Banking is undergoing a revolution similar to the one seen on high street travel, betting and book-selling. Banks should be afraid, the disruption of financial services has only just begun.
Do you know which bank is the winner of "Disruptive Innovation in Banking" award, this year? The winner is not among any of the big established banks, but it is the challenger bank from Germany, Fidor Bank. Most of the big banks have the realisation that they are under severe pressure from many of these innovative challenger banks. Atom Bank, a mobile-first challenger bank, recently won a banking licence to operate in the UK and plans to launch later this year. Unlike traditional banks — and even some challengers — Atom Bank won't have any branches or even a website initially, operating purely though a mobile app.
Here are 3 ways big banks can accelerate innovation and drive change:
- Embracing Fintech
The new generation of Financial Technology (FinTech) companies are leveraging the Internet, mobile and social technologies, cloud computing and Big Data to build and take to market innovative solutions that are changing the way financial services are accessed, delivered and experienced.
Some of these FinTech companies sell their solutions to banks while many others are bypassing their traditional banking client base and are offering their solutions directly to financial services customers over the Internet with innovative and cost effective value based offerings. They include companies that offer credit/lending services (including peer to peer, crowd sourced and other varieties), payments services (and as a result small amount deposits for payments) and financial management services targeting retail and small business customers.
Global investment in fintech has jumped by 46% a year since 2010, to $13.7 billion in 2014. More than 12,000 fintech startups have been founded worldwide, and accelerators for fintech entrepreneurs are established every day somewhere in the world.
Traditional banks should realise that a bank-fintech startup connection has immense potential for creating value for both sides. Banks gain innovation and technological flexibility, and startups are given the chance of leveraging the banks’ knowhow and infrastructures to create suitable markets.
Some of the big Banks have already realised the power of fintech connection. For example, Deutsche Bank is experimenting with new antifraud technology, Callsign that uses the way you handle and hold your phone to work out if you are really you. The bank hopes the system will free customers from passwords and allow it to lift limits on mobile transactions.Callsign is a startup that takes away the worry about failed or fraudulent login attempts, instead enables truly intelligent access control decisions by analyzing over 50 factors in real-time. Leveraging products like Callsign, banks can help implement a robust solution, take away the risk of fraudulent logins and deliver a delightful customer experience.
A lot of banks have already set aside an investment fund and their innovation function is continuously scanning the market for innovative companies for two reasons: a) making an early investment into the startup and b) leveraging their innovative product/solution to solve real business challenge.
- Adopt a Lean startup approach
Too many banks begin with an idea for a product that they think people want. They then spend months, sometimes years, perfecting that product without ever showing the product, even in a very rudimentary form, to the prospective customer. When they fail to reach broad uptake from customers, it is often because they never spoke to prospective customers and determined whether or not the product was interesting. When customers ultimately communicate, through their indifference, that they don't care about the idea, the product fails.
A core component of Lean Startup methodology is the build-measure-learn feedback loop. Using the Lean Startup approach, banks can figure out the problem that needs to be solved and then developing a minimum viable product (MVP) to begin the process of learning and accelerating innovation as quickly as possible. Once the MVP is established, banks can work on tuning the product / solution. This will involve measurement and learning and must include actionable metrics that can demonstrate cause and effect question.
Using an agile approach, building and testing MVP will help banks to build right products and solutions to the customer. In the digital age, customers are happy to engage with banks at the concept stage and provide valuable feedback, and this helps immensely towards being less wasteful and still doing things that are big!
Ensure every project in the bank embrace the lean startup approach to build and learn through MVP, before spending millions of dollars building the entire product/solution.
- Adopt Design thinking
Banks cannot become customer centric organisations unless they understand and empathise with the customer problems. Empathy is the centerpiece of a human-centered design process. The Empathize mode is the work you do to understand people/customer, within the context of your design challenge. It is the customer insight. There are multiple techniques such as observe, engage, watch & listen, that can help you to build real insights into their goals, motivations, needs and priorities.
After crafting a meaningful and actionable problem statement, ideate with your design team and the stakeholders. It is important to have the multi-disciplined design team engage the business and IT stakeholders during the ideation stage. Ideation provides both the fuel and also the source material for building prototypes and getting innovative solutions into the hands of your users. Additionally, it helps build trust very quickly with all the stakeholders.
A prototype can be anything that a user can interact with – be it a click dummy, sketch on a piece of paper, a role play or even a storyboard. Ideally you bias toward something a user can experience. Walking someone through a scenario with a storyboard is good, but having them role-play through a physical environment that you have created will likely bring out more emotions and responses from that person. User testing is a powerful tool to validate your assumptions and product designs. This feedback helps building a great product that will a great customer advocacy and adoption.
Banks must ensure they start every project with customer insight. Learn through creating quick prototypes and validating with the end users. This will help them build right product that has great customer advocacy and adoption.