It took the financial industry more than 10 years and not until the global financial crisis of 2008 to shift attention from ‘risk modelling’ to the importance of ‘risk culture’. We may be experiencing a similar situation whereby large financial institutions are focusing on fintech adoption while neglecting the enabler, fintech culture.
When I was speaking at the Risk Minds Americas conference in Chicago this year, most of the discussions around technology were focused on how fintech can assist organisations to be more ‘innovative’. Innovation, however, doesn’t come by simply acquiring innovative ideas, but rather by creating a company culture that nurtures innovation.
It’s often argued that innovative thinking should come from within the company, while reality shows that fintech innovation mostly comes from the outside through startups (many of the founders of these startups used to work in the financial sector – did they have to leave to enable them to be innovative?). In my view, it doesn’t matter where innovative ideas come from. Having a look at the fintech maps drawn by a number of companies, it’s clear that the financial industry is not lacking in ideas.
Fintech companies provide a lot more ideas than the market can probably absorb (Mike Baliman, in his London Fintech Podcast No LFP059, argues that “… the ex-ante chances of an individual fintech getting anywhere are roughly less than zero”). So as a bank you can probably not out-innovate the market. But whether you create ideas internally (e.g., incubating programmes) or ‘acquire’ them (e.g., partnering with startups), you are far from addressing the key challenges that inhibit implementation.
Such challenges point back to ‘organisational culture’, an umbrella term that’s often used to describe many things, topics, behaviours, and so on. So let’s get practical: I’ve worked with a number of banking and insurance institutions and some of them already have their own innovation labs, startup incubating departments, and so on. Really exciting ideas, yet when we discuss implementation, integration and finally tangible benefits, most of them struggle to demonstrate results.
When talking to key stakeholders, there’s an apparent disconnect between acquiring an idea (be it internal or via an outside startup) and the road to implementation. Very few banks have changed the ways their technology investment portfolios are being handled, from prioritisation of the ‘ideas pool’, to selection criteria, to generation and constant review of the business case, to execution and finally integration.
Each of the above steps (and sub-steps thereof) put their own stumbling blocks on the path to change. I intentionally use the word change here, instead of innovation, simply because a lot of the new ideas are not innovative at all (let’s not confuse novelty with innovation). They simply introduce better, cheaper and/or more efficient ways of doing things. There’s nothing wrong with that, yet they still need to go through the hurdles, and may still require a large amount of change in the organisation.
There are many areas for improvement, yet there’s only so much change you can practically apply and achieve in the short- to medium-term. When you add all the changes together and overlay them with ‘people change’, it feels more like trying to fix a plane’s engine while in flight. So don’t just think of innovation. Think change, and what it takes to adopt technology and make it work. Think of fintech culture in order to facilitate fintech adoption.
Photo: YURALAITS ALBERT, Shutterstock.com