When statistics about international test scores started getting press a few years back, a wide range of individuals, foundations, and interest groups united to entice American students back to the STEM subjects, pouring energy and money into specialized fellowships and early childhood education. Similarly, when the financial crisis in 2008 highlighted the gaping trade deficit between the US and China, private and government committees threw themselves into the task of Strengthening American Competitiveness and Jumpstarting our Business Startups.
Just about everyone in US retail banking agrees that the industry is going through a period of dramatic change, sparked primarily by the introduction and adoption of mobile technologies and secondarily by the pressure to cut costs and get creative in the aftermath of the American financial crisis. Retail banks in other countries have felt the same pressures, to varying degrees, and in many cases they seem to be responding faster and better than their American counterparts.
The American financial system, like the American economy, and the American education system, is one of the strongest in the world. I doubt that in spite of the crisis, Wall Street’s de facto hegemony on international finance will end anytime soon, like I doubt that American universities will lose their universal prestige because of poor elementary school test scores, or that we’ll plummet into poverty because manufacturing has moved overseas. But sometimes I can’t help but wonder if, in the race for innovation in retail banking, America is falling behind.
Exhibit A: branch design
While the fate of the branch is still unknown, the rise of online and mobile banking channels means that branch banking certainly cannot remain the same. Much recent innovation centers on some type of branch automation, such as virtual tellers, self-service kiosks, branch management software, or tablet-based selling.
Branch design is an important complement to these new technologies, and many of the better examples of innovative thinking come from France, Australia, Italy, South Africa, or the Middle East. The Economist’s special report on retail banking in May featured Brazil’s Bradesco’s “bank on a boat,” and Brett King, the energetic prophet of branch doom and evolution and author of Bank 3.0, is Australian.
American branch redesigns do make the news, and some, like Umpqua and Acru, truly stand out, but most innovative new branches, look, well, like the bank branches we’ve always known. Chase caught flack for reversing the flow, killing WaMu’s “Occasio” island banking design in favor of more traditional layouts. And online only banks? Yes we’ve got Ally, Everbank, and PerkStreet Financial, among others, but many of the heavy hitters, including ING Direct, Virgin Money, First Direct, etc etc, built their businesses abroad.
Why does it seem sometimes like America isn’t quite keeping up? It’s partially a brownfield-greenfield problem. The American retail banking sector is larger and more established than those of most other countries, northern Europe excluded, and the free banking era left the US with thousands of financial institutions, each with its own branch network. But every country has bank branches, and every retail bank is facing the same challenge. America’s reluctance to go back to the drawing board seems partially psychological.
Exhibit B: mobile banking and payments
Juniper Research’s September 2012 report, “Handset and Tablet Market Strategies 2013-2017,” the origin of the famous one billion mobile bankers number, reports that mobile banking penetration will be highest in the US, Western Europe, and the Far East by 2017. However, Bain & Company’s 2012 “Customer Loyalty in Retail Banking” reported that Asia has the highest mobile banking penetration, at 47%. Counting absolutely, China is already the world’s largest market for mobile, and although smartphone penetration is higher in the US, the home of the iPhone, and even higher in Europe and Australia, trends suggest it won’t be long before China catches up.
I work for a financial technology company that provides solutions only to American financial institutions and we sometimes receive inquiries from Indian, Spanish, and Canadian representatives, who to my marketing chagrin often seem more enthusiastic about our product’s mobile capabilities than the Americans we court. From my internet wanderings, I’ve subjectively determined that enthusiasm for mobile banking and payments abounds overseas, particularly in Eastern Europe and Southeast Asia. There are also some pretty interesting developments from financial technology companies abroad, including Infosys, Backbase, Tata, Temenos, Ingenico, Misys and many others. And then there’s Sweden.
Of course, nothing fits so well into the brownfield vs. greenfield metaphor as Africa’s approach to mobile banking. In some places, m-pesa or m-pesa-like services are the only financial services around. While it’s not exactly fair to compare developed nations to developing ones when it comes to retail banking innovation, it will be fascinating to see what kind of financial infrastructure Africa will develop going forward without the entrenchment of elaborate credit card networks and bank IT systems.
Exhibit C: branding
In August the Financial Brand, a popular banking marketing blog managed by an American, published a list of the “Top 10 Banking Brands To Watch.” Seven out of ten brands mentioned are foreign, although many have operations in the US. When I think of innovative marketing approaches, I often remember another Financial Brand feature about Frank, “The Coolest Bank Gen-Y Has Ever Seen.” I wholeheartedly agree; most of what I’ve seen or read about in these 50 states doesn’t even come close.
Oceania is also leading the way, with Austrlia’s NAB’s “Social Media Command Center and “Guerilla Stunts“, and New Zealand’s ASB’s cheeky branding. Interestingly, some international institutions market more creatively overseas than at home; Citibank’s Singapore branch design seems a whole lot more advanced than its branches in the US. Is this because American consumers respond better to more conservative appeals or because American institutions aren’t willing to take the leap? I think it’s probably a bit of both.
The innovator’s dilemma
In 1997, Harvard professor Clayton Christensen published the Innovator’s Dilemma, explaining how established, successful companies continue to marginally improve their products for too long, leaving them vulnerable to disruptive innovation by younger companies with a less advanced offering in some areas, but a radically improved offering in a direction that established companies weren’t even thinking about. Most US banks resemble the older, mature company more than the young disrupter. In many cases, they have more to lose than banks overseas, and thus may be more resistant to change.
As long as restrictions on international financial flows remain, American banks and credit unions won’t directly feel the heat from overseas competition. But that doesn’t mean that there is nothing to learn from foreign innovation, or nothing to fear from the innovator’s dilemma–institutions like Simple, Movenbank, and GoBankare counting on it. Often innovation requires losing ground, going back to the drawing board, or giving up something that works well. To catch up, America needs to take a chance and I hope we take it.
Please share your perspective: What is your institution doing to stay ahead of the competition? Which institutions do you most admire for having innovative marketing, branches, and products?