FIs have complex, expensive and rigid IT environments and processes. They live in a poorly integrated batch world while their customers have moved on to a real time – always-on commerce model that they are challenged to support. If it were just as easy as appointing a Chief Innovation/Digital/Cool Dude Officer or establishing a Venture arm we wouldn’t still be where we are. Sadly, hard problems rarely have simple solutions. A recent Citigroup report has predicted a reduction in banking staff of 30% over the next decade. This quantifies the urgent pressures financial services firms are facing. We’ve heard this for years, but this time it is different. Why?
This time it’s different…
There are two drastic changes that make this cycle of disruption and innovation different from prior decades.
The customer is in charge. Customer expectations have leaped forward. A new generation of customers, and a few digital savvy older ones, don’t visit branches, fill out applications, fax documents, and wait 5-7 business days for anything. They expect an always-on digital experience that helps them to do what THEY want to do. They are not interested in YOUR product. In prior years, while the customer wanted a different experience, they didn’t really have any alternatives. Moving from one bank to another was very difficult and often resulted in little more than the color of their plastic changing.
Today, your customers have choices. IT firms, retailers, Telco’s, Fintechs and neo-banks are in the fray disrupting banks, siphoning off profitable customers and services, and filling the void between customer expectations and heritage bank products.
Fintech Competition. Fintech firms have raised $7B USD in January of this year alone. The venture capital market is voting that financial services is in need of disruption and customers are voting with their wallets. Firms such as Betterment, Moven, Lending Club and Stripe are disrupting customer acquisition, payments, wellness, investments and loans. Each of these fintechs have established themselves as formidable competition to any bank by innovating and optimizing the processes that customers care about most. This is being done through a counterintuitive change in business, technology, or model. That’s the bad news. That’s the bet your job news.
Fintech Collaboration. Fintechs provide FIs an opportunity to leapfrog traditional incremental development and deploy digital services better/faster/cheaper with wildly different economics. Chances are, in every strategic process you have today, there are dozens of well-funded Fintech firms focusing on disrupting that process and changing the economics. What happens if they join forces? Ondeck and Chase, Moven and TD are just two examples. Cooperation is enabling the internal disruption that will drive change within an organization, instead of waiting for the disruption to come externally.
The real opportunity is to combine the innovation and unconventional thinking of Fintechs with the reach and resources of traditional financial institutions. In recent research by Cubeyou, when Millennials are asked about relevance, Fintechs like Moven, Gobank and Simple top the list, while the same group rates Chase, American Express and USAA as tops for reach. Collaboration across these dimensions is the key to industry innovation.
A word of caution, the bureaucratic force is strong in FIs. The institutional temptation to either build it or kill it, is the graveyard of many great ideas.
The conservative posture of IT and Risk Management, the vendor hostile orientation of Strategic Sourcing and the Middle Management fear of failure, are a toxic trilogy to thwart real innovation. If you are not failing occasionally, you’re not innovating enough. If it takes longer to negotiate the contract and pick a vendor than it does to do the project, you’re not moving fast enough. If you find yourself falling back to a product orientation, you’re not being new enough. In the endless pursuit of better, faster, cheaper – you’ll need to change your behavior to get different results. FinTechs can help.
Want to hear more? Join us at Money 20/20 Europe on Thursday, April 6th, where we will be talking more in depth about FinTech collaboration.