Major banks have been doing more work with the startups that once tried to displace them. Most other banks, with fewer customers and less capital, are still figuring out their long-term digital strategies.
In the last two to three years, banking giants have invested in fintech startups and partnered with them, they’re opening expensive new innovation labs and digital hubs and creating C-suite roles dedicated to leadership in innovation. Smaller institutions have been thinking about a digital overhaul for just as long, but without the resources to invest in fintech initiatives or the massive customer base to test pilots, they’ve been slower to move.
Below is a look in five charts at where banks are focused and what’s challenging them on the innovation front in 2017.
Banks care about improving their digital experiences
Of the more than 100 banking executives surveyed for industry strategist Jim Marous, 71 percent cited improving the digital experience in their top three priorities for 2017; half also identified enhancing data analytics as a priority and 41 percent cited reducing operating costs.
Just 10 percent, most likely those from major institutions, indicated that investing in or partnering with a third-party fintech startup is a priority.
The relationships between traditional banks and startups is getting cozier. The initial intent of so called fintech startups was to disrupt old banking institutions and an old way of doing things. For the small number of banks actually partnering with and investing in these startups, the areas in which they see eye-to-eye are all crucial to the development of banking as a platform: with APIs, data analytics and automation, banks can actually act as home plate for a host of other financial services and applications.
Both traditional banks and fintech startups goals and perceived opportunities aligned closely in the areas of creating open APIs, automating and digitizing operational processes and consumer experiences, utilizing data analytics, exploring new business models and developing the mobile channel, according to the ACI 2017 Fintech Disruptors Report.
Mobile will continue to be an important channel for both sides of fintech, especially as the industry moves more in the direction of contextual experiences and commerce. However, outside of the giants that have the means to fund and scale different initiatives, most banks don’t even have a sturdy mobile strategy in place yet.
Partnering for a better customer experience
Companies that participated in the ACI survey indicated payments (68 percent) and banking infrastructure (43 percent) are the areas they’re most interested in working on with startups. Some 40 percent indicated they’d like to partner for e-commerce opportunities, 37 percent for remittances, 32 percent for security and fraud management and 29 percent for core consumer banking operations.
Many banks don’t have an innovation chief
The biggest challenge for banks seems to be hiring and retaining innovation talent and leadership with the specialized skills necessary to lead an increasingly digital bank, according to a new report by Celent, Innovation Outlook 2017: Making Progress.
“Typically those have to do with things like managing an innovation program,” said Michael Fitzgerald, Celent’s senior analyst who authored the report. “Classically these roles have required project management or business analyst skills. It’s different in these innovation programs because unlike the IT programs insurers and banks usually have, things are shorter in duration in terms of frequent deliverables and therefore require more discipline.”
Just 20 percent of the innovation practitioners surveyed indicated they had a chief innovation officer inside their organizations, although Fitzgerald noted existing leaders could assume other titles, particularly in earlier efforts.
Someone needs to manage the budget
One of the biggest problems with not having an obvious innovation head is the use of funds for innovation projects can be a little disorganized. The source of the funding doesn’t matter as much as the need for it to be managed comprehensively, Fitzgerald said.
Most innovation budgets are taken out of an organization’s technology budget, according to Celent. Of some 30 innovation program leaders surveyed, 67 percent indicated they pulled innovation funds from the technology budget, 43 percent from individual business units’ budgets, 30 percent from a separate venture capital type fund for early ideas. Some 30 percent of organizations have a centralized innovation department budget and 10 percent indicated innovation isn’t part of the budgeting process.
“One of the things we see in these successful programs is human resources plays an active part in all sorts of different points in the program,” Fitzgerald said. “In practice though, innovation leaders are pretty reluctant to get HR involved. The perception is that HR is about layoffs.”