Innovation has always been a key item on the agenda of many organizations including financial services institutions. Most innovative companies are predicted to grow revenue at a higher rate compared to the least innovative ones. Organic growth through innovation is expected to drive future revenue growth. Given that Banks & other financial institutions have much greater investment in IT when compared with other industries; one would rightfully expect many innovations in the sector. While there have been some incremental innovations on existing systems, there have been very few disruptive innovations. In comparison to banking sector, non-banking companies are actually changing the innovation landscape much more expeditiously.
If you were to ask CEO of a bank today on his/her bank’s main competition, apart from the few competitor banks you would hear names of Paypal, Square, Apple, Google, etc. Digital transformation has really changed the dynamics and has made it obligatory for banks to re-think their innovation strategies & agendas.
Recently ING named Brunon Bartkiewicz as Chief Innovation Officer. Spain's BBVA has Antonio Gallego as head of open innovation. This indicates a change in terms of how innovation is now being looked as a mandate with outcomes than merely tracking industry trends. Banks are looking at changing their core structure to address innovation. Innovation officers are defining the strategies, focus areas and operating models. Banks have fundamentally understood that there has to be a dedicated innovation unit with innovation advocates or champions across various other teams. These innovation advocates help in transforming the organization culture by identifying innovation areas, coaching employees on need for innovation, providing innovation guidance and there by fostering innovation culture.
Taking a leaf out of a fintech start-up seems to be the mantra which many banks seem to be emulating. As per UBS bank's CIO, Oliver Bussmann “Banks can embrace the disruptive technology that start-ups are bringing in to the finance sector and use it as basis for their own digital transformation.” Key part of Oliver’s innovation strategy is to have an eco-system approach which utilizes not only internal innovation teams but also start-up incubators.
BNP Paribas has a dedicated technology and innovation tracking unit. While the name sounds clichéd, their operating model is a clever one. To start with, this unit has set-up its office in Paris, Silicon Valley and Shanghai. It takes them closer to the hubs of latest trends & technologies which can benefit BNP Paribas. For continuous interaction and exchange of ideas, they have set-up a media unit, website along with an events service which helps in discussing current innovation topics. They have a strategic advisory unit with direct access to business and an incubator lab as well. They have been able to effectively leverage location, collaboration tools, continuous business interaction and incubation to build their innovation eco-system.
Banks have also realized that they need to collaborate with some of the digital leaders to unlearn and learn. Increasingly many banks especially from Australia, Asia and Europe are visiting Internet giants such as Apple, Amazon, Facebook, Google and Twitter in the US. This helps Banks to appreciate the innovation culture & mechanism of these giants and replicate some of the best practices in the bank. Last ANZ Bank’s key executives visited Silicon Valley in California. ANZ Bank’s then CIO Anne Weatherston was also part of the visit and was of the view that they were absolutely amazed at the pace of changes taking place in the Silicon Valley. She found out how Online payments start-ups are redefining banking landscape.
Some of the innovation issues that banks face are regulatory pressures and threat to their reputation as a trusted institution. This limits the experimentation required for innovation. A start-up can fail but a failed innovation can attract negative news headlines for a bank. Hence, some banks are investing in start-ups or taking incubator approach. BBVA's $100 million venture fund helps it to invest in emerging start-ups. Incubator acts as a testing ground where banks can experiment with limited risk and judge innovations on facts.
Competitions and Innovation Days are helping banks in promoting an innovative mindset among their employees. BBVA has a new competition, InnovaApps+, in collaboration with Google to promote the emergence of new productivity applications. US bank holds an idea competition called the “Pitch Factory,” in which employees form impromptu teams to come up with an innovation in 12 hours. They then pitch that innovation to an executive committee. Many organizations are developing an “intrapreneurial” culture to foster innovation.
But the key thing which I still see missing in banks is the utilization of their suppliers/vendors/partners (take your pick) in their innovation mandate. At the best I have seen banks setting up an innovation fund with their vendors but this has become more of a funding source than means for an innovation breeding ground. There seems to be a perception that all the innovation should come from the bank on its own. At the end of the day technology is not the core business of a bank but innovation is. This barrier needs to be broken fast else innovation will suffer eventually. Biggest advantage which the vendors will bring is their cross-industry experience across the world. Some of the vendors are fostering innovation at a fast pace within their own organizations, which banks can utilize. Collaboration is at the heart of innovation and this means collaboration in the whole eco-system than just within the bank.
In the end every bank need to realize that there will be failures. As per Westpac’s Gail Kelly “How are you going to learn and how are you going to innovate unless you fail? You need to fail fast, quickly and then get up and off you go again.” Key is to build a collaborative environment with an eco-system approach including vendors without any overhead or administrative burden. Innovation will eventually find its way then.