By Alex Hammond, Partner, Airwalk
At its core, the 2008 financial crisis was a result of banks incorrectly managing risk, alongside regulators who were largely asleep at the wheel. As a result, regulators today are far more alert and apt to police industry developments. Likewise, bank leaders, wary of public perception and the fear of failure, are taking a cue from their risk, security and compliance teams and avoiding risk at all costs.
This environment has inadvertently slowed down the progress of innovation with financial service providers (FSPs) using risk and regulation as an excuse to not innovate. In reality, regulation merely provides oversight and ensures guard rails are in place to protect the bank and its consumers. Halting innovation is therefore more likely to have the opposite effect; causing regulation headlines down the line as banks will not be able to provide data transparency when an inevitable failure occurs.
FSP IT leaders are generally aware of this risk, but with more hoops to jump through and added complexity, many opt to only pursue major digital transformations or ‘big-bang’ opportunities. In some ways this is a hangover from the era of premise-era technology, when it was safer and more cost effective to upgrade systems every five (or even 10!) years than to continually innovate.
This is what makes cloud technology, data process automation and product-led innovation such game-changers.
Cloud-enabled continuous innovation
When it comes to implementing a programme of on-going innovation, cloud has completely transformed the process. For example, cloud service providers have off-the-shelf SaaS offerings that FSPs can use on a consumption model, test and see what happens. This eliminates the need to go out to market and procure a product or invest heavily in building their own. Utilising these services lets banks try new innovations at a significantly lower cost, at a smaller scale and allows them to throw things away with no regrets – something that is very difficult to do by themselves.
Furthermore, with access to cutting-edge technology and services, banks are no longer restricted to what they are capable of building internally. Continuous experiments and improvements are the gateway to innovation.
Technology to remove risk
Process automation also has an important role to play as it can remove a lot of risk in the innovation process. With automated processes and code there is much less room for manual error – the main culprit causing systems to fall over in the first place. By becoming technology-led and automating processes, delivery and operation, risk can be largely eliminated.
Establishing this baseline of components and processes in a stable and secure position puts you in a much better place to innovate and try new things. Without this foundation, the process of securing and testing will need to be repeated at the beginning and at every phase of any innovation process, making each iteration more complex and expensive.
A product-led proof of concept approach
FSPs must resolve their obsession with big-bang innovation to become more agile and iterative. Many organisations claim to do this, but their iterative development takes place internally prior to a large final release with no ongoing development. This may take months or years to bring to market – at which point the need may no longer even exist.
A clear opportunity to utilise proof of concepts and minimum viable products is being missed but this is just not in FSP’s psyche. The concept of generating the smallest possible development, testing it with the smallest number of customers and then scaling from there is just not the way these organisations currently operate. Yet, introducing incremental innovations to a limited population, allows banks to prove that it is something that people want. If not, it can be killed off before it eats up too much investment.
Instead, FSPs must become more product-led where success is based upon customer outcomes. This means being more customer focused, understanding their problems and desires and then delivering solutions to these. These organisations rarely leverage customer inputs and developments are assumption-based. There is no emphasis on validating things before they are done. Ultimately, these organisations must focus on their customer rather their senior executives, or their opinions.
FSPs, like every other industry player, need to evolve and keep pace with consumer expectations as digital services evolve in other areas of their lives. Unfortunately, technology progress generally does not move forward as quickly in financial services. But by becoming cloud enabled, automated and product-led, banks can focus on incremental developments. In doing so, they become more agile and better able to drive forward innovation that is accepted by regulators and genuinely valued by customers.
