Are banks having a Kodak moment? Lessons from a fallen giant

Giants have fallen when they reacted too slowly to changing consumer needs. Kodak, despite developing the first digital camera, did not believe digital photography would dominate the market, and therefore did not leverage the opportunities their discovery offered. They chose to focus on film, not innovation, and fell after a century in business.

Now banks find themselves threatened by fintechs and nimble new challengers who bring innovative products, services and slick delivery using the latest technology. Enabled by regulators and fueled by venture capital, these fintechs take a lean approach that is beginning to earn significant revenue.

Banks must answer the same dilemma Kodak once faced: do you leverage available technology and innovate, or fail to react and watch your value erode.

The path to growth
Established institutions can and should play in this new digital market. Retail banking has experienced a shift in customer expectations as digital natives turn away from traditional banking in favor of mobile banking services. This group forms a significant portion of the underserved market that can be accessed with the right level of service.

Banks’ long term growth lies in improving customer experience and accessing underserved, digitally native groups. For this, they must be built not to last, but to change.

Introduce new thinking, processes and people
This is why banks should launch a digital banking spinoff with a clean slate, independent of the larger organisation, instead of investing in expensive multi-year IT projects to update their legacy systems. Because when that upgrade is finally deployed, chances are the market and technology will have moved on.

The spinoff should be an innovative arm that addresses a specific market need or geography. This requires new leadership focused on the success of the digital bank alone, not conflicted by the needs of the larger organisation. Furthermore, these leaders must instill a culture of innovation from day one, enabling the spinoff to act like a startup, unconstrained by legacy processes. This approach allows for lean technology built with composable architecture, enabling the rapid launch of new products in response to market demands.

Long term sustainability
If traditional banks take a strategic market view and allow the spinoff to disrupt some of their own business internally, they can become sustainable long term. Once the spinoff is successful, existing clients can be migrated to the new operation.
Kodak faced this choice. They could have pursued digital photography, but they were afraid it would eat into their film business. If they had worked on creating new digital solutions, they would have won new customers and transitioned older clientele to new products, securing their place in the market.

Financial institutions must prioritize agility to stay relevant. Improving legacy systems will not make them future-proof, as the fintech space is an evolving ecosystem which will look drastically different in a decade. However, with a digital banking spinoff designed for change, banks can operate at the same speed as startups.

– Edgardo Torres-Caballero, Managing Director, Americas, Mambu

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