In Favor of Bank Labs — and Why

  • Tery Spataro
  • August 20, 2015
  • 1

 

Canstockphotos/sCukrovNaysayers of technological change believe that bank labs are stuff of science fiction, but the innovation that comes out of these labs is a necessary part of the business lifecycle.

There is much discussion about innovation, but there is more confusion rather than clarity on what to do to commence a clear direction for the bank. In this climate of intense disruption, business as usual is not a business plan. Innovation is a process that businesses need to use when the business has reached a point in the lifecycle in which growth is stagnating. Lifecycle of the business should not be a last-minute evaluation; every business needs to know its lifecycle positioning, and make innovation a planned event rather than reactionary event.

Innovation is an evolution to the business model to prevent the business from reaching bureaucracy, or worse, death. Innovation addresses internal and external forces contributing to change.

Let’s take a further step back to clarify the difference between innovation and transformation:

Innovation is an evolutionary process that reexamines the original purpose of the business before altering the DNA to redefine the purpose to go beyond the original intent.

Transformation is a process that that happens to a product or service over time to bring about new attributes but keeping intact the original purpose.

The acceleration of technology has brought about great changes in society, economics, business and human behavior. The next evolution to transcend technological change is in financial services, more so in the business of banking. Deeming it necessary for banks to discover, investigate and examine new meanings to banking and bank business.

The process of discovery, investigation and examination in some cases is a foreign notion to financial services institutions, especially banks which rely on a transactional processes. Basically, there is not much change to the business of banking, it’s a simplified process of money in – money out. While bank leaders feel complacent with their outdated legacy systems and mindsets, new entrants are making great strides with nimble systems and agile processes.

Technological changes have accelerated society to push beyond basic needs, from transactions to requiring mature forms decision making to managing money. At this point the demand from society brings about advancements in technology, making technology outpace processes that were once provided by a bank’s staff.

Customers want access to their money in ways that are faster and more convenient. In addition, they desire quality of life and want management and tools that will help produce a better experience with their money to create a better quality of life. This need defines the customer experience, but before a bank can create a customer experience it must reevaluate the meaning of its business and what that business does. It is more than just transactions.

These are some of the reasons why the lab is an important means of evaluating the business of banking and define new paradigms for banking. The environment needs to stimulate and inspire new types of thinking while shattering old myths. The lab environment allows for an evaluation process alongside experimentation, examination, discovery and observation which will lead to the evolution of the bank.

Taking a int from traditional science labs, when experimenting, objectives need to be set along with a framework that will produce an innovation roadmap, model and/or prototype. There several different types of methods, but the method used needs to be a method that will achieve the set objectives.

Some of the methods that can be used in a bank lab environment:

  • Strategic / business thinking – with a focus on business and brand
  • Design thinking – product or service creation
  • Agile – technological design
  • Human [user] centered design – interface, environment, product design

The lab is used to define new opportunities and to test the hypothesis. As well, it is used to explore new means of business through new technologies like mobile, wallets, VR, robot, avatar, and even the autonomous car or smart refrigerator. These explorations are far from wasteful, when considering the competitor that is already down the path, or new entrants, such as fintechs, that have made the giant  leap forward is redefined the meaning of the financial services and banking through compelling forms of technology.

There should be no limitations put upon the lab that will compromise the business objectives. The success of achieving the business objectives, should not contingent upon the geographic location of the lab. Not all labs need to be in Silicon Valley to be inspirational and effective. The environment of the lab should be designed to stimulate, motivate business and creative thinking and encourage collaboration and experimentation. For banks this means bringing in outside experts to help guide the process and helping the bank remain objective.

There are several different types of bank innovation labs, and here are a few notable ones:

  • Wells Fargo lab enables new ideas for products and services. They use the methods of design thinking, rapid prototyping, and test and learn. This gives Wells Fargo a competitive advantage to bring new products to market. It also gives Wells Fargo an opportunity to explore the world through the eyes and mindset of the new generations of users.
  • FinTech Innovation Lab is an accelerator for new financial services entrants. FinTech Innovation Lab is supported by several big bank institutions including Bank of America, Citi, and JP Morgan Chase.
  • Bank of America does not need to invest in a lab of that it owns, but it does invest in other types of labs that will benefit its growth. One such lab is the FinTech Innovation Lab Asia which will support new businesses that are developing technologies to utilize bitcoin and blockchain, machine intelligence, machine learning coupled with neuroscience, and gamification. Isn’t that the stuff of science fiction?

Let’s face it, technological change has brought about behavioral change that is affecting the way people use money and the way businesses provide products and services, therefore financial services firms, specifically banks, need to explore these behaviors or be left with very few choices for growth. A lab will help the bank identify problems, work out solutions, minimize risk and innovate even with tough regulations and in the most challenging of times. A bank that undertakes a lab, is a bank that is thinking about its future… Not just one year at a time, but several years into the future.

– Tery Spataro, EVP, Director of Innovation, CCG Catalyst

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