How to thrive in an era of digital disruption

Efma feature

26 June 2017

Ahead of his presentation at Efma’s upcoming Innovation Summit, bank innovation consultant JP Nicols explains what banks need to do to innovate more effectively and tells us which fintech firms he believes will be making a splash in the years to come.


What will you be speaking about at Efma’s upcoming Innovation Summit?

My focus will be on thriving in an era of digital disruption. While I will spend a little bit of time looking at some of the technological advances that are driving change in financial services, my message is really about what leaders need to do to keep their organisations relevant in a rapidly changing world.

Our industry is full of people who know traditional products and services very well, but the possibilities and expectations are increasing constantly and rapidly. I like to say that, much like William Gibson proclaimed about the future, disruption is already here, it’s just not widely distributed yet. Disruptors don’t beat incumbents at their own game, they change the game, and today’s leaders need to be prepared lead their people and their organisations into uncharted territory.

How imperative is innovation to success in financial services today?

It is a lot more important than the attention afforded to it by most leaders, unfortunately. I see three groups of financial institutions: leaders; learners; and laggards. There are a small number of leaders that understand that they have to keep moving forward or they will die. They are investing in their own internal innovation efforts and they are connecting to external innovators through partnerships, hackathons, incubators, accelerators, and in some cases, acquisitions.

We unfortunately still have a long tail of laggards who simply are not paying adequate attention to the need to innovate. I think many of them take undue solace in history and incumbency. I am not one of those who believe that the future is bankless or even branchless. We will have banks as long as I can imagine into the future, but that does not mean that all of today’s banks will survive. Most will not.

The learners are the group in the middle, and I’m happy to see it grow over the past few years. Learners know they need to do something, even if they’re not exactly sure what to do or where to start. Many of the learner organisations are working on improving their existing products and services, making things digital and mobile where they can, but they still have a lot of work to do.

How can banks innovate more effectively?

First, many institutions do not have an innovation strategy. They are randomly chasing shiny new technology without a deep understanding what problems they are trying to solve and for whom, or how it would fit into the overall corporate goals and strategies. Innovation should be about creating real value, and banks need to keep that overarching aim in mind, even as they experiment and test things that may not have a clear path to monetisation from the onset. They should also consider other important strategic goals such as cost reduction, improved customer experience and marketing goals.

All that said, banks also need to adopt more of a test-and-learn mindset to innovation, with tighter and faster iteration loops. This means getting imperfect and incomplete products in the hands of users much sooner and then continually improving them. Technology companies have long embraced the idea of an ‘MVP’, or minimal viable product, that they test in the marketplace to understand if and how it is solving a problem or filling a need that customers actually care about. Banks have such a long tradition of centralised planning and hierarchical management, and they still often prefer to vet things fully internally before they allow it to have contact with customers. Clearly, the core utility has to function properly and it can’t have any security holes, but every feature and button does not have to be finalised before launching.

Many banks also need to approach their collaboration with external partners much differently. Just because your bank has a few tech vendors and a procurement department, that doesn’t mean you are partnering with fintechs. Especially if you are asking the proverbial two people in a garage to indemnify your multi-billion Euro institution before you will even try out their new technology. Even more established fintech companies find most banks’ vendor management terms onerous and crippling.

Which US fintechs are you most excited about?

Oh, there are so many. I have been watching Moven since day one, and their CEO Brett King is a friend and colleague. They have been driving consumers to have more impactful and contextual engagement with their money, and they have been getting a lot of traction with banks as customers lately. I’ve also been a fan of Venmo for a long time, and they have become a real powerhouse now as a part of PayPal. It will be very interesting to see how Zelle does as a direct competitor. (Zelle is P2P payments platform created by a consortium of US banks.)

A few others that don’t capture the big headlines are CUneXus which provides one-click lending, Avoka, a digital onboarding and transaction platform, MX, which provides an accessible and consolidated data platform, the digital loan origination and underwriting software company Akouba, and Abe.ai, which is working on artificial intelligence powered banking solutions. They don’t capture big headlines because they work a little more behind the scenes, helping banks and credit unions to improve their own processes, rather than marketing directly to consumers.

How do you expect innovation in financial services to evolve in the years to come?

One way to frame a wide range of innovation activities is to think about it in terms of concentric circles. Most of the innovation we have seen so far has been on the outermost ring, in what I call the experience level— that is, the parts that touch the customer directly, such as mobile apps, improving online onboarding and account opening, social media, tablet applications, etc.

We are starting to see more innovations in the next ring, the tactical level. This is where process reengineering and the digital connective tissue such as APIs and straight-through processing connect those outer experiences to the core systems in a much more flexible way that can provide much greater mass customisation. The rise of open banking, which is really being pioneered in Europe, will drive a lot more innovation at this level.

The innermost ring of the circle is the strategic level, and this is where we see truly ground-breaking developments such as blockchain and other distributed ledger technologies, artificial intelligence, and so on, that can fundamentally change and challenge the business models of traditional financial institutions. We are still in the very early stages here, and this is where we can anticipate the most dramatic shifts and disruption over time.

Also, most of what we have seen has focused on the consumer, especially around payments. I look for much more innovation for business customers— everything from small to medium enterprises on up to large corporate enterprises.


Meet JP Nicols at the Efma Innovation Summit in Rome on 23-24 October!

Keywords : Innovation , Fintech

Geography : International