To say the banking industry’s history reflects reluctance to change is an understatement. However, things are changing in the post-recession era thanks to FinTech’s rising popularity.
Roboadvisors, mobile payments, cybersecurity and blockchain—all these forces challenge traditional banks to make their transactions more efficient, digitize services and improve on the improvement process, if you will, for end-user services.
Banks have steadily shifted how they provide customers with services via increased reliance on technology—with many moving to a complete digital experience. Yet regulatory red tape has ensnarled some banks that hope to properly innovate. Financial institutions must also overcome other innovation challenges: namely to evaluate and integrate technology, create differentiating factors, and modernize capabilities without core capabilities to develop innovations in house.
Here are six ways our industry, even in its state of flux, strives to innovate.
1. Speed-powered payments: Payments represent the fastest-moving solution in terms of innovation. Payments systems include the people, procedures, institutions and technologies that make exchanges possible. The consumer and retail payment sectors are quickly changing due to recent ventures of FinTech startups in the space. They shake up traditional practices; new solutions allow for greater speed, increased efficiency and more flexibility with where and when they’re made. Today’s most significant innovations bring change to retail payments, as ecommerce trends continue to skyrocket—thus requiring digital and real-time payments. Newcomer Zelle connects the nation’s leading financial institutions to enable fast person-to-person payments to nearly anyone with a U.S. bank account. It has processed more than $100 million in transactions in its first six months.
2. It’s something personal with PFM: Personal Financial Management (PFM) software helps users manage their finances with single-interface displays that show how much they spend on various categories such as travel, shopping and restaurants. PFM software categorizes transactions and organizes them into a user-friendly view: Think pie charts, bar graphs, etc. PFM requires big data technologies. A great example is the PFM app Clarity Money, which recently passed 500,000 users in just less than seven months post-launch.
3. Lending lenders a hand: Banks constantly seek new solutions to innovate transactions and the loan application process. Bank clients desire more customer-friendly lending solutions that cut paperwork and let them complete loans at local branches. They not only want but need digital solutions to apply for and receive a loan from their phone or computer. Data-driven online processes also cut loan approval times to days—or in some cases minutes.
4. AI and investments: Investment technologies innovate risk calculation and management, along with how reporting is done. New technologies that can foresee and adapt to market trends are crucial; they help firms deliver the best client services and stay on innovation’s bleeding edge. AI and machine learning will help asset managers extract value from big data. Merrill Lynch is experimenting with an AI stock-picking tool to identify small-cap stock value that conventional analysts might miss. Initial coin offerings (ICOs) have also come a long way since their 2013 introduction. According to data from CoinSchedule, 2017 has seen 211 ICOs through Nov. 1. Those offerings have raised a combined $3.46 billion, with more than $800 million coming from ICOs concluded in September.
5. Getting to the core of core banking: Current core banking systems are anything but current. Old and outdated, they require manual efforts and person-to-person interactions. New systems change this with a more automated, hands-off approach. Banks without human tellers save money but still deliver quality customer service. Chime, which launched in 2014, appeals to millennials through its affordable, easy-to-use app. It has more than 500,000 subscribers in their late 20s and its CEO/founder thinks its goals align better with customers than those at traditional banks.
6. FinTech “co-opetition”: Banks find themselves challenged by technology integration that promotes transparency, particularly because of antiquated legacy systems. “Co-opetition” between banks and FinTechs can improve customer experience while harnessing a FinTech’s unique strengths. Working together they can increase customer loyalty and offer catered solutions and services at an added (transparent) cost. This creates a “win-win-win” for the FinTechs, banks, and customers.
Consumers will soon call it a given that banks integrate technology and cater to them with forward-thinking services. Less obvious, though, is the differentiator that will make individuals and companies choose Bank A over Bank B.
To survive, traditional banks must evolve as customers grow to expect a digital-only banking experience. Think of it as banking’s consumerization. The financial industry’s future lies in how banks innovate and recognize the need to cooperate with FinTech startups. This improves agility, increases customer loyalty and boosts customer experiences through catered solutions and services. And it’s as far from innovation theater, or innovation for its own sake, as you can get. Think of it this way: Your customers who stand with innovation might just give you a standing ovation.
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Toby Olshanetsky is the co-founder/CEO of prooV, a Pilot-as-a-Service platform that helps enterprises find, test-drive and implement new technologies.