Today’s banking leaders talk about fintech with a lot of excitement, but also with an undercurrent of anxiety. Bankers understand that technologies like bots, machine learning and other forms of artificial intelligence are presented as transformational solutions for the banking industry. Given the speed and scale of change, bankers must balance the risk of falling behind against the possibility of making the wrong purchase that places their strategy even further behind.
But how do bankers who aren’t naturally tech-savvy separate the mission-critical from the flavor of the week?
Aggressive advertising campaigns position every new product as an essential innovation, but this holds true only in some cases -- and not in most. Before bankers sink big cash into technology, they should take steps to ensure they are spending wisely.
The push for more technology will not change any time soon. In an Accenture survey, 96% of bankers acknowledged that the pace of tech adoption had accelerated over the past three years, and CB Insights reports fintech deals are on the rise
Not every innovation is a solution
While some plug-and-play solutions do exist, many others require a tremendous amount of bank resources to fully evaluate, implement, customize and market. Given the amount of input involved, banks are making a big bet that these solutions will pay off and are losing a lot when they don’t.
The fact that banks, particularly smaller ones, have limited resources for evaluating new technologies compounds this problem. Therefore, many banks end up with products that don’t fit very well with their capabilities or business strategy.
I recently worked with a community bank that purchased a suite of cash management tools that leaders felt would better position the bank to grow its business banking division. The bank believed that the data in the sales pitch aligned with its market. Unfortunately, the bank soon discovered that business demand for these tools was low, leading to slow adoption and long sales cycles. The money is spent, but the revenue isn't there.
Banks can combat this by implementing an informal department that I refer to as an office of innovation. It should include a diverse coalition of stakeholders — for example, members of marketing, product, finance, distribution, sales, risk/security management and technology — who have the backing of the C-suite team. Chartering such a group will help banks make the right decisions about technology, whether it regards automated underwriting, business lending, or customer onboarding.
The office takes up the job of monitoring the fintech market for new products and then compares them against the bank’s vision and strategy. When alignment exists, the team presents the case to executives, who make the final decision about the technology. The group should meet at least monthly in order to keep current with the fintech industry.
Ask these questions before adopting any new tech
Every bank will have its own issues and needs, but here are some common questions each institution should ask before adopting any new technology:
1. Does the solution deliver tangible value? Technology delivers value when it improves bank operations efficiency, increases bottom-line revenues or measurably improves the customer experience. If an option doesn’t deliver on one of those fronts, it probably doesn’t deserve your time and money.
The key is empirical evaluation using a rigorous financial analysis framework to calculate return on investment, net present value and payback period, among other metrics. The evaluation process should be systematic, objective and measurable for every initiative before a purchase is made.
2. Are the solution’s claims accurate? Fintech solutions often evolve after they hit the market, based on feedback from users. If the solution's marketing doesn't reflect an understanding of this evolution, banks may end up with something that seems ideal but isn't useful.
Instead of trusting that solutions exist as advertised, banks should perform due diligence to verify all claims. Issues like functionality, applicability, compliance and financial support all require evaluation. The C-suite should authorize resources and tools to expedite this process if possible.
3. What is the solution's real time to market? It takes time to evaluate, purchase, implement and market a new tech product — usually much longer than the 30-day timeline some vendors promise. Banks should create their own timelines based on their resources rather than rely on vendor estimates. Beware of the claim that the vendor will do all of the “heavy lifting.” Even if a project has great prospects, expect delays. Consider the consequences of missed deadlines during the vetting process because these can significantly erode planned value and credibility.
4. Can we support the solution? The long-term viability of a solution depends on whether the vendor provides support and regularly releases updates that meet your evolving strategies. Vendors should serve as a true partner, and the office of innovation must gauge the level of their commitment, preferably during the demo.
Ask whether the demo shows the current version used in the market. Also, ask how many installations of the product are live. If the salesperson is truly transparent, she will answer without hesitation. And if the answer is more than zero, it means you should verify how many installations are in the market and how long they have been the solution.
The promise of fintech can be exciting. It can improve both front and back offices. But bankers should use prudence when considering new technology. Make sure you have a group dedicated to fully vetting any technology and ensuring that it will be a great long-term fit for your bank.
Rick Hall is the managing director of the Banking and Financial Services practice at BKM Marketing, a boutique marketing communications and strategy firm based in the Boston area with a deep focus on the financial services industry.
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