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Navigating Disruption in a Rapidly Changing Financial Services Landscape November 8, 2017

Navigating Disruption in a Rapidly Changing Financial Services Landscape

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Stephen Nawrocki

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It is clear that transformational technologies and customer expectations are putting increased pressure on financial institutions (FIs) already impacted by outstretched budgets and expanded regulatory compliance requirements. This shift has led to the adoption of new technologies and an increased focus on customer experience in order to gain competitive advantage.

In our work with large FIs, we’ve had the opportunity to confront these challenges head on. It is through this lens that we’ve identified five key themes that every FI leader should be considering in setting their strategic agenda over the next several years.

Fintechs: Friend or Foe?

Market conditions and shifts in consumer behavior have led to a new era of expansion in financial technology by established players and startups alike. We’ve seen fintech pioneers like Paypal shift their business from traditional online payments to offering line of credit services in retail stores and restaurants. Last month Square, the payment processor, filed an application with the FDIC to offer loan services to their core customer base of SMBs (small and medium businesses). The Independent Community Bankers of America (ICBA) has filed a motion with the FDIC to block the application and subject Square to the same rules and regulations as other banks. Fintech disruption is real - or is it an opportunity?

Digital platforms have transformed customer expectations and have put increased pressure on incumbent FIs. That being said, the startup threat to established FIs is overstated: incumbents are unlikely to be entirely displaced by these challengers. At the same time, while these startups may not be full blown existential threats, they have caused disruption and a change in strategy among large incumbents. FIs that refuse to invest and keep up with the pace of rapidly evolving technology will see a loss of customers and increased pressure from shareholders to adapt to the changing landscape. However, fintech providers are not the enemy. Disruption is not a four-letter word, but it has been a catalyst for incumbents to re-evaluate their services as well as the quality of the experience that they are providing for customers.

Digital platforms have transformed customer expectations and have put increased pressure on incumbent FIs.

Rather than view fintechs as the enemy, many FIs are choosing to learn from them and innovate from within by looking at fintech providers as incubators of new ideas. These firms are becoming strategic partners and acquisition targets for some of the biggest banks in the world. Institutions that encourage open collaboration with technology providers will uncover new ways to create value across the customer experience, and they will also increase productivity within their organizations, boosting top- and bottom-line growth.

“Amazon Asset Management” or “Facebook Financial” in the near future? Probably not. Single digit growth rates and increased regulation leave a lot to be desired in the traditional financial services sector. However, an Amazon-like customer experience, paired with a group of financial products from select institutions? Not far-fetched. Open finance and account aggregation are not new concepts. Amazon, Facebook, Google, and Apple have all invested in services for the payment and mobile wallet space. Just as fintech providers have blurred the lines of what constitutes a bank, lender, or payments provider, Amazon is poised to capitalize on a rock-solid customer experience and strong foundation of customer engagement. “Alexa….keep an eye on Bezos”.

Attracting & Retaining Top Talent

A foosball table, free snacks, and bright cheery paint job aren’t going to help you attract and retain young, forward-thinking technology talent. That spaghetti chart of legacy COBOL systems? No thanks. Tech workers in the financial services arena want to make an impact, and they want to do so using the latest and greatest tools and technologies. The more large FI’s can flatten their organizational structure and increase communication across lines of business, the greater the opportunity for collaboration and innovative thinking that inspires top talent and contributes to new products and services.

Tech workers in the financial services arena want to make an impact, and they want to do so using the latest and greatest tools and technologies.

Organizations that empower and encourage employees to think differently and challenge conventional business models will turn invention and experimentation into innovation. This experiment often, fail-fast, learn-fast mantra will resonate throughout the organization and help teams and individuals to take advantage of key insights gained through such efforts — happy, motivated and inspired employees lead to happy and valued customers.

