Technology is redefining financial services delivery, customer experience and money movement. But with so much change, it’s a confusing world. Bank and credit union leaders now ask themselves: “Where should we focus? Should we expand our technology partners beyond our core providers? And how can we predict which investments are most likely to drive profitability?”
The confusion is understandable. Technology adoption is moving faster than ever before. Look at the historic trendlines: It took about 25 years for color TV to reach 90 percent penetration of U.S. households; microwaves took only about 20 years; cellphones about 15; and the internet even less. Furthermore, the explosion of new fintechs—each with a hot new approach—makes us wonder: Do I need to ride this wave? Or risk being left behind?
How can you make sense of it all? Here are our ten building blocks for your digital strategy.
1. Have a strategy—and don’t sit on the sidelines.
Be bullish. You know change is coming. Smartphones will only get smarter. Consumers and businesses will want a more seamless experience. You need to learn how to manage in this new, changing environment. Delay means risking that your bank will fall so far behind you can’t catch up.
Community and regional banks often worry that they can’t achieve digital innovation at their size. But they can use size as an advantage to make fast, agile decisions in a way larger players cannot. Don’t fall prey to the mistaken belief that “traditional” customers will remain loyal based on the personal service you provide. They will—to a point—but not forever.
So set aside a small portion of your overall technology budget (maybe 10 or 15 percent) for true innovation and learn to manage in this new and confusing environment.
2. Build for millennials and others will follow.
Digital adoption and migration is happening across all age cohorts. But the lag between what younger and older age groups use is shrinking. Just look at Facebook: It used to be for college students. Now the largest user group is their parents.
What the 21-year-old uses today, the 55-year-old will use tomorrow. Develop with your younger customers in mind and you’ll ultimately service your broader customer base. And you won’t have to wait very long for that adoption to happen.
3. Use fintechs to accelerate speed to market.
Banks are focused on defending their core businesses, which limits the time needed to focus on innovation. The leading fintechs, however, focus on products and segments not well served by banks today. They are better at innovating ways to automate loan decisions and processing, simplify customer experience and deliver faster payment processing. Make their strengths work for you.
4. Select fintech partners, not vendors.
You need them for their innovation and speed to market. But they need you also for your loyal customer base. Culture fit is critical. Spend the time to learn each other’s institution. Make sure you keep your brand front and center: Your customer trusts it. Recognize that if your fintech partner values their brand over yours, you probably selected the wrong partner.
5. Be agile.
Confront the obvious: fintech firms operate at lightning speed, through a dedicated project management office and using an agile implementation process. But banks are historically slow. How can both partners meet in the middle and work at comfortable, challenging pace for all?
Learn from each other. You will get better at implementing projects after learning agile management tools from your fintech partners. And don’t settle for half measures. Fully integrate your new solution with your existing systems. It can be done and your fintech partners can help.
6. Pick your focus.
What do you want to accomplish? How does it align with your strategy? For most institutions this fits into four categories: simplified small business lending, expanded wealth management services (roboadvisory), improved customer relation and sales management tools, and simplified person-to-person and business-to-business payment products.
Where should you focus? It depends on your customer focus and strategy.
7. Don’t fall for the next bright, shiny object.
After every banking conference we get calls from clients asking: “I heard about X. Should we be doing that?” Most of the time our advice is “No.” Be mindful of new ideas but implement the strategies you have thoughtfully decided upon and don’t get distracted by the next hot new thing.
8. Involve risk and compliance at the beginning.
It isn’t easy to take regulations crafted 20 years ago (or longer) and interpret them for today’s digital world; even the regulators have a hard time. In addition, risk and compliance managers were put in place to protect the bank. Typically, they have lengthy experience (a nicer way of saying they’re “older”). But that also means they have seen what can go wrong.
So involve them early and keep them engaged throughout the process. They will need time to adapt to the learning curve and will appreciate the up-front engagement.
9. Test and learn: Build customers, not just products.
Once you decide to invest in new products and services, there is a natural tendency to focus on “getting it right.” Timelines are developed; Gantt horizontal bar charts populated; marketing plans drawn up. But a look at product failures shows that the greatest risk is often this: Anticipated customer growth, product usage and revenue was not achieved.
Start simple with the minimum product functionality to demonstrate the value. Test it with live customers, not just focus groups. Make changes on the fly to improve and see if it works. Pay attention to the human interface. Finally, make it easy and intuitive to understand and use.
Remember, you need a valid sales model you can replicate and sustain with active users, not just early adopters.
10. Create excitement.
You’re ready to do something really exciting! Create company-wide buzz. Get all your employees excited as well. They’ll be better prepared to make your strategies a success.
Your financial institution can achieve a successful digital innovation strategy that will improve performance, attract customers and keep you from getting left behind by other more innovative competitors. Focus on these 10 building blocks to ensure your success, and you’ll create a strong structure that no competitor or market headwind can topple.
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David Kerstein is president of Austin, Texas based Peak Performance Consulting Group, which specializes in helping financial institutions grow revenue and improve performance.
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