Alessandro Hatami, Managing Partner of Pacemakers.io breaks down the 3 stages—Adapt, Evolve and Rethink—of banking innovation.
Thought Leaders in Finance: The Three Stages of Banking Innovation — the first in a five part series.
When a bank decides to innovate, they usually go through three stages. The first stage is to Adapt.
What happens there is usually you’re just adapting existing capabilities and procedures to a digital world. The objectives there are usually twofold:
One, I want to sell more, two, I want to take out costs. What that leads to, is the creation of capabilities in-house. Creation of possibly a new culture and the attraction of new talents that you bring into your organisation.
The next phase is the Evolve stage, and in the Evolve stage, you build on what you’ve built, and you’re creating propositions that are new. For example, a loan product that is only available online and not available to customers.
PFM personal financial management, the ability to tell the customer how they’re spending their money. These are not revolutionary products, they’re evolutionary products. They force the bank to think of themselves differently, and start thinking about other ways of fulfilling the needs of the customer. So we put all these things together, you get to a point where the bank can start saying, ‘Let me rethink who I am. Let me think about the proposition’.
Most companies have no problem with the Adapt stage of innovation. Evolve and Rethink requires a bit of repositioning because you’re testing, you’re experimenting. So you need to start thinking about the famous paradigm of, ‘Changing the tyres on a moving bus’. If you start creating innovation in an incremental fashion, you can actually deliver disruption, without having gone through the catastrophe of change.
Some of the banks in this country take up to three days to onboard a new small business into their platform. Sometimes even longer. There are challenger banks out there that do it in 10 minutes.
You have created these processes in a world that is no longer there. With sets of regulation and technological capabilities that are no longer valid. The interesting thing about corporates is that a lot of them, their leadership knows that they need to change. They also realise that they don’t have the culture and oftentimes they don’t have the talent in-house, so they’re struggling to find ways of doing this.
One of the things that everybody talks about is collaboration between the fintechs and the challenger banks and the incumbent banks, and together they will create the new solution. If you look at where the technology companies were 15-20 years ago, there was a list of 10. Today it’s a list of thousands. So the choice of who to partner with—to build the new thing—has to become a professional service.