A framework for banks: Deciding whether (or not) to execute new ideas

 In “Banks Need Impactful New Ideas They Can Execute”, I presented a framework that banks can use to bring innovations to the market and described four phases of the innovation process: Ideation, Discovery & Planning, Idea Development/Incubation, and Realization. I also noted the importance of not being afraid to kill an idea at any point during the process. But, how does a bank determine when to move forward and when not to? And what metrics should a bank use to make these decisions?

First, let’s take a step back and briefly review the innovation process. Your team must start by defining, in the simplest terms, the customer pain point it is trying to alleviate and how your idea will accomplish that goal. Begin with a hypothesis, then systematically test it. It sounds simple, but it’s shocking how often banks skip this test and roll out new features that don’t solve customer problems.

Now, we are ready to vet ideas for further development. Banks are heavily regulated, so the team must assess the regulatory risk of pursuing the idea. The goal is to improve the customer experience while touching regulated services, such as customer statements, as little as possible. We can move forward if the regulatory risk appears to be low or manageable.

Next, the team should ask if it has the technology needed to implement the idea successfully. If not, then determine the cost of securing that ability and decide whether or not to move forward.

Finally, the bank must determine how it will capture and analyze the test results for the new concept. Without comprehensive and accurate data and predictive analytics, it’s tough to prove or disprove the team’s hypothesis concerning its idea.

You might be asking yourself — this all makes sense, but what metrics should I use, financial or otherwise, to determine whether or not to move forward with a project?

Innovation is about enticing customers to change a particular behavior. Therefore, the bank’s team must define and quantify the market segment it is trying to reach with its new service. Then, with the addressable market set, we can establish a market share goal and determine if the return on investment needed to achieve the goal meets or exceeds the bank’s target. The main point is that the bank should not target the mass market for a new concept. Instead, formulate a hypothesis concerning an early adopter’s customer profile and how the bank can get that cohort to influence others. For example, Uber didn’t target its new service at the mass market. If it had, it would have failed. Instead, it focused on digital-first consumers in major urban centers.

The word innovation has an almost mystical quality to it, but the process of bringing impactful new ideas to market is far more boring and is simply that: a process.

– David Ritter, Financial Services Strategist at CI&T