Deloitte Digital returned to Bank Innovation this year, listening carefully for how participants are moving innovation out of the lab and into mainstream. Below are 10 lessons entrepreneurs, bankers, and advisors at the conference brought to light for financial industry professionals.*
1. Identify your risk tolerance before innovating. Spending time up front to determine how much risk you are willing to incur will save you time and money mid-project. Given the many layers of risk evaluation, protocols, and required approvals inherent in the banking industry, banks must develop a framework for risk acceptance to allow partnerships with less mature companies that are unlikely to have similarly expansive legal departments and risk processes.
2. Know your horizon of innovation. It is important that you understand the timeline on which you should expect to see results from investments. Are you pursuing a short-term solution with an immediate impact? Or are you pursuing a long-term shift in a business model through multiple phases of investment? Identify and communicate the horizon clearly across your organization before investing so you don’t misallocate your resources.
3. Reward the process. Too often companies reward the wrong metrics. Simply rewarding results without considering the project’s evolving impact can incentivize employees to continue working on a project that should not draw further investment. Employees may drag out an effort, determined to make it work – to deliver results. Instead, reward adherence to the innovation process itself. Rewarding the process incentivizes employees to throw out bad ideas sooner.
4. Don’t bet the farm. It’s okay to fail as long as you’re moving fast and not spending a lot of money each time. Don’t focus on one solution as the “silver bullet” the first time you step into the innovation arena. Start small, build a prototype, stick to the process, accept failure if it isn’t working, and only then look for ways to scale with greater investment. Test your solution before betting the farm, and be prepared for the possibility of failure. Making an innovative solution real is as much a mental mindset as it is a process.
5. View your engineers as assets, not resources. There’s a growing trend among banks to call themselves technology companies. As one might aptly recognize, a name does not a technology company make. A culture of viewing one’s engineers as assets rather than resources may differentiate those who are serious about investing in innovation vs. those who are dabbling their toes in the water, whether consciously or unconsciously resistant to change.
6. Practice. Each successive time a team works together to bring an innovative solution to reality, the team gets better at doing it. Much like a sports team that gets rusty if it doesn’t practice weekly or even daily, your team is unlikely to function as well as it could if it only works together occasionally. Successful, sustainable innovation takes practice and introduces new kinds of unanticipated risks that require making perhaps unfamiliar decisions. The more often your team is faced with them, the better they will get at effectively addressing them.
7. Look for partners, not competitors. Shift your focus increasingly from disruption to collaboration. Be opportunistic, be global, and be open to partnering with companies that otherwise might look like competitors. The success of multiple technologies developed today hinges on broad adoption across markets. There is great potential for making recently discovered innovations real, and even greater potential if companies work together.
8. Don’t underestimate your people. Your people know your business and your pain points best. They are smart, capable, and often interested in learning about potential partners developing solutions that impact their lines of business. Encourage them to build their knowledge, to become in-house subject matter experts, and involve them in potential investment conversations. Value can be unlocked simply by empowering the people who are confronted firsthand with your pain points, day in and day out.
9. Target only the right partnerships. Rather than looking across the ocean of potential fintech partners in a line of business – for instance, in lending or payments – identify the specific pain point you have and target vendors known to address that point specifically. Get the help of an experienced advisor who understands your business and knows the fintech ecosystem well to help you efficiently and effectively drill down to address the right pain points and execute the best solution.
10. Look for a scalable way to build trust. The very nature of financial services requires trusting institutions with highly sensitive personal information. Customers are often asked to provide earnings histories, social security numbers, detailed contact information, and additional measures of overall financial health. They are also at times asked to send their hard-earned money halfway around the globe. New technologies in financial services demand a higher level of trust than new technologies in many other industries – even for Millennials, who have a lower bar for adopting unfamiliar digital services. To build this trust, transparency is key.
*These lessons were drawn from remarks made by various conference speakers, in particular Chris Larsen of Ripple Labs, Dan Kimerling of Silicon Valley Bank, Scarlett Sieber of BBVA, and Matt Openheimer of Remitly, among others.
Jessica Renier is a Manager in Deloitte Consulting LLP’s Strategy and Operations practice focused on the banking industry and Blockchain technology. Jessica spent five years with the Federal Reserve Bank prior to joining Deloitte, and holds an MBA from Stanford University’s Graduate School of Business.