A Guide to Genuine Innovation When Everyone Is ‘Innovating’
This bank created an innovation lab, and that bank is launching a fintech team. But this other bank just started a blockchain focus group, and everyone else is investing in tech.
Gone are the days when banks could afford to be “conservative” with new product launches and tech projects, which is why we see many (all?) of the big FIs putting in the work to keep up with the pace of technology. But when a trend becomes a buzzword, it’s easy to lose focus and forget the end goals.
So how can a bank ensure that innovation efforts translate into material products (and eventually, revenue)?
Take more risks, suggests Lane Martin, partner with Capco Consulting’s banking group.
“One reason you see everyone doing the same thing is because there is not a lot of risk involved in what they are doing,” he told Bank Innovation. “You can say we are doing innovative things, you can start a blockchain team this afternoon, but you need to set material goals, which will have an impact in the market.”
Faster releases are expected, according to Martin. “One thing to do is to focus on an outcome: What can I release by the end of 2017 that will impact 10% of my consumers? Instead of trying to work on this tremendous new product and keep it behind the curtains for a long time,” because very often those products just remain behind the curtains forever, Martin explained.
Staying consumer-centric is what helps Ally Financial maintain its focus on innovation, according to CIO Michael Baresich. “The fact that everybody recognizes that they’re a tech company is not the same thing as being completely and relentlessly customer-focused,” he said.
Ally has been a pioneer of modern-day branchless banking, according to the tech veteran. “You can buy the tech and apply it to internal processes, create new spins of your products, but if you are not thinking about using the tech in the relentless pursuit of delighting customers, than I think you are going the wrong way.”
And the latest and shiniest tech is not always the right home for a bank’s resources, according to Colleen Poynton, vice president of venture capital firm Core Innovation Capital. “Of course, investing heavily in tech is part of the innovation, but it’s not all that it takes,” she said. “Incumbents need a broader rethinking of their core business models and strategies for restructuring, which often requires killing-off existing business models, competing with yourself, and acknowledging that your revenue will go down.”
This may be what legacy FIs struggle with the most. But that’s a sacrifice worth taking, according to Poynton, otherwise banks may risk simply “go[ing] out of business,” with fintechs taking their place.
Those that support a long-term development model (and mindset) will be the winners at the end of the day, according to Alex Perelman, CTO at real estate marketplace lender PeerStreet.
“The entire fintech space is very heavily underused, and we’re only seeing the tip of the iceberg today,” he said. “So innovation shouldn’t be looked at as this genius moment that someone has, on the contrary: all it takes is a small idea that a group of people iterate on, continuously.”
So for those that are looking for their next innovation project: what’s the best pick out there today? Spoiler: it’s not blockchain.
“There is a ton of noise out there on robotics and process automation, and blockchain, but the one for me, that banks should and can get right today, is developing an API economy,” Capco’s Martin said. Previously a director of product development at Mastercard (one of the leaders in developing API ecosystem), Martin suggests that banks should double down on their API efforts. “Having your APIs work in other companies for slick things is a great model, and there is a pool of developers waiting for the chance.”
To learn more about innovations in banking, join us in San Jose on March 6-7 for Bank Innovation 2017, where the best conversations in fintech take place. Request your invitation here.
