With the onset of the pandemic, financial institutions were forced to accelerate their efforts around innovation or not be able to meet the changing needs of consumers. Instead of modest, incremental efforts, banks and credit unions introduced entirely new financial solutions, delivered products more efficiently using digital channels, and found new ways to engage across the entire customer lifecycle.
Some organizations had already embraced a culture of innovation as part of their overarching digital banking transformation efforts, making this response to revised customer expectations more seamless. Other financial institutions were caught off-guard, challenged to significantly modify services for a new digital reality.
“To build an innovation culture, size doesn’t matter … focus drives success.”
The best companies across all industries have an innovative culture, where the development of new solutions supports a value-driven customer focus. These firms are considered leaders, using a process of continuous improvement to deliver enhanced experiences, increased efficiencies, higher revenues, and greater prospects for continued success. What is unique about the power of innovation is that the size of the organization doesn’t matter.
- Banking Innovation Push without Cultural Shift is a Failing Formula
- Digital Transformation Demands a Culture of Innovation
- Digital Transformation Requires More Than Technology Upgrades
Focus on Innovation Generating Positive Results
In research done by the Digital Banking Report, banks and credit unions globally indicate that they have seen improved results from innovation efforts over the past year. In fact, compared to the past decade of research on innovation in retail banking, financial institutions indicate success with all components of developing an innovation culture have increased more than at any period in the past.
When we asked financial institutions how the pandemic impacted their innovation success, 64% of organizations stated that the pandemic had a positive impact on innovation strategies. This is despite needing to work with remote teams. One major benefit of the pandemic was the urgency of delivering improved customer experiences with both new products and access to digital engagement options.
When we reviewed the different components that are the foundation of innovation success, close to 20% of organizations surveyed indicated that they are ‘very successful’ in getting dedicated investments for innovation initiatives, with another 47% stating that they were ‘somewhat successful’. Interestingly, 14% of organizations stated they were ‘very unsuccessful’ in getting the needed funding. When broken down by asset class, the largest and smallest organizations are doing the best at committing dedicated investments to innovation.
“The pandemic put pressure on legacy financial institutions to improve the delivery of financial services instantly. This required an innovation spirit and culture shift not seen before.”
As we have seen in the past, the weakest area of creating an innovation culture is with the measurement of results. This is not surprising, given that a great deal of the innovation done in the past has been around new product development and delivery of services across digital channels. Few organizations attribute the success of either of these initiatives to the innovation process.
Channel Delivery Innovation Improved … But Not Enough
The pandemic forced financial institutions to alter the way they delivered products and services and processed transactions. With physical branches closed, banks and credit unions needed to focus on speed and simplicity of delivery and rethink the back office processes that were used to support improved digital engagement such as account opening and loan applications.
When we asked organizations worldwide about the product and service area where they believed they were strongest, innovation in digital delivery was considered to be the area of greatest confidence, followed by payments and cards, lending, and checking services. While the commitment to digital delivery shows promise, the consumer will not benefit from improved digital engagement if the products and services being delivered are not modified for a digital consumer.
“The benefits of digital delivery innovation cannot be realized without re-engineering back office processes that support all products and services.”
As we have found in other research by the Digital Banking Report, the vast majority of financial institutions noted that they are able to support digital account opening and digital loan applications. That said, the average amount of time that was needed to execute these new customer engagements was over ten minutes. This is not ‘digital’ from the perception of a consumer that can order a week’s worth of groceries, apply for an Apple or Discover credit card or even receive contingent approval for a mortgage in far less time.
As can be expected, the level of innovation in digital delivery can be attributed to the increase in investment made over the past 12 months. What was surprising was the lack of innovation commitment to improving the current checking/current account. As a cornerstone for the foundation of new relationship growth, ignoring what is required to improve the functionality and deliverability of digital checking services is a missed opportunity in a marketplace with an increasing number of checking alternatives offered by fintech firms.
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. Part of this could be attributed to the reality that every product and service needs to be delivered in a more digital manner as foot traffic at physical facilities continues to decrease. Therefore, as opposed to creating an improved product or service, the enhancements will be around how the product or service is delivered.
“The question is, will banks and credit unions be willing to replace and automate virtually all back-office processes to support digital delivery the way that tech organizations and fintechs have done?”
Commitment to Innovation Beyond Crisis Mode
We have seen a significant improvement in the past year in the commitment to innovation by financial institutions. What remains to be seen is whether banks and credit unions approach innovation as an initiative only during a crisis, or embrace it as an ongoing strategic imperative.
Here are some ways that financial institutions can build a healthy innovation culture:
- Make innovation an organization-wide initiative. Create an approach to innovation that includes processes, products, policies and information flows. This requires a culture where all employees feel they can think independently and find new ways to solve problems without fear of failure – leading their teams to new innovations.
- Embrace new technologies. From the cloud to artificial intelligence (AI), machine learning, robotic process automation (RPA) and new digital delivery options like voice devices, financial institutions must invest in the technologies that are the foundation of digital experiences.
- Distribute data and insights. Innovation requires access to data and insights across the organization, in real time, to provide a 360-degree view of both the customer and the business as a whole. This is requisite to observing and acting on market trends and opportunities as they develop as opposed to months, or years, later.
- Cultivate external relationships. Partnering with third-party organizations that can support agile innovation and execution is invaluable to maximizing the impact of innovation. This includes partnering with existing providers as well as new fintech firms that can deliver solutions needed to meet consumer and business needs.
- Fill in talent gaps. An innovation culture requires great people who are not afraid to look at the business differently than has been done in the past. This may demand talent outside the organization who are willing to engage in multiple projects
The first steps to building an innovative organization require an understanding of where you are today, and then assessing the gap to what you want to become. According to McKinsey, “Innovation excellence must be built over time, beginning with a strong foundation and improved upon continually. For most, the journey to becoming a leading innovator is a multi-year effort that will touch most, if not all, parts of the organization. While it is not an easy journey, for those that make it, the rewards can be spectacular.”