The road to banking innovation is lined with challenges as well as benefits. At times it is difficult to differentiate fact from fiction. The fact is that growth opportunities for banks will come from innovation in technology and services. This includes adopting a mindset for innovation and investing in improving technology in departments currently utilizing legacy systems.
In some situations, banks claim to market innovation, but this is nothing more than a smoke screen. The reality is that many banks do not want to absorb the high cost to implement innovative technology solutions. This, however, is not a good strategy for growth. Banks will have to develop products and services that meet the evolving needs of their clients in order to be competitive. But dollars spent on technology to “grow the bank” must be offset with the dollars to “maintain the bank”, and disruptive technology comes with a high cost.
Many banks are finding it best to partner with a technology vendor. In recent years, startups have grown from being small and mid-size vendors to large companies working within the global bank ecosystem. The FinTech startup community is agile and continues to make inroads in new markets with their products. The buzz about banks working with startups to offer their customers new products and services in an accelerated timeframe is not a new strategy. For example, the Electronic Bill Presentment and Payment industry gained widespread acceptance among banks when the Internet became mainstream.
This past July, Startupbootcamp FinTech New York Demo Day conducted an intense 13 week program. The recent cohort represented six countries where over a dozen fast tracks were held. Criteria for selection included whether or not the teams had a product that solves a real problem, and if they were the right groups to solve the respective problems. The sponsors consisted of Santander, Deutsche Bank, RoboBank, and MasterCard Worldwide.
In this environment, competition is often tough. The FinTech Accelerator provides bank sponsors the opportunity to work directly with startups. As banks continue to employ the word “innovation” in their marketing efforts, they need to move from strategy to execution. Innovation is not only a marketing tool but also allows banks to revolutionize their current framework, and offer new products and services. It comes at a high cost to both the bank and their clients, but those who are observing from the sidelines and taking a passive role as financial technology evolves are leaving themselves at a disadvantage.
Although there is a cost involved, banks must be innovative in order to remain competitive. Consumers today want solutions that properly leverage technology, provide convenience, and are affordable. Large banks have the budget to innovate, but what are other banks doing? Only time will tell how it all plays out, but financial institutions should work to ensure they remain on the frontlines of this race, or they risk being left behind.
