By Evan Sparks
The traditional paradigm in banking sector innovation has been one where vendors develop products and banks buy and deploy them. In an era when innovation was expensive — requiring hardware and software development — if makes sense that innovation took place within capital-intensive institutions.
The declining per-unit costs of computing power and the layering of software and code has made innovation less capital-intensive and thus (theoretically, anyway) more accessible to end users. The declining costs have also made it possible to test more options and pivot, avoiding the costs of committing to a path before it’s proven.
This evolution has spurred new approaches to innovation that emphasize speed and iteration. One of them is cocreation — bringing customers into the design process and often putting them in the driver’s seat. In the bank technology market, co-creation means letting banks themselves identify their needs and work collaboratively to generate strategies.
What it looks like
Take Alloy Labs. A consortium of midsize and community banks that came together to focus on innovation around key challenges, the collaboration on payments led to a new payment rail that has been spun out as a fintech with several bank investors.
But any co-creation exercise first begins with “identifying a common product and common solution” to focus on, says Julie Thurlow, president and CEO of Alloy Labs member Reading Cooperative Bank. Banks participating in an Alloy Labs working group start with in-person meetings, “so we understand who the other people really are.” Trust builds when “you understand that the other people are as intentional as you are about building something good for the customer,” she says.
Independent facilitation can help the group identify what they’re looking to accomplish. For example, she says, participants might disagree about whether “we are exposing an API or building a user experience. Is it making the connection or getting the first customer on the platform?” How the minimum viable product is defined sets the stage for the next step of the process.
Design with the customer in mind
Just as co-creation in bank technology involves the banks as end users, banks in turn can incorporate their own end users into the innovation process. This is known as human-centered design. One archetypal example from outside banking is the “desire path.” In landscape planning, this refers to the paths people actually use.
When the University of Maryland completed its main academic mall, a large grassy expanse bordered by several academic buildings, the president decided to wait on installing pathways. So rather than paving walkways in a pre-set geometric pattern, the university let students crisscross the mall based on their own preferences — and only then installed walkways in the worn footpaths.
How can bankers find their own customers’ desire paths? Often the answer involves working with a human-centered design firm to facilitate the process. But bankers can also look within, to their own employee base. For example, Reading Cooperative Bank is beta-testing an emergency loan product. The product originated from a data-driven insight — that too few Americans have access to $400 for an emergency expense — and the realization that bank employees didn’t always want to disclose an emergency to their supervisors or colleagues.
That can become an HR challenge for a bank or any employer, Thurlow notes, as the bankers miss work if they need extra cash for an emergency car repair. Co-designed with a developer, Reading Cooperative Bank’s product allows employees to request a small emergency loan through the bank’s intranet that gets paid back through payroll. Once beta testing is complete, the bank plans to roll it out to other businesses as a subscription product.
Vendor relationships
Early on, Alloy Labs collaborations avoid bringing in vendors. “The only vendors you’d be talking to at this point would be your core, and that’s a limitation,” says Thurlow. Vendors are brought into the process as key components of the product they can contribute are identified. “The intent at this point is to own something and not to be told what you can do with it.”
However, vendors play a key role in the ongoing process. “We are not inherently product designers at the bank,” says DJ Seeterlin, president of Chesapeake Payment Systems at Chesapeake Bank. “That’s not something we as community bankers are good at.” Describing a new payment product, “the first iteration that we came out with was honestly pretty clunky. Working with partners helped us build an MVP more quickly.”
One large vendor building on co-creation is Temenos, a Europe-based core and digital banking provider. In June, Temenos opened an innovation hub in Orlando, “a space designed around co-creation, design thinking and rapid execution,” says Barb Morgan, chief product and technology officer. The Orlando facility will host in-person engagements with client banks, Temenos employees and Temenos partners through a design partner program model.
At a recent Temenos conference, Morgan previewed Temenos Product Manager Copilot, a product that emerged from a design partner program co-creation exercise. The solution is an AI-driven tool to pull data from the core, the bank’s policies and publicly available sources to help product managers much more rapidly design parameters for new offerings and get them into production.
Ultimately, participating in co-creation helps embolden bankers. “It empowered us to be confident and try new things,” says Seeterlin. “It’s empowered us to understand we don’t need to buy whatever the core provider wants to sell us.”
Key concepts
Co-creation. A design process in which customer input and participation is central from beginning to end.
Design thinking. An innovation process based on designers’ practices; includes defining the problem, identifying needs, benchmarking, ideating, building and testing.
Human-centered design. An approach to design that focuses on users and their needs and requirements, while applying human factors in the process.
Minimum viable product. A version of a product that has just enough features to be usable by clients in order to generate feedback and improvements.
