraging consumer insight and digital channels to create entirely new financial solutions. Finally, digital technology has drastically improved the economics of banking (at least for those organizations not saddled with legacy infrastructure).
The result is an increasing need for financial institutions of all sizes to become digital innovators. Without a constant reinvention of both the products offered and channels supported, banks and credit unions run the risk of losing their most valuable relationships in a “digital moment,” with a click on a mobile device.
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Foundation of Digital Innovation
When you embrace the paradigm shift of ongoing digital innovation within your organization, the focus must start with the consumer. They are in charge of what organizations will win and lose in banking. They are much more aware of their options, and the experience they desire is far different from what it was even 5 years ago.
Today’s digital consumer wants a level of personalization, contextuality, seamless integration and simplicity that was impossible to even imagine in the past. Their frame of reference isn’t what your organization currently provides, but what digital fintech firms and large tech giants have created in financial services, retail, hospitality, travel, etc.
To deliver what the consumer wants takes far more than an updated website, new online banking platform, or pretty digital banking app. It takes a rebuild of your back-office from a digital perspective, removing steps and processes that create friction. And, as opposed to being a one-time project, this evolution must take place continuously, improving the customer experience with every iteration.
Your digital innovation process must also challenge old business models that have been proven to be outdated. This includes traditional product delineations (checking, savings, credit, investment, etc.) as well as established delivery channels (branches, websites, etc.). Future business models may include digital marketplaces that expand beyond just financial services, indirect delivery through internet-of-things (IoT) engagement, the creation of new advisory capabilities and advanced digital products.
Finally, digital innovation must look for new ways to create efficiencies and generate revenue from the perspective of the consumer. Similar to Amazon Prime, banks and credit unions must look for new ways to create value that the consumer is willing to pay for, as opposed to simply looking for ways to cut costs.
Now more than ever, innovation at financial institutions must go beyond simply “putting a lipstick on a pig.” Organizations must look at the needs of the digital consumer and the performance gaps of delivery to build entirely new products and services. This requires bringing together multidisciplinary teams from across the organization to build solutions from the inside out.
There must be a test-and-learn culture that rewards the taking of measured risks, even if the end result may disrupt legacy organizational strongholds. This process must be agile, ongoing and be based on insights from across the customer base and organization.
Because of the extent and speed of innovation required, financial institutions must be willing to look outside the organization for talent and/or partnerships that can support the innovation process. With the advent of open banking APIs, there will be many services and capabilities that are beyond the competencies of the existing organization. Using outside collaborations will enable an acceleration of the innovation process and provide additional scale capabilities. Remember, speed of iteration is a competitive differentiator.
The survival of most financial institutions will be determined based on the willingness to let go of the past and embrace the future of financial services. While some of the selection criteria of consumer may remain in tact, convenience, trust, community involvement and friendliness of staff, many of these will be overshadowed by new components of satisfaction of the digital consumer (who may never willingly visit a branch).
Your innovation strategy during digital transformation will require a mindset of how you would build a brand new bank or credit union today. This mindset puts digital technology at the forefront, with financial services being integrated on that platform. It will require new or retrained talent that will embrace the change that is upon us and will reinforce the need for the change to continue.
During this entire transformation, data and intelligent models built with AI will be at the foundation of the innovation process. It will not only help support innovations, but also be part of the measurement of success.
None of this innovation will occur, however, without the full commitment of leadership and the willingness to transform an historically staid culture into a culture more similar to tech giants. The energy of change must transcend the organization and be supported with every initiative and every decision.
The survival of each financial institution depends on an organization’s willingness to transform old habits and approaches mastered over decades and to embrace the new rules of business. The result will be the ability to innovate throughout the organization and deliver the exceptional outcomes digital consumers expect rather than modest or non-existent iterations to existing products and services.