You and I already know that if you want to keep up, you have to be innovative. For banks post-2008, it’s all been about struggling to survive. There have been increased regulatory changes, and measures and efforts have been taken to get costs under control while increasing revenues. Many banks are still dealing with the constant disparity between a high fixed-cost structure and lackluster revenue streams.
So, why are banks so rigid when it comes to decision making? It always boils down to a decision: will banks continue to maintain their existing operating budgets and simply go through the motion of finding ‘additional funding’ for innovation projects, or will they reallocate some of their operating budgets towards innovation?
Some banking insiders advocate cost-neutral adjustments of strategic development, in keeping with the relevant mega-trends, and then invest relatively small amounts of money in tactical innovation projects. This seems like a suitable compromise. It would certainly allow banks to gain valuable experience to compete with fintechs. However, what should seriously alarm banks is systemic disintermediation. It’s the perfect storm bearing down on banks. All the while, executives are trying to hold on to legacy systems. Banks should consider drastically shortening strategic planning cycles, seeing that fintechs have managed to dramatically compress timescales for disruption. Legacy systems cannot be allowed to operate indefinitely without delivering tangibly competitive results.
Why banks are stuck in a bureaucratic trap
It’s no secret that the common denominator of acceleration and disruption in fintech is a reduced level of bureaucracy. As an example, the trajectory that alternative finance has taken is in part due to the lack of bureaucracy and regulation. This has spawned an infrastructure that’s delivering choice and efficiency.
Fintech disruption has accelerated at such a high rate since 2014 to a point where constant change is the new normal within the financial services space. So, why are banks not making plans to institutionalize change and ‘change agility’? Instead of fighting to become movers, banks are simply continuing to follow emerging fintech trends. When it comes to technological innovations, banks seem to have decided to occupy a strategic position, namely the interface with the client. Just attracting the attention of a client isn’t good enough anymore. This a ‘follower’ mentality and not a ‘mover’ mentality.
The changes being precipitated by fintech are very complex and inherently multidisciplinary, which means banks need new ways of managing change. Consequently, the new operating models that result from the fintech revolution are in themselves highly disruptive and complex to implement. What does this mean? To be responsive and proactive when it comes to the fintech revolution, banks must force themselves to pivot towards institutionalizing change and ‘change agility’.
– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. You can read the original article here.