The absurdity of innovation: Reimagining banking today

In business we are encouraged to challenge the status quo, think outside the box, and disrupt or be disrupted. We are extorted to fail fast while we think big, start small and scale fast. And while there might be some dispute about whether Peter Drucker actually said, “innovate or die”, there is no argument that he had a profound belief in the criticality of innovation in business. So much so that he identified seven sources for innovative opportunities both inside and outside the organization. But, we are told, innovation is hard. Innovation is about groundbreaking, market shaking, industry creating new ideas.

Does that mean that it takes genius to innovate? That only geniuses need apply? As Thomas Edison said, “Genius is 1% inspiration and 99% perspiration”, and he should know because he also said “I didn’t fail 1000 times. The light bulb was an invention with 1000 steps”.

History is littered with companies that failed to capitalize on inventions – both their own and others. Kodak invented the digital camera in 1975, Xerox invented the first PC but ignored it. Nokia and Blockbuster, Blackberry and Polaroid – the list goes on and on. What happened? Countless books have been written on the subject, including Clayton M. Christensen’s The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. For established companies, save for missing the boat completely, the biggest challenge lies in balancing competing needs. The need to sustain their existing business and not upset the applecart, vs the need to innovate and take risk.

Risk. Few industries can compete with banking with regards to the importance of minimizing risk. Customers don’t take kindly to banks that are high-risk / high-reward, when it comes to their life savings. Risk minimization is good but total risk avoidance is not only impossible but the pursuit of it can, actually lead to risk amplification. Failing to act can lead to total failure.

Knowing when to act

In the ever-evolving landscape of banking, the most outlandish ideas often hold the key to revolutionary change. As we stand on the brink of a new era, it’s time to embrace the absurdity of innovation and reimagine what banking can be. The future of retail banking lies in pushing the boundaries of what’s possible, adopting a holistic approach that integrates advanced data capabilities, cutting-edge technology, and agile operating models. This is how we can future-proof our operations and deliver exceptional value to our customers.

For business leaders, the critical question is: how can you discern which trends and technologies warrant significant investment and which are fleeting fads? In a world of sophisticated marketing how can you separate the wheat from the chaff? Frameworks and mental models help. Trends should be evaluated using a combination of market analysis, customer feedback and competitive benchmarking. Active listening is key to understanding broader market dynamics and seeing patterns and emerging shifts – before they become obvious to everyone. In short it is a combination of art and science, process and happenstance, insight and intuition. In all this, it is vitally important not to forget the key ingredients established banks hold – expertise and experience.

Embracing the outlandish

Imagine a world where your bank knows you so well that it can anticipate your needs before you even realize them. Picture this: It’s 2030, and you step into an autonomous taxi that knows exactly where you’re going. Your smartphone chirps, offering you tailored financing options for the apartment you’ve been eyeing. This isn’t science fiction; it’s a glimpse into the near future.

Autonomous taxis are already being tested in cities like Zagreb and Los Angeles, and intelligent personal assistants powered by generative AI are becoming increasingly sophisticated. The rapid advancement of these technologies means that consumers will soon have immense capabilities at their fingertips. The question is, how will banks adapt?

The need for speed and agility

To enable such a seamless experience, banks must transform their operations to react swiftly to customer needs. This requires a shift towards operating at the speed and scale of e-commerce giants. Banks need to process mortgage applications in real-time, balancing speed with risk management. Too much focus on risk can slow down processes, while prioritizing speed can lead to unsustainable delinquency rates. This transformation involves adopting core banking solutions that support real-time processing and decision-making.

In a dynamic market, the need for speed will only increase. Just as Amazon found that a one-second delay in page loading could cost billions in lost sales, banks must recognize that delays in processing can result in lost opportunities and revenue.

Customization and ecosystem integration

Beyond speed, banks must also offer tailored products that meet the unique needs of each customer. This requires advanced data analytics and AI capabilities to create personalized financial solutions. For instance, a mortgage product that integrates airline miles for frequent travelers, or an account that assesses the account holder’s carbon footprint, provides budgeting and saving advice while keeping customers informed about community-building initiatives and the work of non-profits.

Seamless integration with partners in the fintech ecosystem is crucial. When a customer’s AI assistant negotiates a mortgage, the bank’s systems must support instant product creation and customization. This involves orchestrating a complex network of partners, including real estate agents, lawyers, and regulators, to ensure a smooth transaction from start to finish. Utilizing end-to-end banking platforms and core banking platforms can facilitate this integration.

Cultivating the right mindset

Innovation isn’t just about technology; it’s about mindset. Banks must cultivate a culture that embraces change and encourages creative thinking. Not only must leaders be committed and willing to embrace change but they need to be seen to be doing it. It involves investing in talent, fostering collaboration, and choosing the right technology partners who share a vision for the future.

While human dynamics are vital here, the importance of technology cannot be overstated. When cross functional teams, using agile methodologies and design thinking strategies, invent the future, technology must enable rapid deployment and facilitate telemetry-based testing. Feedback loops, iterative design and rapid evolution are crucial to reinforcing the mindset.

Future-proofing business models

To stay ahead of the curve, retail banks must adopt an all-inclusive approach that integrates advanced data capabilities, a cutting-edge tech stack, and an agile operating model. This will enable them to anticipate customer needs, offer personalized solutions, and deliver exceptional value. Carrying out core banking transformation and implementing digital banking solutions can support these efforts.

The absurdity of innovation lies in its potential to transform the banking industry. By embracing outlandish ideas and pushing the boundaries of what’s possible, we can reimagine banking and create a future where banks are not just financial institutions but trusted partners in our customers’ lives. Adopting universal banking solutions can help banks cater to diverse customer needs.

By adopting this forward-thinking approach, retail banks can navigate the disruptive landscape and unlock new opportunities. The future of banking is not just about keeping up with technological advancements but about leading the charge in reimagining what’s possible. Let’s embrace the absurdity of innovation and shape the future of banking together.