The innovation conversation banks need to have

Banks and bankers in general are a resilient lot, riding the ups and downs of financial markets. But, the post-GFC era has been a particularly sobering period for the industry.

Leaving aside the greed laid bare at the height of the financial crisis and the machinations of the banks - that played no small part in pushing markets to the edge - traditional banking has had to combat the rising tide of technology and reconnect with its customers.

Which brings us to the buzzword doing the rounds in today’s financial circles ‘customer-centricity.’ An interesting term because the DNA of big banks is anything but customer-centric.

However, as the banking stalwarts of this country have pointed out in the last month or so, the likes of Google and Apple have left them with little choice.

Traditional banking has been challenged by the rise of internet ever since Microsoft co-founder Bill Gates famously declared ten years ago that mortar-and-brick banks are the dinosaurs of the 21st century.

His prophetic visions haven’t unfolded in their entirety but the rise of digital payment platforms, the growing popularity of peer-to-peer (P2P) financing websites, and the hype around Bitcoin all highlight the need for the big banks to get serious about technology and  get closer to the customer.

Banks become retailers

But how do banks foster sound relationships, especially when they have had such a good time growing fat off their customers, and what does it actually mean?

According to IBM’s global retail banking director, Boxley Llewellyn, banks of the future will need to be nimble enough to respond to evolving customer behaviour and changes in technology.

That means anticipating client needs and delivering innovative products faster and more consistently than the competition. Sounds easy enough, but the big banks, in general, are encumbered by an inherent inertia that makes decision making and subsequent implementation a ponderous affair.

Llewellyn says that banks have a distinct advantage in that they are seen as a trusted source of information, control and in - today’s mobile world - they have a role to play in securing transactions, customer privacy and facilitating payments in a meaningful way.

However, leveraging that potential remains an ambition unfilled. That could be a sign of hubris from the sector, but is more likely a symptom of the lack of substantial change in organisational culture and attitude. 

Llewellyn says that banks need to start thinking like retailers and start thinking about customer experience, their location and what they can do. At the same time they need to be able to provide an option for them to access a service (transactions, advice, etc).

“That’s a key ingredient and they have to do it under regulatory compliance and maintain their reputation as a trusted source. This allows them to fully leverage all the customer data they have in a meaningful way,” he says.

That’s something a new retailer would struggle to achieve and the term omnichannel isn’t just relevant to the retail sector. It also makes a lot of sense for banks.

“This idea of omnichannel doesn’t have to include every transaction but the very fact that we can pretty much digitise everything that we can do in the financial services space says that like other industries banks need to start thinking about this,” Llewellyn says.

Chasing the next 'wow' moment

Commonwealth Bank is ostensibly seen by many as the one Australian bank that has come to grips with the challenges of digitisation. However, all four of Australia’s big banks, and a host of other smaller providers are working on a plan. While some are still working to overhaul their core systems, others are tinkering around the edges.

The bottom line is that each is intent on giving its customers a better experience, but none has cracked the code.

What’s interesting is that channelling the innovation mantra into the boardrooms of financial institutions isn’t exactly a new phenomenon. Banks, big and small, have always devoted a modicum of resources to innovation but the onset of the financial crisis saw innovation slip off the agenda.

Now that it’s back in the picture the challenge is to find and implement the best solutions

For Texas-based USAA Bank, a company with 9.4 million members, the future lies in mobility and the mobile experience.

The company recently launched its Virtual Mobile Assistant powered by Nuance’s Nina on its iPhone app and USAA’s assistant vice president for its member contact application division, Eric Smith says the decision wasn’t one made on a whim or the desire to chase a gimmick.

Smith says mobility lies at the core of why customers are in control and creating a “virtual agent type of experience” was a logical port of call in USAA’s stated objective to build “wow” mobile experiences.

So, it’s not just about building connections but also leveraging it towards creating personalised experiences, which is fast becoming the name of the game for everybody, not just the banks.

The other consideration to keep in mind is how do banks tackle the influx of innovators coming into the market with products and services – PayPal, M-Pesa, Bitcoin – to name a few.

While the third parties have come into the market with disruption in mind, they aren’t exactly averse to working with traditional players. In fact, many are more than willing to work with big banks to provide a value add. Unfortunately, their appeals have so far fallen on deaf ears and that’s because the disruptors are always seen as intractable foes rather than potential partners.

One such disruptor is payments company Braintree, which is rapidly spreading its wings in Australia. According to Braintree’s head of market development,Tyson Hackwood, third party players come into the market with customer-centricity as their core focus and a payment business like Braintree can actually add value to a bank.

Hackwood, a PayPal veteran, says third party players can be important partners for banks, especially if they can provide that piece of infrastructure that connects customers to banks.

Ditching legacy for good

However, Braintree’s GM of international and payment strategy Klas Back says legacy is a big challenge for banks because it not only hampers product development but also thinking.

“A lot of banks still tell us that they don’t like start-ups and we always tell them that you realise that it’s this attitude that created the monster called PayPal,” Back says.

It wasn’t that long ago when banks could get away with that attitude but times are changing and the traditional players need to realign their focus from managing risk to seizing opportunities.

It’s true that banks do operate under stringent regulatory scrutiny and that can be an inhibitor to radical rethinks. But if the application of technology is only designed to build a toolkit to reduce cost or keep step with compliance demands then the sector is perhaps sowing the seeds of its own demise.

The foundations won’t wither overnight but evolving customer needs and customer behaviour will almost certainly lead to the creation of even bigger disruptors. A risk-averse mind set is an anathema to innovation and fixing that will need more than just empty lip service from our banking stalwarts.