The Sad Truth About Innovation at Banks

If you are going to read one blog post this month about innovation at banks, and the challenges therein, I’d suggest this one by Chris Skinner over at The Finanser.

Chris makes some great/depressing points about the lack of true, well, bravery at banks. An excerpt:

The theme is always the same: [bankers] don’t want to lead, we want to follow.

But innovation is never created by following. Innovation is created by leading. If an innovation was proven and could be followed, then it’s not an innovation. Innovation is about creating disruption to business models that are compelling.

And that’s why retail banking is not about innovation (investment banking is different). The reason retail banks follow is that there is no need for speed, no need for change, no need to be compelling. Why? Because the industry is cosseted and protected by licences that make it hard for new entrants to compete.

Of course, Chris is correct. While there are a handful of examples of bankers peeking their heads up from their foxholes in recent years, the vast majority are content to milk the position of power they enjoy. Online banking has only exacerbated the situation, not changed it, as was once expected. Adding to Chris’s point about licenses “making it hard for new entrants to compete” is the fact that the standard-issued online banking platform at banks also makes it remarkably painful for consumers to switch banks. Heck, even I am guilty of falling prey to this barrier to change.

But what is more upsetting is how these dynamics have altered the very way in which banks operate. A great comment to Chris’s blog by Gary Wright, a consultant, pinpoints exactly how this cancer has inflicted banks. (I’ve edited the comment to appear in bullet-point form):

Senior executive within banks do often encourage their premier business divisions and management to put forward cases that drive significant revenue from new ideas. They argue/plead for innovative ideas and claim they will fund them. Yet, they do not emerge, so why is this?

• There is no scope to develop and evalue a raw idea. It is not in anyone’s job description. Doing the day job is the priority!
• There is no cross-business recognition/structure that innovative ideas need input from several sources to mold and craft them before business cases are even put togther
• There is no seed-corn money set aside to evalue a raw idea. It fails at the first hurdle.
• Time is not allocated; acceptance of its value is dubious.

The list goes on yet banks have structures and whole teams titled “Ideas and Insights,” “Innovation,” “New Product Delivery,” and so on.

The fact is that too many define and “manage” innovation as a thought process and activity independent of improving and challenging that you currently do. Sometimes the best ideas come from the people least expected to be the source of them. Harnessing and developing these this is a way to go, but then this all gets grouped into “working smarter,” so again it fails. Unfortunately, the end result is a continuation of what exists today, but don’t give up hope please.

Well, we haven’t given up hope here at Bank Innovation, and I hope our readers have not either. I would argue vociferously for an allocation within every bank’s budget to real innovation projects for one simple reason: like a box of chocolates, you never know what you are going to get — but you know it’ll be sweet to the taste. In other words, you can make tomorrow better than today, and that will be worth the investment.