Digital disruption: can banks add interest to others’ ideas?
The high street bank has always been relied upon to be one of those unchanging constants in our lives. Takeovers and scandals have come and gone, but the digital revolution has slowly changed the way financial products are delivered. Today the Internet, mobile devices and financial services have now converged to change the way consumers manage their finances and the way they connect with their bank, writes Richard Poole
In recent years the emergence of new B2C fin-tech start-ups and digitally enabled banks such as Number26 and Atom Bank (due to launch later this year in Germany and the UK respectively), has forced industry incumbents to wake up and realise that without adapting, their business models will be redundant within the next decade.
So where does a bank look for ideas on how to change? Customer-centric industries such as retail, media and entertainment, who are usually at the head of pack when it comes to adapting to ever changing consumer trends, were quickest to embrace the digital revolution. They have undoubtedly set the standard, so what can banks (and in fact other parts of the financial services sector) learn from other industries when it comes to embracing digital disruption and innovation?
Creating meaningful customer experiences
With the birth of eCommerce the arrival of digital online-only retailers such as ASOS quickly sprang up. They realised that by developing rich, immersive online experiences that complemented the ‘buy now’ button, they could create a following of young consumers loyal to their brand. The more forward thinking of the established brands, luxury and high street – Next, Louis Vuitton and John Lewis for example – also invested heavily in online experience. Other retailers and even other industries sought to emulate this model. They created marketplaces and media capabilities, shortened product cycle times and explored new categories.
In the Gaming sector new entrants have rapidly stolen market share and a wave of product innovation is sweeping the sector creating entirely new markets such as in-play gaming. One thing that jumps out at you when you compare retail financial services with gaming and leisure sector businesses is the disparity in the percentage of customer facing staff. At Ladbrokes the global gaming and betting company, around 86% of the workforce is customer facing and a typical retail organisation has a similar ratio. However, in a retail financial services organisation this is typically far lower, rarely troubling levels above 40%.
Some would argue that retail financial services are more complex than pure retailers (although the gap between the two is closing fast), but the industry must not make the mistake of thinking that digital channels are a replacement for customer centricity. There remains a definite need for retail financial services organisations to find ways to build a culture of customer closeness within their teams.
Fundamentally, whichever industry you look at, the key to success is understanding how to enrich the experience the customer has with your brand and all new products and services should be developed with this idea at the forefront.
Think and create like a start-up
Technology is constantly and rapidly evolving and organisations simply cannot afford to spend two years testing, refining and developing an idea anymore. One of the key challenges for monolithic organisations such as retail banks is breaking the slow, laborious product development process – it’s common for a high street bank to have a product development process of 1-2 years before meaningful customer contact, but that simply doesn’t work any more. Large global financial organisations are typically incredibly slow to do anything out of the ordinary as a result of regulation, complex management structures and processes. Getting an organisation of this nature to think and create like a start-up is the first hurdle.
To give an idea of the challenge here, Lloyds Bank initiated a company wide digital transformation programme. To do this Lloyds had to embrace Lean product development principles where developing ideas and testing them early on is key. By developing a Minimum Viable Product and successfully testing it with a small sub-set of customers, people quickly become more confident in the process and bolder in their experimentation, producing an environment where innovation is able to flourish.
Spark that lights the fire
In any established organisation there will always be resistance to change but this is particularly true for the ever-cautious Financial Services industry.
All successful innovation projects have one thing in common – a team of innovation champions who are dedicated to developing new ideas and driving these forward – usually led by a driven and charismatic leader. Often known as ‘Innovation Labs’, these usually start as entirely separate business units who are focussed solely on innovation and product development and are not involved in the day-to-day running of the organisation. It is crucial to get the right people involved within the organisation – the people that really want to facilitate change.
Create a movement, not a project
Arguably the hardest part of running a successful innovation process is helping senior executives to understand why they should back you. With significant budget being spent on new product and service development, communicating the work of the Innovation Lab to stakeholders is crucial if you are to gain widespread support across the organisation.
Ladbrokes is a stock market listed, global gaming and betting organisation, which exists in a similarly stringent regulatory environment to the Financial Services industry. When Ladbrokes set up an Innovation Lab to drive innovation, communicating its work to the rest of the organisation was key to maintaining continued support and budget.
Regular quarterly updates on the progress of its Innovation Lab needed to be delivered to different parts of the business from the CEO, to the marketing team, to non-executive directors and financial analysts. A similar level of communication will be expected within a retail bank or large Financial Services organisation.
To achieve an organisation wide culture shift it is also likely that companies will need to review the basis on which they reward their staff. Most companies are structured to incentivise and reward on the basis of success. However, by incentivising staff to produce results, they will bias themselves to find positive outcomes – regardless of what they have learned about the suitability of the idea for the business. Rewarding responsible, honest behaviour, is the only way to know when it’s right to start, or shut down a project.
Be a ‘Super Start-up’
While new fin-tech challengers may be agile and innovative, they also face challenges of their own such as barriers to entry and funding issues. Existing players have a huge wealth of assets at their disposal and if they can adopt the approach and techniques of start-ups, they have the potential to become what we term ‘Super Start-ups’.
To try and achieve that all important culture shift, leading retail banks such as Lloyds and Barclays are partnering with organisations like Start-up Bootcamp and Level 39. Banks need to be on the look out for service differentiation and partnering with or acquiring innovative technology from someone who already does it well is sometimes better than starting from scratch.
Just do it
Having said that retail banks should first and foremost be looking to create innovative products and services internally. They need to be at the forefront of innovation themselves if they are to continue as industry leaders. Consumer expectations are being raised all the time – not just by advancements in the financial world but also by advancements in other sectors; now really is the time for retail banks to just get on and do it or face fading away in the years to come.