Since the 2008 credit crisis, you would have to have been sleeping under a rock not to have noticed the low levels of brand allegiance and consumer confidence in banks and financial service institutions. A recent study of 10,000 US millennials, found that one third would be willing to change bank within 90 days, with no sense of loss for their former bank of choice.
The attitudes inside the financial services industry hasn’t been much better. Highly skilled and highly motivated ex-employees of large banks and financial service institutions have set out over the last decade, with a point to prove. If you search the founders and senior employees list at FinTech companies you’ll find a plethora of former finance employees.
There are estimated to be over 10,000 operating FinTech companies world-wide, and set within the context of increasingly accessible digital technology, lower barriers to entry, and the chance for a slice of $trillions of global financial profit, there’s little wonder why.
What’s the problem for established banks?
They’re compliance heavy:
Incumbents suffer with a culture of box ticking, which means collaboration, speed and flexibility - the key ingredients to mobilising new ideas - are in short supply.
They suffer from a short-term approach:
A top-down mentality means that senior stakeholders typically look for shorter term gains that carry little risk to profits.
Old institutions are technologically challenged:
IT and digital capabilities within long established firms are often outdated, (many are still using legacy systems built in the 1970s) so getting fit for the digital age can be slow and expensive.
Virality outperforms inertia:
The global and rapid success of start-ups demonstrates the success of innovation, agility and speed over size. Put simply, large institutions move way too slowly.
How should banks respond?
Of course, it’s entirely possible for established banks with large financial resources to acquire disruptive FinTech ventures. But partnering with the right company and finding synergies is not always easy.
Banks can also open a separate innovation division, to mastermind their own innovations. Yet here there is the potential that new-ideas become little more than a novel side-project, affecting little change. And while innovation departments battle with the higher echelons within the "main company" for autonomy, budgets and greater decision making power, agile and bureaucracy light FinTech companies are stealing more ground.
Established banks should instead reignite their own fire
Many financial institutions seem to have been missing a trick when it comes to innovation. They have access to the mass market and they have an historic amount of data from which to derive user-insights. So, instead of focusing on the early-adopters that are drawn to innovative new FinTech products, they should focus on the mass market, and aim to build products that have mass-appeal at less of the cost.
Start small and iterate rapidly:
A new venture should start small. Don’t look to over-engineer your product or service too quickly. By starting small you can figure out what your customers really value, without the risk of wasting time and squandering budgets.
Win the dominant design race:
By making sure that your product or service is designed in an accessible and customer-centric way, you will minimise the amount of reasons for your consumers not to invest their time and energy in your platform. It’s vital that your product and service is seen as the “right one”, this can only be achieved if it’s designed, built and marketed with your core customers in mind.
Create strategic alliances:
Incumbents should also form alliances with distributors, strategic partners and producers of complementary products. By leveraging their reputation and brand, it's far easier for a long established company to form an alliance – effectively blocking out the competition – than a FinTech, with little credit history or brand equity.
In general, established companies should never underestimate the internal resources they have right at their fingertips. Brand power, an established reputation, a large and talented workforce and thousands of customers puts them at a huge strategic advantage. So why not outthink and outsmart the disruptors from within.