Guest Blog: Tom Groenfeldt Finds Innovation Lacking at Banks
In this series written especially for the Articulate blog, Tom Groenfeldt examines innovation in banking and finds it lacking. This is the first blog in the series, so stay tuned for the next instalment due out soon.
Innovation in Banking: Bah! Banks Have Been Doing the Same Thing for 110 Years
The buzz — often self-generated — around FinTech and banking is all about innovation. Peter Wannemacher, senior analyst at Forrester Research, isn’t overly impressed by much of it.
Banks have been doing the same thing for 110 years, he said recently.
“Over the last 20 years they have done a really good job extending those services into online and mobile. As we get into the future, they have been doing the same old stuff in new channels but they haven’t gotten to the point where they started to use tools like behavioral economics and design thinking to evolve what they do.”
Credit cards, for example, are an extension of loans, a clever extension, but an extension nonetheless.
Wannemacher suggested banks engage in adjacent thinking — what businesses could they expand into that are a good fit alongside the services they provide now. One example, which bankers have talked about for years, is something like safety deposit boxes for digital files. Fidelity already offers that through FidSafe which allows anyone to scan and upload documents such as wills, partnerships, passports, etc. to secure digital storage.
A Silicon Valley startup could register a name like Vault4docs.com and start providing this service tomorrow. But a key competitive advantage banks have, which I have never heard bankers discuss, is that banks don’t go out of business — the FDIC takes them over and finds a new owner or merges them with an existing bank, so presumably electronic documents would be protected. If Vault4docs.com runs out of money, it could sink without a trace, taking the records with it, or maybe sell them to a data vendor.
Regulation gives banks a competitive edge in secure document storage, if they want to take advantage of it.
“Engaging the Unengaged Customer”, a paper by Finextra for SAP, doesn’t offer many examples when it comes to adjacent thinking — the best that surveys of banks and customers come up with are personal banking services and financial advisors, not exactly a burst of innovation.
“When asked in free format to suggest other services banks could provide which they would find valuable, the biggest proportion of respondents to the customer survey (28%) suggested a variety of ideas all of which can be characterized as advice and in-person service.”
Besides being rather lame ideas, banks are late to the party here with the competition from multiple robo advisors, whether standalones sites like Betterment or the robo advisors offered by wealth management companies like Vanguard and Schwab. Cornerstone Advisors, who publish the amusing Gonzobanker newsletter, said at a BAI conference some years ago that individuals they surveyed would actively avoid advice from anyone at their bank.
Consultants have also advanced their own ideas for adjacent services that banks could offer,
I’ve heard Accenture a few times trot out the tired maxim that people don’t want a mortgage, they want a house. Their conclusion is that banks should help them find a house, a good school system and maybe a mover while they are at it. Now having once been married to a real estate agent I can assure you they don’t work bankers’ hours — they work nights and weekends when prospective buyers have time to talk and view houses on the market. Good agents know what houses are on the market, how long they have been for sale, and whether prices have changed. They know the attorneys, mortgage brokers and inspectors. Could banks deliver any of these services better or would they add overhead and delays?
If banks want to think about adjacent services, they need to look at other industries, Wannemacher, suggested.
— To be continued
About Tom Groenfeldt
Tom Groenfeldt is a highly respected freelance writer based in the U.S. He writes about finance and technology for publications including Forbes.com, International Finance Magazine and his own blog, techandfinance.com. In 2015 The Financial Brand named Tom one of the top 25 global influencers in financial services. And he was named by Jay Palter as one of the 250 Fintech influencers you should be following in 2016, and by CDW FinTalk as a top blog.