Innovative bank can’t run on legacy tech

Remember when internet banking was new? Remember when mobile banking was new?

Many bankers would still say they are new.

However, astonishingly, and in the seeming wink of an eye, industry observers already are referring to “legacy online and mobile banking systems.”

Next generation of the next generation

Consider this from wakeup call: “Gartner predicts that by the end of 2019, 25% of retail banks will use startup providers to replace legacy online and mobile banking systems.”

This is in the context of Gartner’s recent report claiming that “banks face intense pressure to increase efficiencies and reduce costs while delivering next-generation digital services; however, incumbent application vendors have been slow to respond to new requirements.”

Gartner isn’t alone. IDC Financial Insights recently issued a report stating that “digital transformation represents the best way for banks worldwide to prepare to respond to rapidly changing customer behaviors and market conditions.”

More to the point, Jerry Silva, IDC research director, says: “Digital transformation is the process that will separate the banks that will flourish over the next decade from the institutions that will perish from non-action. The banks that have demonstrated strong innovation and market presence are the ones that are committed to a digital transformation culture, starting with the CEO.”

Which is another way of saying, just because your bank has a website and a mobile app, that’s not going to cut it in the coming years.

Innovation in reality, not just in name

Not only will there be the need to recognize, evaluate, and adopt new technologies, there will be the need for strong leadership that advocates and insists upon innovations that further operational goals and strategies.

Okay, maybe that last statement could be a bit overreaching—but not by much.

Other analysts, looking at the state of business in general, paint a sobering picture of the disconnect between what business leaders say they need to do and where they stand in meeting those needs.

Deloitte, for example, did a massive global survey of 7,000 human resources and business leaders in 130 countries and found that 92% of those people “have identified the critical need to redesign their organization to meet global business demands.”

Another example in this vein: In January, Accenture issued a report saying that optimizing the use of digital skills and technologies could generate $2 trillion of additional global economic output by 2020.

“Organizations need to act aggressively in shifting the focus of their digital talent and technology from making efficiencies to creating entirely new business models. That requires not just greater digital investments, but broader organizational and cultural transformation in order to yield the greatest returns,” Accenture says.

However, in March, Accenture issued a separate report claiming that U.S. companies are struggling with various innovation pursuits. In a survey of 500 U.S. companies, 60% said their companies do not learn from past mistakes, and 72% said their firms often miss opportunities to exploit underdeveloped areas or markets.

“A significant gap exists between what U.S. companies want to achieve in the innovation arena versus what they are able to do,” says Adi Alon, managing director, Accenture Strategy. “They want to innovate yet they need to take different and bolder actions to achieve transformation, major revenue-generating innovation. True innovation requires aggressive changes in technologies, operating models, and talent.”

What’s missing from the banking picture?

Getting back to banking, specifically, research by Digital Banking Report explores gaps between consumers and financial institutions that exist today. Some takeaways from this research include:

• Only 34% of consumers think their bank has their best interest in mind.

• Consumers are willing to share personal information in exchange for highly personalized services and advice.

• Most financial institutions view their ability to deliver real-time personalized guidance as extremely or very important.

• The majority of financial institutions of all sizes are unprepared to provide personalized advice.

“While the relationships between consumers and their banking organization are still strong, new fintech players and nonfinancial firms are upping the ante with highly customized digital solutions,” says Jim Marous, copublisher of The Financial Brand and publisher of the Digital Banking Report. “We believe personalization across all stages of the consumer journey will become a key differentiator for banking in the very near future.”

Which circles back to the Gartner report that focuses on how banks need to try new approaches to providing products and services—particularly in ways their current vendors have been slow to offer.

Partnering with untested partners

“Startups and emerging providers of digital banking platforms offer banks interesting opportunities for innovation,” says Stessa Cohen, research director at Gartner.

Making that happen, however, takes a certain leap of faith, according to Cohen.

“CIOs must prepare to manage the challenges of evaluating and selecting new vendors that may not have proven track records in the financial services vertical or may simply be new and untried without an extensive customer base,” Cohen explains. “It can be difficult for CIOs to justify investment in their solutions to their boards and regulatory agencies, but don’t use that as a reason to exclude new vendors.”

For example, Gartner observes: “Incumbent vendors often do not support open architectures that decouple the presentation of services from the services and transactions themselves and, crucially, enable the bank to bring new and existing processes together to offer innovative digital services.”

New vendors, Gartner goes on to say, offer digital banking capabilities that:

• Enable bank business and IT staff to offer apps and applications that support personalized, customer-centric banking experiences.

• Provide data and behavioral analysis.

• Offer location and context sensitivity.

• Create a partnership ecosystem to foster new services leveraging partner data, transactions, and processes.

Taking first step away from the familiar

Still, it takes guts to go against “legacy” and “incumbent” providers, however cutting edge they might seem today—or did yesterday. Accenture suggests these “transformative changes that companies can undertake to ignite innovation”:

• Build a two-engine approach. Engine No. 1 focuses on making existing products and capabilities continually better. Engine No. 2 involves disruptive and game-changing approaches to dramatically improve organizational performance and competitive advantage.

• View innovation through new lenses. In an age when nontraditional entrants are increasingly capturing market share and customers are ratcheting up their demands, a company’s reliance on its old playbook will prevent it from achieving competitive advantage.

• Break down industry barriers. Cross-industry innovation models lead to competitive differentiation and new sources of growth, revenue, and customer loyalty.

Sigh. Whatever happened to good old flip phones, pagers, and beepers?

Sources for this article include:

Smarter Use Of Digital Skills And Technology Could Boost Global Economic Output By $2 Trillion By 2020, Accenture Study Shows

Three Years Later, U.S. Companies Continue To Struggle With Innovation, Accenture Survey Reveals

Deloitte Survey: Digital World Of Work Is Forcing Companies To Radically Change Organizational Structure And Talent Strategies

New Study Shows Banks Fall Short On Meeting Consumer Expectations For Personalized Relationships

Gartner Says Digital Banking Demands New Technologies —And New Vendors

IDC Financial Insights MaturityScape Outlines Digital Transformation For Banks