‘Innovation Theater’ in Banking Gives Way to a More Realistic and Productive Function

The days of 'wouldn’t it be cool?' have been passed. Now bank and credit union leaders seek the innovation payoff – just as GenAI and other new technologies have added elements of risk management to the innovation chief's plate.

Banks have been pursuing digital innovation for nearly two decades now, as mobile banking has shifted from leading edge to table stakes. Has the nature of innovation itself now changed? Certainly, the days of “innovation theatre” — putting a bunch of impressive high tech toys in a “lab” with big designer computer screens on articulated arms — appear to be over.

The new, down-to-earth realism of banking innovation was front and center during the first day of The Financial Brand Forum 2024 in Las Vegas. It’s a trend The Financial Brand has been tracking for more than a year.

Mike Storiale, VP, innovation development and university partnerships at Synchrony, spoke in one of our interviews of the need to keep his teams’ efforts in the bank’s “strike zone.” And he said that “we pride ourselves on putting really measurable analytics against our innovation, making sure our work is actually progressing forward, and cutting it when it’s not working anymore or there’s no more to learn right now and we need to pivot.”

For some time now, innovation focused on the elimination of consumer pain points has lapped big dramatic disruptive moves. Innovators at U.S. Bank and Arvest, for example, have talked to The Financial Brand of their focus on innovation for agricultural banking customers. This kind of innovation is no longer focused on new devices but seeks to refine a technique or a process, the latest and ongoing example being the focus on the applications of Generative Artificial Intelligence.

As this evolution continues, banking innovators that used to embrace “run around and break things” are finding that being a banker or credit union innovator now comes with risk management duties, like it or not. The conservative approach many institutions are taking to GenAI reflects that reality. Buy Now, Pay Later meanwhile makes a great example of how exciting new innovations can unexpectedly reveal a dark side.

In many institutions, innovation has become less about pure invention and more about applying what’s out there already in new ways and combinations to solve common problems. Doing so doesn’t necessarily require geniuses, but you do need highly specialized “plumbers” who can link together multiple technologies in smart ways.

Even the regulatory view has evolved. There was a time when federal regulators held open doors to innovation, even to the extent of offering “sandboxes” to let innovations sprout without weighing them down initially with compliance burdens. But the Consumer Financial Protection Bureau, under the Biden administration, did away with its sandbox early on. Washington today walks a more cautious line on innovation, and that line could veer.

The bottom line? Innovators who take their jobs, and the impact of their jobs, seriously, realize that banking innovation must grow up.

For example, Sanjiv Yajnik, president—financial services at Capital One, certainly favors GenAI. “The whole world has the same science experiment now and you’re going to see a huge amount of progress,” he says. However, Yajnik, who loves to break new ground and who holds pieces of many patents, also recognizes that technology and innovation can have consequences.

“I worry about things like personal independence and people trying to control other people. That worries me more about GenAI than the thought of it replacing people.”

At the 2024 Financial Brand Forum, several workshops focused on innovation and AI. Here’s a sampling of what attendees heard:

• Reality check: Many institutions have barely started down the road.

Jim Marous, moderator of the Banking Transformed podcast, emceed the innovation workshop. He said he has found that a healthy percentage of banking firms have been paying more lip service to transformation and innovation than moving forward. A good many institutions simply seem stuck.

To these laggards, Marous encouraged while scolding: “You need a different mindset. You need the ability to accept change.”

The truth, he said, is that “transformation is challenging, but it is necessary. Many Americans still look to their banking institutions to help them with their financial journeys and not becoming the types of providers they need is a disservice.”

Commonly, he said, bankers blame failure to launch innovation programs on compliance and regulation. Instead, Marous thinks bankers should focus on what they do and don’t get done. When the government sets a rule, banks generally manage to build what the government demands. So, he continues, they only have themselves to blame if they can’t aim for an innovation goal that they themselves set.

• What’s the future image of artificial intelligence in our lives? Rock ‘Em Sock ‘Em Robots, according to Shevlin.

Ron Shevlin, chief research officer at Cornerstone Advisors, can sometimes sound like he’s kidding in his blogs and LinkedIn posts — but he also has serious points to make: Mainly, that AI isn’t a destination but a shift in the way life projects and tasks are handled. He argues that bots which begin as a tactical advantage for one player or another will soon battle each other, like the red and blue plastic robot fighters of our childhood. “It’s going to be the consumer’s bot versus the bank’s bot,” said Shevlin.

• Is ChatGPT imperfect software or an omniscient being with a pixyish sense of humor?

Shevlin shared the program with multiple bank or credit union representatives, including Chris Nichols, director of capital markets, SouthState Bank.

Nichols has been a devotee of technology applied to banking in many forms, including some early AR goggles that didn’t take off and Pokemon Go. He likes to experiment. Clearly, he also has high hopes for GenAI.

He opened his segment by taking a picture of the audience and then asking ChatGPT to comment about what it “saw.” Not everything was correct and in one or two cases, the software wouldn’t stop talking about the picture when he asked it to.

At one point, the software seemed persnickety, not acknowledging the people in the photo Nichols had snapped, even though he’d run similar cases before.

After finally turning the over-chatty software off so he could move on, Nichols commented of its performance: “It wasn’t perfect — but it wasn’t bad, either.”

Bankers involved in innovation are going to have a lot of days like that.

Read more about innovation from The 2024 Financial Brand Forum:

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