Recently, I had the opportunity to spend time with some of Deloitte’s most senior team in both New York City and at the White House Fintech Summit in Washington, D.C. Together, we explored issues on the minds of many bank executives today; namely, how banks should approach corporate innovation and work with fintech companies. Certainly, collaboration between technology companies and traditional financial institutions has increased — think proofs of concept, partnerships and strategic investments — but much still needs to be done.
From my perspective, the evolution of the banking world is first and foremost a business issue. Historically, banks organize themselves along a line of products. There are banks such as Umpqua Bank, BankMobile (a division of Customers Bank) and Live Oak Bank that have oriented their operations around customer needs and expectations. However, these are more exceptions then the rule.
Consequently, as new technology players emerge and traditional participants begin to transform their business models, there is growing sentiment that successful institutions need to enable financial services for life’s needs through collaboration and partnerships with the very fintech companies that once threatened to displace them.
As Joe Guastella, global and U.S. managing director for financial services at Deloitte Consulting, shared, “incumbents can indeed thrive in a disrupted world. They can learn from history and be proactive in managing the change instead of being passive participants. But first they need to understand how fintech affects them before taking advantage of all the potential benefits fintech offers.”
Accordingly, here are three questions that I posed to Guastella and his colleagues that anyone responsible with growing and changing a bank needs to address.
Q: What do banks need to do so as not to be left behind?
Michael Tang, a partner and head of global digital transformation and innovation at Deloitte, believes institutions must “experiment with intent and purpose… avoid the Fear Of Missing Out (#FOMO) syndrome and investing and dabbling for the sake of it.” He is of the opinion that banks need to “take greater interest in the customer needs analysis from ethnographic research and behavioral economics.”
Thomas Jankovich, a principal in Deloitte and the innovation leader for the U.S. Financial Services Practice, echoed this. He opines that banks should work towards becoming platform based, data rich and capital light — with an infinite ability to scale. He challenges those senior-most bankers to re-think how their executives are educated, immersed and motivated to make bold decisions and take hold of the concept of “Platform as a Service.”
Q: How are some of the more successful financial institutions developing corporate and/or business-unit strategies to take advantage of digital opportunities?
Tang and Jankovich shared that the more progressive and successful banks are taking advantage of emerging opportunities in nuanced ways. For instance, they are:
- Using a combination of supportive leadership providing the mindset, right incentives and performance metrics to truly support a digital business model;
- Curating the right talent_ while leveraging the “buy, build, partner” model for capability; and
- Retaining customers by providing an experience that includes usability, data analytics and competitor awareness.
Q: Should banks become more like tech companies?
Cathy Bessant, the chief operations and technology officer of Bank of America, recently opined that banks shouldn’t see themselves as fintech companies. She reasons that a bank’s customers have such high expectations in terms of reliability and security, that the “fail fast” mindset of many technology firms doesn’t jive with customer expectations. As she made clear, “the potential cost of failure at scale is something to be avoided.”
So with most everything technology-oriented coming back to continuity, security and third parties, one must balance the need for exceptional service with the push for change. According to Michael Tang, one needs “a portfolio approach and clear expectations on the purpose and roles between run and change.” By extension, in terms of corporate innovation, Thomas Jankovich believes that banks need to move beyond the concept of “Run the Bank / Change the Bank” to actually “innovating the bank” in order to disrupt itself.
Yes, banks will be challenged to meet the future expectations of their customers as well as to assess the additional risks, costs, resources and supervisory concerns associated with providing new financial services and products in a highly regulated environment.
Size and scale doesn’t have to be a drawback. It can, however, be an advantage in this environment.
As a starting point for such an internal discussion, take a look at “Disaggregating Fintech: Brighter shades of disruption,” a report that looks at the the impact of fintech in six areas within financial services and across six business dimensions. Questions or comment? Email meat [email protected]