Digital transformation, digital innovation, future proof — the list of buzzwords for the digitization of banking keeps growing. But banks are heavily regulated and typically saddled by legacy technology and processes. As a result, they simply can’t innovate like startups can and shouldn’t try.
When people hear the word innovation they imagine a world-changing invention. But, innovation by definition means the introduction of something new, such as a new idea or a new process. Banks should carry out select ideas with the largest potential for impact. But, what’s the best process to follow?
Most banks can’t afford to fund a separate innovation unit. Even if they could, the experience of megabanks with “innovation labs” suggests caution. Despite employing scores of technology designers, big banks don’t have a chance to bring their “innovations” to market because they do not utilize a customer-centric approach in partnership with key stakeholders.
Another deeply-flawed path to innovation is attempting to change the culture of the entire bank to one of entrepreneurship, or “intrapreneurship” to use another buzzword. Empowering employees to create and develop ideas sounds great but resources at most banks are stretched thin. A better approach is to select a relatively small team of influencers from various functional areas within the bank. The team would follow a four-step approach over an appropriate timeframe — up to three months so as not to disturb day-to-day operations.
The process involves defining valuable problems to solve, validating solutions with customers, determining the feasibility of implementation, and pitching concepts and business cases. The team must ensure that ideas align with customer needs and the bank’s goals and that they are feasible from a technical and regulatory standpoint. Principles of Lean and design thinking can be applied to aid the process.
The four phases of the innovation process are 1) Ideation 2) Discovery & Planning 3) Idea Development/Incubation and 4) Realization:
- Ideation –
- Ideas are generated and submitted for consideration
- Determine if the idea is really new or if the bank was planning to execute this idea anyway. Prioritize the new concepts.
- Build an understanding of customer need for the idea, its value to the bank, and the technological complexity of making it operational, including how long it will take and cost.
- Rank/prioritize ideas accordingly.
- Discovery & Planning –
- Gather research on customers, competitors, and the market.
- Use a customer-empathy mapping exercise to generate customer profiles for each idea.
- Map customer journeys to ensure you have accurately defined the problems you are trying to solve and that your ideas can address those problems.
- Develop prototypes that can be physically demonstrated to customers.
- Idea Development/Incubation –
- Dive deeper into the technical complexity of ideas.
- Refine and stress-test ideas.
- Define metrics and targets that will define success.
- Advance, pivot, or kill an idea at this point. Important: Don’t become too vested in an idea and thus afraid to kill it.
- Define phases of product development and milestones to achieve for each.
- Realization –
- The goal is to achieve readiness to scale. Product-market fit is demonstrated as follows:
- A Minimum Viable Product, or MVP, is created and tested with actual users
- A core set of hypotheses are validated
- Support of key internal stakeholders is secured
- A future state is imagined based on the validated hypothesis
- A funding strategy for the next cycle is set
- Or, a monetization (or cost savings) strategy/hypothesis is minimally tested
All of this might sound intimidating, but it’s a process that’s proven effective for banks looking to bring new, value-added services to market.
– David Ritter, Financial Services Strategist at CI&T