Overcoming Barriers to Innovation

Identifying the model best suited for your business and embracing innovation as a strategic necessity is the start of the conversation. Pulling innovative ideas into the operations of a larger organization will advance the discussion. However, thinly stretched technology budgets coupled with increased regulatory concerns often lead to a culture resistant to change. While the regulatory moat is still deep, new market entrants have proven it is no longer a hurdle. Fintech providers like Betterment, Alibaba’s Ant Financial and Kabbage have demonstrated that a unique value proposition combined with a delightful customer experience can yield exponential growth rates and the creation of entirely new categories. Unfortunately banks and brokerages are not designed to create and explore new ideas - they’re built to govern, measure, and optimize known processes. Legacy technology only compounds those challenges. Many providers are reluctant to this change for fear of losing lucrative sources of revenue while increasing the overall cost of technology development. By collaborating with compliance early in the product development cycle and taking a longer term view on technology investments (not “technology expenses”!), digital teams are more likely to develop a tailored solution, incorporating key requirements and the directives needed for approval, launch, and commercial success.

Meaningful Innovation or Baseless Buzzword?

We hear it frequently: ”my boss wants a (fill in a hot technology buzzword), can you help?” The topics range from mobile app to chatbot to innovation lab to artificial intelligence, IOT, predictive analytics, machine learning and more. All hot topics — but do you really need it? Building a bot is exciting, but do you really need a bot? What purpose is it going to serve? Does it truly enhance the customer experience? Do you have the team and capabilities to design, build, and maintain it? Machine learning is the next big thing, but do you have access to the large amounts of data required to make it valuable for your customers and organization? What resources do you have to effectively execute on your innovation strategy? What are your gaps? How are you going to fill them? The topic of innovation is pervasive across FIs, however the underlying use cases and value proposition need to be clearly defined, as well as the resources required to design, build, and deploy meaningful and value-added innovation. Technology and tools cannot lead the conversation. Instead, the pain points and bottlenecks impacting the business need to lead the conversation. Developing a bot to automate a bad use case will yield a bot that delivers a bad use case.

At Cantina, we use frameworks like Jobs to Be Done and Design Thinking, among others, to help designers, decision-makers, and technologists gain a holistic lens in which to evaluate new technologies and their real-world impact on both internal and external customers.

Frameworks like Jobs to Be Done and Design Thinking can help designers, decision-makers, and technologists gain a holistic lens in which to evaluate new technologies and their real-world impact on both internal and external customers.

Organizations that structure research and innovation projects with their customers, will gain a better understanding of customer needs, day-to-day challenges, and how to satisfy and improve their overall experience. Take an introspective look at your organization before embarking on this journey. Don’t invest in technologies looking for a problem. Instead use technology to solve a critical problem and to create new value. Innovate with purpose.


The topics above are not intended to be an exhaustive list. Each of these areas warrants further exploration, discussion and debate. Technology is and will continue to be the driving force of competitive advantage in the global financial services sector, however it is only one driver. The old adage “people, process, and technology” still rings true, but this can be modernized with words like “alignment”, “data”, “insight” and “customer”. These are the next-generation drivers of competitive advantage in a rapidly evolving financial services sector.

The digital transformation occurring in the financial services sector is constantly evolving and forcing traditional FIs to adapt their operating models in response to ever-changing customer needs. However, keep in mind, digital transformation is not an outcome or a goal, but an ongoing process. A few points to keep in mind:

  • Customer centricity - start with the customer, not the channel or the line of business or the product, but the customer. Talk to your customers to better understand their needs, interests, and pain points, and align your products, services, and business processes accordingly.
  • Embrace digital as a core value to the business - it’s no longer a choice but a vital component of your strategy. FIs that successfully embrace digital innovation to streamline operations and create a better customer experience will be the winners of tomorrow.
  • Don’t invest in technology looking for a problem - it is critical to focus on the business impact, customer pain points and core problems that you are trying to solve when designing, developing, and deploying a technology solution.
  • Look outside the financial services sector - for new ideas and talent. Fresh, diverse thinking can inspire an organization to think differently and innovate beyond its core, while influencing the future direction of existing products and services.
  • Start small with measurable results - small, low cost, pilot projects can help large organizations innovate. Explore new ideas and make evidence-based “go, no go” decisions based on these pilot projects. This light, agile and low cost approach can yield valuable insights that contribute to longer term investments resulting in new value creation and growth.

If you are interested in further exploring these topics or learning more about our Digital Innovation in Financial Services Practice, we’d love to talk! We regularly meet with people like you to explore new areas of innovation and opportunities for value creation across the financial services sector. We are also available to do design and innovation workshops for you and your team. Reach out and let us know what you are thinking, and we’ll set something up. Thank you.


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