Who Says Banks Can’t Out-Innovate Start-Ups And High-Growth Tech Firms?

If banks aren’t paying attention and adjusting their strategy, they are on the verge of disruption by startups and high-growth tech firms. These firms are slowly taking away customers and market share from banks and traditional lending players.

For example, Square enabled small businesses to easily accept payments and expects to process $10B in 2014 building a large merchant processing business. Lending Club and Prosper have successfully used crowd-sourcing to build an alternative model to peer-to-peer lending raising more than $4B and $1B in loans respectively. Kickstarter attracted 3 million people in 2013 to pledge a total of $480 million for projects. The $480 million did not come through traditional bank lending channels. Amazon is rumored to enter the lending business, Facebook is preparing to move into the international money remittance space and is nicely positioned to use either WhatsApp or Messenger service to enable money transfer service. The list goes on.

Banks can respond to competitive threats by learning and adopting best practices of startups and tech-firms including approach to product strategy, technology adoption and reducing product development times. Launching an innovation program and/or investing several million dollars in emerging startups may not yield the best results.

I offer four approaches to banks to out-innovate startups and high-growth tech firms:

  1. Drive to Digital – Adopt a digital first approach to products and software in order to connect with customers anywhere, anytime and at any place. It’s not about mobile anymore. Rather, it’s about technology-enabled digital screens of all form factors such as: Tablets, Phablets, Wearables, Smart TV, and Connected Cars, etc.. It’s also important to plan early and build tools and infrastructure that capture customer data via these digital screens to learn about customer behavior to deliver and cross-sell relevant financial products.
  2. Platform-as-a-Service – Consider a Platform-as-a-Service approach to products to reduce development times and build new services in a rapid and nimble fashion just like a startup. American Express’s Serve platform, a prepaid service, is built on the same concept enabling the bank to offer different flavors of prepaid services in a rapid manner. The approach also enables the bank to offer co-branded prepaid cards to retailers and other customers meeting individual needs without having to build separate products.
  3. Customer Experience – Enhancing customer experience is now table stakes. No matter what the product, credit-card, lending products, loans, it has to cater to increased customer expectation of simplicity and convenience. Products have to be easy to sign-up, use and work all the time. If they don’t, customers will be frustrated with the experience and leave for competing products.
  4. Regulations and Compliance as a Competitive Advantage – This is an area where I feel banks have the most advantage. Regulation and compliance, no doubt challenging, is a weapon banks can use against startups and tech firms to retain control of customers. Square’s co-founder in a recent interview claimed it took the company only 3 months to build the product and 18 months to launch due to regulatory challenges. Banks have the assets, tools, processes, and relationships with regulators already in place that can enable them to launch products faster in market.


Banks will have to think about stickiness and network effects as they encourage their customers to stay loyal for the long-term. Adopting practical approaches to product strategy, technology adoption, and by reducing product development times, banks stand the best chance to out-innovate startups and tech firms.

–Safwan Zaheer is a global product and strategy executive with a Fortune 100 global bank.