Sumitomo Mitsui Banking Corporation – SMBC Group

The financial services ecosystem has changed dramatically over the past few years. There are more players and constellations than ever allowing financial institutions to test and develop innovative products and services, without significant upfront investments or undertaking of large-scale transformations. Fintech’s customer-first agenda has enabled ground-breaking innovative solutions and the role of traditional financial institutions as the customers’ first choice for financial services is no longer given. This has sparked a common question for leadership within the financial community – how can we harness the power of fintech collaboration and partnerships to convert innovative ideas into new competitive products in the marketplace?

Over the years, I’ve had the pleasure of collaborating with several global (‘traditional’) financial institutions trying to move from a risk-averse culture to a culture of innovation, as well as smaller technology firms looking to compete with financial institutions in a subset of segments, but more importantly wanting to create a sustainable model to drive and scale innovative products and services together with financial institutions in the marketplace.

In theory, the objectives across many fintech’s and financial institutions are aligned, but why are we not seeing more successful co-creation and partnerships at scale in the marketplace?

Among several others, there are four key enablers that can help enhance the ability to develop, deploy and scale innovative products.

1.Management commitment with dedicated resources, time, and budget for innovation efforts

One will find innovation, fintech collaboration, and partnerships as part of most financial institution’s agenda today. There may even be an assigned function, or a few select resources given the responsibility to drive an ‘innovation’ program.

The primary focus being to conduct “proof of values”, “proof of concepts” or “pilots” together with fintech, and sometimes deploy the solution in the organization, but all this concludes to “just another” vendor relationship.

The question to ask is, is the goal of your innovation function to provide a quick fix to an existing process or product, or to reinvent it to better serve your customers across their journey? There’s no right or wrong answer to this question, but it will help define the goals of your ‘innovation’ function.

One of the biggest challenges for attaining innovation and seeing ideas through from ideation to scaled implementation and adoption is competing for business priorities. On the flip side, the number one enabler is business prioritization and a supporting funding mechanism. To allow adequate resources to drive the end-to-end innovation process, financial services institutions need to create a funding mechanism that provides a continuous flow of earmarked investment, a portfolio of innovation priorities, and a plan to keep collaborations and partnerships alive and thriving. This is essential to prevent the constant struggle of being upstaged by pressing regulatory and compliance priorities.

2. Ongoing customer-centric design thinking

While most financial institutions adopt and provide products and services in response to customer demands, the most compelling factors of fintech’s are their deep understanding of the customer’s needs, focus on customer value, and speed to market.

The recent pandemic’s unprecedented changes in customer behavior and accelerated digital adoption have helped advance most banks’ digital agendas to win customer relationships and trust. Leading financial institutions are focusing on creating integrated services and adopting the concept of “thinking like a fintech” to bring ease of use, convenience, and an optimized user interface to their products and services across larger parts of the value chain.

 The question to ask is, is the goal of your innovation function to provide a quick fix to an existing process or product, or to reinvent it to better serve your customers across their journey? There’s no right or wrong answer to this question, but it will help define the goals of your ‘innovation’ function. 

The competitive advantage is no longer just about personalizing the customer experience. It’s also about being able to predict what the customer will need when they will need it, and ultimately affect and influence their buying decision. This requires significant efforts to identify customers’ behaviors across the full customer lifecycle and enable predictive analysis and innovative design thinking across the development process for products, services, and features as foresight before the customer starts looking for them.

3. Accountable business partners and buy-in or sponsorship for product adoption

A handful of innovation projects see the light of the day in terms of scale and adoption by the target businesses. The reasons are many, but common factors limiting the chances of success include business ownership, accountability, and buy-in for the product.

Many innovation functions are run ‘technology first’, testing or building products with limited collaboration, problem definition, or ideation for potential solutions together with the business. As a result, the products tested or developed are not proven to solve a defined problem or have limited buyin from the business function; leading to minimal adoption.

Driving innovation with a business-led technology-enabled mindset, articulating the goals and challenges you want to solve together with the business, enables buy-in for the solution from ideation to implementation with joint accountability for success, and business sponsorship for long-term adoption.

4. Enable environment designed to embrace innovation

There are fundamental differences in how financial institutions and fintech’s approach product development, service provisioning, and operations. Financial institutions are bound to adhere to regulatory mandates and safe and sound practices, while fintech’s primary focus is on solving a specific customer problem and faster time to market.

The cultural differences and processes applied across the two are sometimes miles apart. As part of a collaboration or partnership opportunity, many financial institutions value the fintech’s ability to be nimble and act fast to meet customer demands. A common mistake is to onboard a fintech and molds it to fit with old operational and regulatory proven processes. The result is a technologically advanced product disadvantaged by legacy process and operational restriction.

If the goal is to harness the power of innovative solutions and create something truly ground-breaking in the marketplace, financial institutions need to enable equally innovative processes that support the end-to-end product development, scale, and adoption.

To re-invent and transform decades worth of proven concepts, systems, and processes across financial institutions isn’t an overnight thing-it’s incremental efforts of innovation adding upto something big.

The option of quickly testing and onboarding fintechs (with business buy-in) is a good solution for many financial institutions to check the box of ‘fintech collaboration’ while achieving strategic or technology modernization goals.

To create something truly ground-breaking in the marketplace and drive new innovative ideas from ideation to scale and adoption, takes commitment. To do the same in a true collaboration or co-creation partnership with a fintech, requires dedication, purpose, and commitment from all parties.