Innovation in Banking: Harnessing People and Technology

Go to the websites of the big High Street Banks and you come across pages devoted to innovation and technology. That’s no surprise when banks have sped up their digitisation programmes following COVID and the changing behaviour of customers. There’s a lot to celebrate and lots of evidence of banks breaking down barriers on the technologies they’ll now talk about.

As things settle down, some might feel the need to lift their foot off the accelerator pedal. 

But the competitive difference from how innovation blends with digital is even more intense now. For example, Forrester research has found that 40% of UK adults would be happy to bank with a bank without branches, while around one in three who applied for a loan in the last year did so on their smartphone. 

We seemed to have passed a tipping point. The FCA says while digital only challenger banks market share is around 8% here in the UK, it is growing fast and making inroads into the SMB market too. Some analysts estimate that up to 30% of new business is going to new entrants.

To respond, even as some are reporting strong financials and growth in the current economic climate, banks must be at the forefront of innovation. It is important to realise this isn’t about bolting fintech baubles onto their current systems and processes. 

Indeed, how banks focus on improving IT to transform and adapt processes and deliver the right outcomes for customers and the bank could give them an edge over challengers. A recent review by the FCA into challenger banks highlighted the importance of control environments. Some digital only banks have not focused enough on ensuring processes are robust and scalable. For example, the FCA reports examples of how quick and easy customer sign-up systems can be vulnerable to abuse and fraud. By contrast traditional banks have better Know Your Customer (KYC) controls in place, though these can be too cumbersome and counter-productive too. 

The FCA review highlights how digital transformation for banks must strike the right balance between safety and security, and being innovative. 

Achieving equilibrium hinges on driving through a new digital transformation strategy that innovates from the inside out. This means a rethink of how banks push ahead with process improvement programmes that can be hamstrung by lack of resources and skills within the bank. Decades of outsourcing have denuded many a bank’s access to technology or process re-engineering talent. Unsurprisingly this is confirmed by the aforementioned Forrester report with one in four bank service decision-makers saying staff availability to execute digital transformation execution is challenged because of other work demands. Part of this will be skills based, while other aspects time and resource capacity based.

So that rethink starts from embracing modern tools like low code development and how you can work with agile development to transform processes. Low code software means a bank that needs to digitise a product or simplify a process for customers can easily prototype and quickly get to a working solution. This is achieved partly because low code lowers the barrier for hands-on non-tech participation in the digital creation process. It means you can bring both customer service operations and technology staff together to redesign a process more effectively. 

Of course, low code isn’t a silver bullet for how banks get better at generating a pipeline of innovations. The success of a low coding project for a bank stems from the strength of the team to think about business processes and how to improve them. Good design is still critical. Banks need to spot strong candidates who have real curiosity and domain knowledge and are problem solvers with a personal reason to see applications become easier to use and more productive. Around these tech neophytes you need to provide mentorship and guidance from technology, risk and operations colleagues to keep the digital transformation project moving between the necessary guard rails set by regulators. 

Making traditional banks more innovative and able to take on their digital challengers is going to be through how they harness people, technology and a philosophy of process improvement focused on customers and business outcomes.