Innovation: the customer is STILL king
Banks are heavily investing in Innovation. In part this is a response to the rise of new technologies, from wearable payment devices to analytics tools using Machine Learning to anticipate and predict behaviour.
It is in part also as a response to the growth of FinTech firms that once posed little threat to their established customer base, but now seemingly from nowhere are overnight unicorns. They have amassed loyalty and uptake levels that traditional banks still dream of.
The question for banks is not whether, but where to innovate.
Most agree that –defence and government aside- Financial Services is the last industry to be subjected to real disruption. In other industries (music, retail, broadcast entertainment, airlines and fashion) those that resisted the innovation wave disappeared – either by being acquired or becoming obsolete. With resistance futile, the innovation race is on. There is certainly no shortage of opportunity for banks – current accounts, unsecured loans, payments, credit cards, mortgages, investments – all are relatively unchanged since their inception. The challenge for banks then, given their scarce capital resources to deploy and large customer bases to convince, is where to innovate.
Our response is simple – ask the customer. If you can answer ‘yes’ to three simple questions, then the change proposed through innovation is likely to succeed.
- Will the customer notice the change? Too often changes are made which help the bank but not the customer, or deal with the ‘noise’ rather than the issue itself
- Will the customer value the change? If it make their lives easier, makes banking more fun, or helps them to achieve their financial goals, then the customer will value it
- Will the customer pay for the change? Longer term, banks need to see a return on their innovation investment. The ‘payment’ may not need to be a direct fee. It could be a fee based on value created, or the catalyst for a customer to switch, but without a payback innovation change can be costly. If the customer will pay for it, it is a safe bet that they value it, reinforcing the response to question (2)
The task is relatively straightforward, the solution can be also. The key is a change in mindset. Allow all ideas to develop, there is little point to stifling creativity or discounting potentially valuable initiatives too early. The mindset also needs to encompass learning from ‘failure’, and even redefining failure itself. Failure here is failure to act, failure to listen and failure to say ‘no’. Prioritising the innovative ideas that meet the three customer criteria is a good start. These can then be worked up into ‘proofs of concept’ to test real customers’ real reactions. Social Media makes this possible in a quick and inexpensive way. Most banks now operate ‘labs’ where new ideas are tested, and these give far better feedback than traditional focus groups.
The ‘fail fast, fail early’ mantra holds true. But for banks to truly innovate, what matters is how they fail, and what they learn from it. Failing to innovate is certainly no longer an option.