July 5, 2016

2726 Views

3 Ways Big Banks Can Accelerate Innovation

The 21st century has witnessed a digital revolution sweeping across commercial sectors from books, to travel, and even in betting. The banking sector also needs to embrace innovation in the finance industry, if it is to keep up with the demands of the digital consumer.

Consider for instance the winner of the Disruptive Innovation in Banking award this year. A challenger bank from Germany, Fidor Bank, has won the award despite the presence of traditional banking behemoths. Similarly, Atom Bank (a mobile-first challenger bank) recently won a banking license to operate in the UK, and plans to launch later this year. Unlike traditional banks (and even some challengers), the Atom Bank won't have any branches, or even a website, initially and will operate purely through a mobile app. The recognition received by these innovative new players has made the big banks sit up and take notice. They must leverage their extensive IT infrastructure and industry insight, to drive financial innovation on a large-scale.

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 market innovative solutions which change the way financial services are delivered, accessed, and experienced.

Some of these FinTech companies sell their solutions to banks, while many others bypass the traditional banking client-base and offer their solutions directly to the customers of financial services over the Internet, with innovative and value-for-cost based offerings. They include companies that offer:

  • Credit or lending services (including peer to peer, crowd sourced and other varieties),
  • Payments services (including small amount deposits for payments) and
  • Financial management services (targeting retail and small business customers).

Global investment in FinTech has grown 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 being established every day.

Traditional banks must realize 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 know-how and infrastructures to create suitable markets.

Traditional banks must realize 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 know-how and infrastructures to create suitable markets.

  • Making an early investment into the startup
  • Leveraging their innovative product/solution to solve real business challenges

Some of the big banks have already realized the power of Fintech. Deutsche Bank is experimenting with new antifraud technology, Call sign, which uses the way you handle and hold your phone to work out if you are really you. Call sign is a startup that takes away the worry about failed or fraudulent login attempts, and instead implements truly intelligent access control decisions, by analyzing over 50 factors in real-time. The bank hopes the system will give customers freedom from passwords and ease the constraints in mobile transactions.

By leveraging products like Call sign, banks can help implement a robust solution which not only takes away the risk of fraudulent logins, but also delivers a delightful customer experience.

§ Adopt a Lean Startup Approach

Many banks begin with an idea for a product that they perceive people want. Then, they spend months, sometimes years, perfecting that product without showing tangible results, even in a very rudimentary form, to the prospective customer. When they fail to receive widespread acceptance from customers, it is often because the requirements of prospective customers were not taken into account. Ultimately, the product fails when customers communicate their disinterest through lack of demand.

A core component of the Lean Startup methodology is the build-measure-learn feedback loop, which works as follows:

§ Using the Lean Startup approach, banks can identify the problems that need to be solved, and then develop a minimum viable product (MVP) to begin the process of learning from the get-go.

§ Once the MVP is established, banks can work on fine-tuning the product or solution. This will involve measurement and learning via actionable metrics that demonstrate cause-and-effect question.

§ In the digital age, customers can proactively engage with banks at the concept (MVP) stage and provide valuable feedback. This prevents unnecessary costs, even in activities that have a huge impact.

§ Every project in the bank must take the Lean Startup approach towards solution-components: building and learning through MVP before spending extensive resources on the entire product.

Building and testing MVP is an agile approach which will help drive innovation for banks, by enabling them to build products and solutions according to the needs of the customer.

§ Adopt Design Thinking

The core of a human-centered design process is empathy. Banks cannot become customer-centric organizations unless they understand and empathize with customer problems. The empathize-mode is the effort made to understand people (customers), within the context of your design challenge. Using multiple techniques such as observation, engagement, and watch and listen, solution-providers can build real insights into their goals, motivations, and priorities.

After crafting a meaningful and actionable problem statement, the bank must ideate with their design team and the stakeholders. It is important to have a multi-disciplined design team engage the stakeholders (both IT and business) during the ideation stage, ensuring transparency and trust on both sides. This process provides both the motivation and the source material for building prototypes of the innovative banking solutions, which will ultimately reach the hands of your customers.

A prototype can be anything that a user can interact with click dummy, sketch on a piece of paper, a role play or even storyboard. Ideally, companies should aim for something a user can experience. User testing is a powerful tool to validate both assumptions and product designs. 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 stimulate a more immediate and emotional response. This feedback helps building product that can achieve widespread customer advocacy and adoption.

Therefore, banks must ensure they start every project with customer insight, learn through creating quick prototypes and validate the final product with the end users, if they wish to achieve cost-effective and consumer-centric innovation.