Why innovating for tomorrow is one of the biggest challenges facing FS

Simon Hill, CEO and founder at idea management firm, Wazoku

The emergence of the cloud, mobile and other digital technologies over the past decade has meant that barriers to entering a market have lowered. It’s now possible for a new market entrant to come up with up with faster, better and more efficient ways of doing things than traditional providers – in broad terms, applying an innovative approach to familiar challenges and even creating new products and services entirely.

This is more applicable to Financial Services (FS) than almost any other sector. Not that long ago, both consumers and businesses would manage much of their financial matters through one main provider – banking, credit cards, loans, transfers, currency exchanges and more.

It’s an entirely different situation now, with a whole host of more agile and innovative challenger brands entering the market and many other consumer-facing brands such as supermarkets and ISPs also offering a number of different financial services. Traditional banks and other FS providers have for the most part upped their game, adopting a more innovative approach and applying that to as many areas of the business as possible.

But much of this innovation is focused on the here and now. How do FS firms retain this focus but also keep an eye on innovating for tomorrow?

A need for innovation

FS firms have not generally enjoyed the best of reputations when it comes to innovation. In many countries, a small group of banks have dominated the market for decades and in many cases, centuries. But an influx of FinTech start-ups, offering services that were cheaper, more flexible, quicker and crucially more innovative, changed the FS market forever.

It meant that banks could no longer rely on inertia, apathy and lack of choice to retain customers. They had to become more innovative themselves in terms of products and services to protect market share and they have achieved this – to an extent – by embracing innovation and turning to the crowd.

If they canvassed the thoughts of a range of stakeholders – employees, customers, partners, local communities and more – and provided them with a platform to submit, discuss and develop ideas, banks can gradually become more innovative, thanks to the shared insight, requirements and feedback of the people who know their business best. Given the fact that many banks are not really structured to innovate, this is no mean achievement.

Innovating for today and the on-going improvements that result from that, are hugely important in FS. But no organisation can afford to take their eye off the future either.

Innovating for tomorrow

This is important because change can occur so rapidly in modern business. When Metro Bank received its full UK banking license in 2010, it was the first one to do so in a century but there have been another eight at least since then.

People often cite Lehman Brothers as an example of a company that didn’t innovate for tomorrow and suffered the ultimate consequences. That’s true, but an overlooked element in its demise is that just a few years before it crashed, they had some of their best financial figures ever.

When the end for a tired and jaded business comes, it can come quickly. Similarly, powerful new organisations could emerge into FS. There have been persistent rumours about Amazon entering the FS market for example. If a company with such a focus on innovation and customer experience could bring those attributes to banking or insurance, then the impact on the customer bases of traditional providers would be huge.

Alongside the day-to-day improvements that many banks and FS providers have already tried to address, there must be provision for bigger and more transformative ideas to grow and take shape. This really comes down to changing the business structure to ensure that innovation is front of mind in everything the organisation does.

Making the change

Specific measures that FS firms should look at, would include:a genuine senior level commitment to cultivate and support innovation; encouragement for people to engage and collaborate; the right method to manage ideas; a broader group of stakeholders from which to crowdsource ideas; and the overall establishment of a culture that fosters and embraces innovation.

That last measure is especially important. A bank could be set up to deliver a more innovative approach but if the company is not brave enough to implement or even consider some of the bigger and more ambitious ideas, then there is little point in putting a system in place that unearths them.

The purpose of innovating for tomorrow is not to necessarily nail the most ground-breaking idea ever but to ensure the organisation is ready to discover it. Game-changing ideas are popularly presented as coming to someone in a flash of inspiration, but this is rarely the case. Rather, it’s the culmination of previous discussions, half ideas and older innovation that combine to provide the spark. To have that a bank needs to have been committed to innovation in the long-term.

It’s about building the right mindset and processes to be more changeable. Banks must become nimbler and more experimental, and steer what the future business will look like, aligning innovation to the strategic direction and goals of the organisation. Doing so will make them sustainable in the long-term and truly future-ready, capable of surviving no matter how the market changes.