Are You Too Scared to Innovate?

By Graham Lloyd

For many in banking, embracing innovation is like standing on a highboard, far above a swimming pool, preparing to dive in. Both come with their own rewards. But both are also accompanied by a tangible sense of impending danger, uncertainty and fear. To some extent this is, of course, understandable. It’s no secret that one of the underlying reasons why the banking sector is amongst the most reluctant to embrace change is the sheer volume of sensitive data that those concerned have to manage each day.

At the same time, it’s reasonable to suggest that remaining prudent in the face of risk is very different from fostering a risk-averse culture as a result of fear. Too many, it seems, confuse the two. Consequently, they struggle to establish and nurture the level of innovation they need—and wind up paying premium prices post-hoc to fintechs with stiffer resolve.

There’s an irony here—and perhaps a “prisoners’ dilemma”—especially for bankers.

The fear of failure that stops them developing or investing early in new technologies sits awkwardly with their equal (and far more legitimate) fear of being left behind by these very technologies, as the rest of the industry strives to keep up with new, disruptive digital services.

In a recent global survey conducted across 56 different countries by Pegasystems and Cognizant amongst 500 senior executives in the financial services and insurance industries, 50% of all respondents said that digitally-savvy new entrants to the market will be either “massively” or “significantly” disruptive in the next five years. Meanwhile, more than one-third (39%) made the same prediction about the Internet of things, with a quarter of those interviewed saying that blockchain would have a “significantly” disruptive effect within the same period.

Ninety-eight percent of all survey respondents agreed that the most important contributing factor to innovation in their industry was the need to move outside of their comfort zone, “think beyond traditional boundaries,” and “identify new ways of meeting consumer needs.” All of which makes it surprising to find that nearly two-thirds of all executive respondents (61%) felt their governing board would tolerate a maximum failure rate for innovation pilots of only 30% or less.

Of course, we must acknowledge that a good part of the boards’ stance may stem from the 10-year bludgeoning they’ve received from regulators on “acceptable risk.” But either way, the deeply-rooted safety-first culture within the industry could not only hold back innovation, but also leave many organizations in the technological dark ages within a matter of years.

So what’s the answer?

In an industry where innovation is no longer an optional extra, banks and insurers will quickly realize that they will have to fail fast and learn quickly if they are to remain competitive. A 50% failure rate should be the absolute minimum that any of these organizations should be willing to accept if they are to cultivate a successful culture of innovation. To achieve this, a top-down revolution is required, with the most senior figures within these businesses leading by example and opening themselves up to the innovation imperative—along with all the associated risks—if they are to stay ahead of the game.

The keys to making this transition are threefold.

  1. Quite independently of the technological challenge, banks and insurers must learn to think in less traditional, more innovative terms.

To achieve this, they must truly walk in their customers’ shoes and learn new ways of delivering not only what their customers what, but also what they didn’t even know they wanted. Most banks today still believe customer-centricity involves using the same, traditional channels with slightly different words and packaging, whereas a different method of operating is required.

For example, a mortgage statement is not uppermost on a customer’s mind as they move into their new home—and rightly so. Their priorities are about making the house a home and navigating their new community. So what if a bank worked with its local merchant customers to guide the customer to the nearest pharmacy or flower shop to provide a few vouchers as they arrive in their new home? Only by changing their mindsets like this and becoming more open to innovation itself, will banks be able to embrace and justify the associated risks involved in achieving it.

  1. The failure of innovation pilots has to be seen less in terms of cost and more in terms of learnings and savings.

Clearly, if these are not captured and absorbed, then the naysayers are right to resist, as failure would result only in an unnecessary drain on resources. However, if banks can interpret the messages in terms of reducing scope, fine-tuning real customer needs, and identifying those bits of a process that can be refined—then the failure actually becomes a successful and valuable chunk of knowledge that will save far more than it cost going forward.

Ultimately, this exhortation quickly falls over if the costs of failed innovation are still absolutely large sums, be it money, people or time. So the third key is critical.

  1. Banks must move away from traditional, heavy duty IT approaches and embrace some of the newer technologies that enable change to be built in from the outset.

That way, quick updates can be made and learnings applied—and working prototypes can be created in a matter of days.

When all is said and done, the old saying may be relevant to innovation—there’s nothing to fear except fear itself. Those who benefit most will be those who go against the grain in terms of the way the industry usually behaves, embracing risk and committing themselves to finding newer, better ways of delivering stronger outcomes for their customers. Of course it’s important to make informed decisions based on a balanced assessment of all the risks involved. But there’s never been a more important time for the industry to realize that you can sometimes gain more by learning from your mistakes than by being too scared to make them in the first place. The question is, how many will be brave enough to hold their breath, and take the plunge off the high board into innovation success?

Graham Lloyd is Industry Principal of Financial Services at Pegasystems, a company that develops strategic applications for marketing, sales, customer service, and operations. Email: [email protected].

Online training in digital, mobile and social media from ABA.