We spent an entire day in a challenge group exploring the digital development of the financial sector and how it will affect future banking.
The research foundation MTC is running a challenge group of senior innovation executives (from large companies) that regularly meet to share experiences and help to mutually approach common challenges. On this day I was invited as an academic expert on open innovation to present the current status in the field and to participate in the workteam discussions.
The financial sector is undergoing a huge transformation due to the digitization of currency. The traditional banking services – like going to the bank office to bank your cash savings – doesn’t happen as much any more and it is continously declining (at least in the leading digital countries). Today 99% of the customer meetings happen through digital channels, so banking services are going through major changes. But the biggest challenge is that 63% of the world’s bank clients utilize fintech services offered by non-banks (mainly innovative startups) according to the World Retail Banking Report 2016. The large banks have been evasive to apprehend the impact of the transformation taking place around them and are currently facing a situation where they need to react swiftly not to become outcompeted in their own markets. The reluctance or difficulty to adopt innovations have given a raft of entrepreneurs the opportunity to build solutions in solitude while the banks have been relaxing by the pool. This is becoming a difficult reality for the banks that they rapidly need to approach today.
According to the same study 90% of bank directors consider innovation crucial to their business, but as many are unsatisfied with the innovativeness of their companies. Apparently there is a lack of innovation management expertise in these organizations, but the situation can also be made a huge opportunity for a fast mover. And the time to act is now.
I can’t reveal any of the details of what the discussion led to, but in general we could define an urgent need for banks to define new structures to approach innovation. PwC recently presented a report that shows us that the more innovative companies in banking sector are growing by 62%, while the less innovative ones only grow by 21%. These numbers clearly showcase the relationship between innovation and growth. A secluded, internal innovation process does not work in this context with so many innovative fintech companies popping up. So banks will have to develop a flexible model that both pushes the development in the field and that manages situations (acquisitions, licensing, partner agreements, etc) with entrepreneurial rockets.
The financial sector is shifting precipitously and if the banks don’t find the proper measures to counter their inertia, they will be left behind with a sour taste in their mouths. Because today’s entrepreneurs are fast, innovative and relentless.