Whether it’s investing directly, staging special events or supporting promising start-ups and idea incubators, banks can stay ahead in the race to please customers, grow accounts and operate seamlessly by outsourcing innovation processes. Farming out innovation gives banks access to all the cutting edge customer-centric digital technology, bells, whistles and tools without sacrificing focus on their top priorities: security, regulation and integration of legacy systems.
Innovating to stay competitive
There are many factors causing banks to go outside their organisations. As classic examples of “operate and maintain” institutions with goals that continue forward momentum in core businesses, banks must grow customer accounts, keep consumers happy and make no mistakes. New types of financial services have to tie in with current accounts, underwriting, providing capital, enabling payments and writing loans. While past innovations, such as ATMs, online banking, reloadable prepaid cards and mobile banking, made retail banking more convenient, none strayed far from basic banking services. Banks are not places where “blue-sky” development teams focus on outflanking potential disruptors: they’re just not built that way.
Can’t beat Financial Tech? Join forces.
In today’s tech-dominated global marketplace, fear is a big driver of banking innovations. The vast majority of traditional financial institutions (83%) believes part of their business is at risk of being lost to standalone Financial Technology (FinTech) companies, according to a Price Waterhouse Coopers survey of global financial executives. Among bank executives, that figure reaches 95%. This threat of disruption, and disintermediation, is palpable. When Chase CEO Jamie Dimon warned “Silicon Valley is coming,” he wasn’t talking plate tectonics. He knows FinTechs are faster at responding to changing consumer needs, finding new ways of doing things more simply and quickly with less “friction” from some process obstacles banks put in their way.
And although financial service companies are staffing “innovation” positions that does not necessarily mean the institution can or will keep pace. In fact, innovation is seldom listed as a priority in polls of Chief Information Officers. Instead, CIOs more frequently mention legacy systems integration, new compliance regulations or upgrading security. “We are not big believers… in innovation for innovation’s sake and the idea of one success for every ten tries,” one top bank operations and tech executive said. “Banking is a thinly margined business…the whole idea that we would devote a tremendous amount of money to something with a 10% hit rate is not, in my view, economically viable.”
How then should banks respond to the FinTech challenge while facing cultural, structural and regulatory headwinds? The growing trend, and best approach, is to outsource their innovation process.
What does innovation outsourcing look like?
Innovation outsourcing takes many different forms. But what it does do in any construction is consistently reduce costs for staff and mitigate financial risk while maintaining positive brand connections to novelty and forward thinking. Bankers can take diverse tactics that go well beyond merely hiring an offshore tech team to upgrade a mobile banking app.
The first, and perhaps the most common, approach is investing directly in FinTech. In an if-you-can’t-beat-‘em-join-‘em strategy, banks place a financial bet on a firm’s concept while testing its viability on customer segments.
The second tactic involves a bit more fanfare, mixing the publicity and buzz of a contest with a review of emerging and qualified developers. Generally called “Hackathons,” companies build these events around a challenge and force participants into time-limited development contests.
In ways similar to the digital boot camp, we envision banks investing in support for incubators and accelerators for start-ups, taking a page out of the venture capitalist’s playbook. The simple act of paying for a workspace, for example, and providing some coaching and business model development, gives banks a chance to shop for new ideas without making big financial bets.
Is this a wave of the future?
Is this where it’s all going in banking? We say, yes. Our research indicates this pattern will persist for the next few years because economists expect underlying conditions to remain the same. Consumers will likely continue to find frustration with banking processes. People will keep searching for new ways to use their increasingly powerful mobile devices to make their financial lives easier. And banks will need to keep pace by digitising all of the services they offer. Former rivals will become partners—and all, including the customers, will benefit.
While innovation demand stays constant, banks can take a diverse outsourcing approach by making measured, limited moves with those very same FinTech companies they used to fear. In fact, direct investments in FinTech shows off banks’ greatest strength: their enrolled customers. Banks can use that leverage to bring customers to product trials even faster than FinTechs could on their own.
We also expect banks to continue spotlighting their internal product development capabilities with Hackathons and incubator investments. This obscures the underlying outsourcing of new ideas, while presenting brand promotion and hiring opportunities at the same time: a win-win. Banks need to attract new talent, and demonstrate they can provide aspirational career opportunities. Outsourcing innovation in many diverse ways will be the key for banks to thrive as we move farther into our rapidly evolving, always-on digital future.
New Brand-Building Direction for Insurance Industry
In face of this fast-information-spreading world and fast development of different channels, insurance companies should make more effort to build distinctive brand image in a comprehensive way. To strengthen delivered brand image, insurance companies should pay more attention to the moment that customers interact with insurance companies.