Finding the right mix: Innovation in financial services with PKO Bank 16 November 2021
Grzegorz Pawlicki is the Head of Innovation at PKO Bank in Poland. We discussed the incredible work underway at his institution in this exclusive interview.
This interview series was conceived by the Efma Future Innovation Community team to speak with those on the inside who are driving innovation agendas at leading financial institutions.
The role of innovator inside financial institutions is not an easy one. Many factors need to be taken into account, from regulation to internal legacies, competitive forces, new technology developments, and evolving consumer demand. It is a long list. How do they arrive at the right answers? How do they know what to prioritize in a changing landscape? Where is the industry headed in coming years?
In these interviews, innovation leaders share their views on these important questions. Their experiences are valuable as there is no silver bullet or crystal ball when it comes to innovation. And while everyone must chart their own path, we are not alone. We can leverage learnings and experiences from those around the globe who are working on the same problems. This series will provide the type of insight that community members will no doubt find valuable in their own innovation quest.
The role of innovator in banking is not an easy one - how do you personally approach the challenge? And how does your institution think about innovation with all of the existing challenges, threats, and legacies in the industry?
It is true that the role of an innovator in an organization such as a bank is not easy. Implementing new solutions in a large organization is a complex issue. Good cooperation and the ability to inspire and involve all units in this process are essential. Everyone involved in this process must have a common sense of cooperation to make changes to the organization.
To reach this goal, our bank has created a special internal unit under the “Let’s Fintech with PKO Bank Polski” brand. It works as a cooperation platform that connects the world of technological startups with bank units. Through “Let’s Fintech” we can support bank units with the tech solutions they need. Also, we’re responsible for the process of fast track piloting - so the business unit knows if a certain solution really works. As “Let’s Fintech”, we lower the risk of failure, which is high in every innovation. That makes business units more willing to reach for new solutions.
As financial institutions build their digital agenda, it is imperative they find the right mix between fintech cooperation, innovations labs, open programs and internal processes. How do you approach this in your institution? And how do you see this evolving in the coming years - will we see more innovation plugged into banks from the outside or innovation built from the inside?
Our current innovation mix is based on two teams: one is responsible for R&D in the blockchain area, the other cooperates with the startup community. Both operate under the brand "Let's Fintech with PKO Bank Polski". Also, our laboratory branches and own CVC fund provide us with great support.
From our experience, I’d say, the more mature the organization is, the more it is open to innovations built from the inside. We believe reaching this stage is a gradual process. At the beginning, it is necessary to gain basic experience. This is the stage where you use the support of external consultancies or accelerators. Later, as the company has already learned how to adapt to this way of working, it usually starts its own dedicated internal R&D unit as a facilitator for startup solutions. At first, such units aim for relatively simple improvements and at the same time do the necessary groundwork in terms of familiarizing the organization with innovations and with the promotion of such model of work. At some point, internal units are often backed with their own Corporate Venture Capital funds to strengthen the connection with startup industry.
We believe that reaching maturity on this path is necessary for the organization, to be ready to implement more complex solutions built internally. Throwing the organization into the deep end from day one probably wouldn’t work in most cases.
I have the impression that this initial, evangelizing era of banking R&D activities is coming to an end. Nobody today questions the legitimacy of innovative activities. The necessity is pretty obvious and it is common knowledge in the industry. And now, since most R&D units in banks have several years of market experience behind them, I expect an increasing number of complex innovative projects to hit the market in the coming years.
There is a clear trend of fintech startups becoming the new digital tech providers for banks, replacing current tech suppliers. Do you see the same trend in your institution? How do you think IT departments need to evolve to accommodate this?
I wouldn't say that fintech startups are replacing current technology providers. They bring new competences and a fresh perspective - that’s for sure. But the startup market is too unstable and too volatile for banking core IT architecture to be based on them. Security, reliability, and stability of solutions are in this case more important than their innovative potential.
At the same time, it is true that the fintech market has an impact on the role of IT departments in the company. The modern IT division is now treated as an equal partner in business, instead of being a supplier of components for business. It means that the implementation of an IT project itself is not perceived as a success anymore. It is a success only if the implementation translates into real business benefits for the company and its customers.
The whole idea of digital transformation in banking corporations is built around this fundamental change. Instead of having business and IT as two different parts of an organization, nowadays we have multidisciplinary business and tech teams that are focused on fast, iterative implementation of new solutions that have substantial value for customers. This is the way IT and business departments needs to adopt in order to keep up with the pace of changes in the market.
Testing and piloting is one thing, bringing innovative solutions to market is far more complex. What is your experience and opinion based on how your institution delivers solutions? In your opinion, how can financial institutions succeed in bringing real innovation to the core business?
As I said before, maturity of a corporate culture is a must have. Only within a culture that is open to change, that accepts the risks associated with failures and can systematically draw conclusions from them, is successful innovation is possible. There is no known framework, tool, or a specific way of working that will guarantee success if the cultural fundament is not ready.
This cultural maturity does not come out of nowhere. Usually it takes many years of grassroots work. Persuading leaders, inspiring them and turning them into change ambassadors, creating awareness, and establishing the process. These are things you simply need to do in order to bring innovation into business. And of course a growing portfolio of successful implementations is really helpful. At some point “the snowball effect” starts working. Successful implementation attracts the attention of the public and encourages risk-taking in subsequent projects.
We’re lucky because the openness to innovation in the Polish banking sector is high as it is very competitive and a technologically advanced market. Technological prowess is a natural space for competition between the largest banking players as well as between banks and rapidly growing fintechs. Also, we still have the Covid-19 effect, which significantly accelerated transformational processes in organizations. The willingness to innovate increased due to Covid-19 related shifts in market circumstances. Banks need to be able to respond, and need to be able to do it quickly. These factors increase the appetite for innovation in banks and, step by step, shape corporate cultures that are willing to take such risks.
In what areas do you think we will see the fastest innovation applied to mainstream services? Retail? Commercial? SME? Private Banking? And why?
I expect that we will see the fastest innovation applied to mainstream in retail banking and in SME banking. Basically because these sectors represent most of the mainstream. From the perspective of a universal bank, retail banking has the greatest impact on the financial result and covers the largest number of customers. As a result, this is the area where banks compete the most. From a customer's perspective, a highly competitive marketplace raises their expectations and makes them more willing to adopt innovative solutions that solve their problems.
Join Grzegorz Pawlicki and his peers in charge of innovation at financial institutions. Contact Dorota at email@example.com to join the Efma Future Innovation community.