The future of retail banking: innovation and purpose
The COVID-19 crisis is an inflection point for the future of retail banking. To win, leaders must first reframe the role of innovation
This is the second in a two-part article that explores how visionary leaders should — especially those on the retail side of large, incumbent firms — be thinking about innovation in the current climate.
The need to revisit and reprioritise initiatives in light of the crisis is real, and in many cases, the hard choices banks need to make will be cutting staff and abandoning ambitions for innovation.
Yesterday we addressed the importance of setting out a clear purpose, and the acceleration of macro-trends. Today we consider innovation and a series of recommendations for leaders.
3. Innovation as disruption insurance
Amidst these cataclysmic changes and with the future more uncertain than ever, the attendant work and challenges of innovation and transformation — of anticipating and envisioning new models, of enabling teams to work in more agile ways, and of executing new services to serve existing and new customers — all take on more relevance and urgency, not less.
And yet, barriers to innovation are mounting. Teams built to work quickly and iteratively are feeling the impact of work-from-home requirements.
In conversations with a source at a large global investment bank, it was clear that speed of process was suffering the most with COVID-19. Low adoption of tools that enable video conferencing, screen sharing or collaboration have made it uniquely hard to voice opinions or iterate on ideas.
As banking institutions assume the role of primary conduit for government stimulus packages to business borrowers, depleted bandwidth will be dedicated to troubleshooting and alleviating customer pressures.
In the category of small business lending alone, there will be new demands on the teams responsible for products, services, and business models, as well as those responsible for marketing and repositioning them, creating and testing guidelines to account for new requirements of flexibility and leniency, and so on.
The backlog will extend, the throughput will diminish, and as a result, the collective focus will shift from the next horizon to the immediate here and now.
In many cases, firms will have no choice but to table growth priorities in favor of defensive retrenchment: not only cost cutting and downsizing staff but also redeployment of human and capital resources.
A source at a major global financial firm described how her team was recently deployed from a net new, growth-oriented digital transformation project to an urgent initiative to streamline the collections process, in anticipation of increasing defaults.
The hard reality is that the vast majority of innovation leaders will be challenged to do more with less: more competing priorities, stalled progress, fewer resources.
However, in turbulent times, it is especially important for firms to cultivate innovation as a practice in order to adapt quickly to new needs and competitive developments, especially as the crisis subsides.
The 2007/2008 global financial crisis created a confluence of circumstances that catalysed the growth of the new fintech sector, catching many traditional financial firms off guard.
It wasn’t until 2015 that Jamie Dimon expressed his concern in his annual letter to JP Morgan shareholders: “Silicon Valley is coming: There are hundreds of startups with a lot of brains and money working on various alternatives to traditional banking […] They are very good at reducing the “pain points” in that they can make loans in minutes, which might take banks weeks.”
By this time, global investment in fintech has accelerated from $930 million in 2008 to over $12 billion by the beginning of 2015, and many of the technologies that would come to define the era — automated investing, mobile payment, P2P transfer, crowdfunding, cryptocurrency, to name a few — had grown from too small to care to too big to ignore.
By the time COVID-19 hit, fintechs were putting immense pressure on legacy institutions, driving advantage in price and consumer experience.
However, COVID-19 has challenged fintech’s ability to seamlessly operate in this new landscape. For example, Robinhood, a popular trading app, crashed on two of the most volatile trading days during the crisis.
This lack of reliability has created speculation that traditional banking institutions could become preferred during these uncertain times, gaining new credibility and relevance for the future.
In order to position themselves to take advantage of opportunities to meet unmet customer needs that may emerge in the wake of COVID-19 — whether due to net new needs or competitor attrition — firms must maintain their ability to identify opportunities and move quickly to pilot new products and services.
Heads of innovation in the banking sector are recommending leaders “do something with nothing” during this crisis.
In order to justify the cost of innovation teams in thin times, firms will need to rethink the value of innovation as a defensive hedge against disruption.
As a practice, innovation helps make firms more flexible and resilient in the face of black swan events like COVID-19. Moreover, an innovation capability will help firms increase their efficiency in non-obvious ways.
For example, an agile innovation team might help design more cost-effective ways of distributing the government stimulus, using fewer resources by developing human-centric digital solutions that are easy for users to navigate, freeing up resources that can then be re-dedicated to improving competitive advantage.
4. Actionable Recommendations
Start with purpose: Unlike the 2007/2008 financial crisis, the financial crisis precipitated by COVID-19 presents a clear opportunity for financial firms to be authors of a solution and in doing so, realise a clear and valued role in society.
Just as it did for the NHS, a unifying purpose will drive the transformation of banking as an urgent matter of public good.
Foster Innovation as a practice: With resources strained on competing priorities, think critically about what you can achieve with even a small team focused on innovation efforts.
Accelerate a few especially promising initiatives, especially any that stand to benefit from trends of the present moment such as increased reliance on digital channels. Create a runway for your team.
Listen and swiftly respond to the hurdles your teams are facing in the new normal of remote work. Lean on each other. All leaders will be facing tough decisions during this time.
Collaborate with each other rather than view peers as competitors. Join forces around a shared purpose to optimise the few available resources focused on growth. A focus on speed to pilot versus speed to market will set the course for future traction. A minor investment in headcount translates to hard costs, as well: drastic austerity is not the answer — now is the time to invest in growth.
An experimental mindset should not be the limited purview of a firm’s digital innovation lab or any single department.
From human resource employees, to customer service representatives, to backend developers, everyone should be empowered and equipped to diagnose new issues that have emerged as a result of COVID-19 and to run their own experiments to find viable solutions, with the primary requirement being a definitive answer to the question, “If we run this experiment and it fails, will we be better off for having learned something?”
Keep piloting: To correct for stress-induced myopia, leaders in banking must act quickly to implement purpose-driven strategies to inspire innovation and bias their organisations toward continued and accelerated experimentation.
The key to success will be providing decision-makers with the tools they need to de-risk innovation, as well as the incentive and license to do so.
It may not be necessary to bring net new ideas to the table but rather spec’ing, unblocking, and prioritising the most promising already on an innovation roadmap.
By staying the course on innovation, banks can actually gain an advantage on their competitors, who by and large will be pulling back from these efforts.
Under pressure, urgency will trump importance. Banking leaders must maintain perspective amidst this necessary recalibration of resources.
As the organisational body enters self-preservation mode, leaders — strapped for resources, encumbered by remote working realities, facing increased scrutiny to deliver immediate results — will need to remain diligent when balancing priorities against transformative purpose.
By staying the course and giving their organisations the purpose, motivation, and tools to do the same, they can emerge from the crisis in a better position than they entered it.
Read the first part of this two-part article here.
For more information on all topics for FinTech, please take a look at the latest edition of FinTech magazine.
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