Author: Brandon Kunz, firstname.lastname@example.org
At a local FinTech event this fall I heard the comment from a person representing a leading venture capital firm that right now is an ideal time to compete against banks. Why? He noted the inability of many financial institutions to pursue innovation internally, as well as the inability of many financial institutions to source innovation from their primary solution providers; either through difficult procurement policies or lack of innovation from the providers themselves.
He further indicated that this lack of innovation would lead to openings for startups and other organizations to trump financial institutions and siphon off highly profitable business in what would otherwise be the domain of leading banks and credit unions. I won’t debate the merits of his arguments here: I’m sure we’ve all heard or shared similar concerns in the past. However, I thought I would take the opportunity to outline my personal “top five list” for what is coming in banking, as a starting point in the pursuit of innovation.
- Branch transformation – In the last month or so I was asked by one of my children (7th grade) “what is a branch?” and by another (4th grade) “what is an ATM?” This caused me to reflect on the meaning of those terms, and to imagine a world where financial institutions maintain a physical presence in the markets they serve, but branches aren’t branches anymore. Perhaps they aren’t stores either. The stratification of roles and responsibilities in the branch will be long gone and some roles, like the teller (including the “universal banker with a transaction processing focus” mentioned at BAI Retail Delivery 2013), will be abandoned. Instead, a bank customer will have the opportunity to initiate a wide array of transactions and service requests on a host of self-service devices in and out of the “branch”. Problems and questions would be escalated through the transparent migration of activities from low touch to high touch channels, with sales opportunities quickly identified and fulfilled in real-time regardless of time of day, location of resources, and complexity of need. Convenience will be defined by the individual and, most importantly, banking capabilities will not be tied to any particular device, but be managed in “the cloud.” The introduction of kiosk applications and expansion of transaction automation capabilities has already started this transformation. Done right, financial institutions’ cost structures will dramatically improve while the range of solutions and service capabilities afforded tomorrow’s customer broaden and become more valuable.
- Small business – Now let's imagine a world where all of the excitement and innovation we have seen in the consumer financial and payments arena over the past several years is redirected or matched in the world of small business. A world where an entrepreneur will be able to get everything needed to start and manage a business from, and with the support and guidance of, their financial institution. Valuable and comprehensive fee-based mobile commerce, mobile banking, and payment solutions will be packaged together seamlessly to meet the needs of a wide variety of market segments and individual clients; all offered friction free. A level playing field will be afforded where a small business can compete effectively online and offline anywhere in the world against much larger competitors. Mobile centric business solutions will expand the size of the market financial institutions target for the benefit of all stakeholders and allow for economies of scale much earlier in solution lifecycles.
- Business financing and work force evolution – Another interesting trend in the financial services arena will be the expansion of very different ways of funding and operating businesses. Peer-to-peer lending and crowd funding are already realities in today’s environment. To compete effectively in this environment, financial institutions will need to think through their role in this value chain. Further, crowd sourcing is likely to play an ever increasing role in how businesses are managed and how individuals find work. When I completed business school many years ago, predictions were that lifetime employment was a myth and that individuals would be likely to switch jobs every 1½ to 2½ years in an effort to proactively manage their careers. My personal experience hasn’t entirely followed this path but I know many others who have. Is it possible that my children might be managing their careers in 3 to 6 month increments? How will this impact lending, risk mitigation, and other financial services offerings required by consumers and businesses alike?
- Bank regulation, compliance, and fraud – Regulation and compliance burdens aren’t likely to ever go away. However, confidence in and respect for the important role financial institutions play in our economy will prevail, as will efforts to apply a rational level of regulatory oversight to all competitors in the financial services arena. Regardless, I think there are huge innovation opportunities out there to anticipate, automate, and rationalize the infrastructures required to manage risk and reduce fraud; and shouldn’t “compliance” ultimately come as a natural consequence of doing the right things in these areas? New solutions in these areas are destined to have a dramatic impact on reducing the time and effort required for compliance, and therefore increasing “innovation capacity” that can be applied to many other important areas.
- Data and analytics – Of utmost importance to executing innovation initiatives will be the ability to leverage data and analytics to drive intelligent decision making across the financial institution enterprise. Financial institutions and their primary solutions providers need to develop and strengthen core competencies in data and analytics: this is probably the single most important area of focus Chief Innovation Officers need to have today. Understanding what to offer to whom, when, and in what forum has always been critical to success, but with 90% of the world’s data having been created in the last two years, we are not playing the same game we were just a few years ago. Data and analytics for marketing and risk management are just the beginning. Data and analytics will become central to the use, improvement, and reinvention of financial products, solutions, and business processes. Data and analytics competencies will also provide financial institutions with the ability to create long-term competitive advantage by embedding data services as core elements in solutions offered to help their customers compete in an ever-increasing data intensive world. Imagine a world where data and analytics move from the proprietary domain of leading data scientists to being consumable by the masses for a wide variety of purposes.
So, that is my personal “top five list” for what is coming in banking. By working together to anticipate and respond to key trends and transformation opportunities, I believe we can jointly determine how to pursue these opportunities regardless of the challenges we face on a day to day basis. My hope is that financial institutions don’t allow themselves to be relegated to the “plumbing” underlying innovation, but become more aggressive in harnessing their ability to take and manage calculated risks and lead, rather than follow, in the future. What is your top five list?