Nearly every banker I’ve spoken with in the past few months has posed the same basic question: What’s next? With the promise that the pandemic will eventually be behind us, everyone is trying to predict the “next normal” and imagine if they have what it will take to succeed — or even survive — in a post-pandemic economy.
Obviously, there are many factors that will determine the answer to those questions. But if you pay attention to some of our industry’s favorite buzzwords, there are many characteristics that bankers will have to master in order to succeed. Agility. Adaptability. Empathy. I’d say yes to each one. But the core competency that will be critical for every bank’s long-term survival is a familiar term: innovation.
I know what you’re thinking: Innovation has always been key to sustained success. Yes, that’s true. But if you don’t count big banks and fintechs, you’d rarely find banks on the list of the most innovative companies. Admittedly, this past year saw banks of every size innovate quickly in order to meet the crisis brought about by the pandemic.
And while there are many banks that can point to instances where operational efficiencies were achieved or new ideas were implemented, it is important to remember that these innovations were not routine — and they were not always enterprise-wide. Too often, innovation is seen as a short-term assignment rather than a long-term mindset.
Moreover, banks usually equate the term innovation with technology and digital transformation. You may consider yourself innovative if, as an example, you brought in ITMs before your closest competitor or armed your personal bankers with iPads.
But innovation must reach way beyond technology. Future success in financial services will require innovation in all areas: customer experience, staffing, remote work, marketing — even business models will need to evolve.
In fact, our industry could learn from former Starbucks CEO Howard Schultz, who said “innovation must be disruptive. And by disruptive, I mean disruptive. You gotta fracture and break the rules.” Let’s face it, banking has a lot of rules.
But why is innovation so critical now? The answer is found at the intersection of at least three trend lines: humanity, diversity and technology. Let me explain.
I use the word humanity to express the idea that innovation becomes critical as shifts in human needs and human behaviors continue to accelerate. The pandemic and the subsequent recession have prompted changes in human needs on physiological, socioeconomic and psychological levels.
Social isolation, unemployment and economic uncertainty influence most financial decisions — from daily to long-term. Will the 25-year-old customer need a car loan? Will the 65-year-old be able to retire?
Think for a moment about how the pandemic caused customers to quickly adopt the digital and mobile behaviors that bankers have been promoting for years. Early indications are that customers have assimilated these new behaviors well and they’ve done it long enough now that new long-term habits are being formed.
According to a 2009 study published in “Psychology Today,” the average length of time required for a new behavior to become a habit is 66 days. The pandemic has gone on for nearly a year and your customers have been making deposits with their mobile app, paying bills online, and applying for loans without entering a branch. They have been using your drive-thru and other self-service options on their terms, often 24/7. What makes you think they will return to pre-pandemic ways of banking?
Depending on your community, it may take some time before the profile of your average customer returns to pre-pandemic levels. And regardless of demographic profile or degree of affluence, the pandemic has influenced perceptions about convenience, health, safety and simplicity; consumer needs and behaviors will be in flux for months, if not years, to come.
Will your institution be able to adjust products and customer experience to align with those new needs and behaviors? When was the last time you connected with your customers and sought their input in the product development lifecycle? A bank’s ability to provide contextual, personalized and relevant products and services will require more than collecting Net Promoter Scores and attempting infrequent improvement.
Diversity — both inherent (ethnicity, gender, etc.) and acquired (life/professional experience) — unlocks innovation by creating an environment where different opinions can be expressed, and new ideas pursued. Diversity enhances creativity. It provides different perspectives and promotes better problem-solving. Diversity helps banks become much more dynamic and able to understand their customer base.
Research from Harvard Business School found that a team with a member who shares a customer’s ethnicity is 152% likelier than another team member to understand that customer.
Rapidly maturing digital technology will keep pushing the industry forward. The rapid improvements in artificial intelligence for fraud detection, credit risk modelling, etc. will reinvent how banks operate and how bankers spend their time. Enhancements to mobile technologies and expansion of 5G networks will compel banks to find newer, faster ways to bring mobile updates to market. Open banking and blockchain integration will restructure the banking landscape. These are just a few examples of how technology will shape future innovation.