By Brian Richardson, CEO of WIZZIT International
Banking is a highly regulated market, with little space for differentiation. What started out as smart ploys to attract deposits has led to a diversification race. One bank offers a zero-transaction-fee account – another matches with the same offer.
This veritable fish market has forced financial service providers to innovate beyond the keeping of accounts. To stay competitive, they have to offer bigger and better products and services to customers. These range from devices and lotto draws to funeral policies and insurance. They’re income and region-specific, and they’ve taken centre stage in marketing campaigns.
The sustainability of DIY
The question is, can banks do everything themselves in the provision of these value-added services? Historically, they’ve managed to. However, the increasingly unpredictable digital landscape means banks have to respond quickly and be unthinkingly agile. But bureaucracy and regulatory limitations means banks are slow-moving giants – they’re not innately agile entities.
And it’s easy to understand why. Key to the functioning and survival of a bank is the stability of the core banking system. A stable banking system means treading carefully in introducing the new or unfamiliar. A conflict is created between responding to marketplace needs and having the internal wherewithal, attitude and culture to do it.
Forging innovation via FinTech
One of the ways banks can solve this problem is to outsource innovation. Anything outside their core competence is developed by a FinTech partner and banks focus on what they do best. FinTech start-ups are on the rise, and are now a booming space for investment.
If banks are to outsource innovation, however, I predict they will – at some point in the near future – have to change their protectionist view of data. For FinTech partners to provide specific value-added services, they need access to data informed by customers’ behaviour. But banks aren’t willing to divulge it. And certain customers aren’t comfortable with their data being shared.
Depart the mothership
Another way for banks to solve the modernisation challenge is to set up an innovation hub, separate from the bank itself, to own IP while forging new solutions. But for these entities to incubate, they have to exist outside the mothership, which brings with it a whole new set of challenges. Namely that the bank itself will have to accept failure as part of the trial and error approach to innovation. Banks aren’t accustomed to accepting failure on a large scale – they’re historically low-risk, rock-solid, marble-and-glass spaces. Can they accept failures and, upon success, adopt innovation from the hub into the mothership?
Put plainly, something’s got to give. If banks are waiting on their customers to revert to loyalty or – at some point – make a lifetime commitment, they could be waiting forever. The modern customer is fickle and discerning, and will continue comparing value added from financial service providers. In the same way, banks’ competition will continue evolving into multiservice agents, more seductive and supple than ever before.