The Bankers’ Bad (Innovation) Rap


Historically, banks have gotten a bad rap for being slow to innovate, and those who attempt to do so often find themselves struggling to keep up with new, tech-based alternatives that threaten their business and their business model.

In some ways, the bad rap is unfair. For larger, more traditional financial institutions, being innovative comes with a lot of regulatory boxes to check, many of which are always changing. The newbies may not always face the same regulatory hurdles. The playing field is not always level, in other words.

But, with the help of strategic partnerships, more and more banks have been able to embrace FinTech as part of their business plans and leverage the innovative efforts of others who look to the banks as part of their distribution strategy. Even so, one big challenge remains that many traditional financial institutions face: onboarding a new merchant or customer.

MPD CEO Karen Webster recently spoke with Ian Gilbert, chief revenue officer of Agreement Express, to get a better sense of the relevance of tech partnerships for banks interested in accelerating their own path to innovation.

“The specter of regulation is hanging over a lot of the traditional players. They are immensely concerned about what it means for them and what it doesn’t mean for some of the new entrants,” Gilbert explained. But, for those bigger players to get on board, he noted that it comes down to one key metric.

“Innovation is the method by which you become more customer-centric,” Gilbert said, referencing the conversations he was part of just a few weeks ago at Innovation Project 2016, which included a group of panelists who debated the subject.

“Where we ended up in that dialogue was a very useful place where we are now starting to talk about what customers want and what customers need, which gives us the roadmap and the end game as it pertains to innovation,” he said.


Moving Faster, Better

So, what is stopping some financial services companies from adopting technology and becoming more innovative faster?

A lack of cultural experience for what it means to be an innovator.

“What we experience as we engage [with companies] is much more of a cultural need, much more of a desire to learn how to innovate, while doing so in the context of a process that wasn’t designed with innovation in mind,” Gilbert said. “Very often, we find ourselves dealing much more with the cultural aspects of innovation‚ helping to work with disparate teams and disparate individual contributors in order to help them learn how to work together and to innovate. They spend as much time on that as they spend looking at systems and technologies and the integration needed to digitize their onboarding process.”

As Webster points out during their conversation, FIs have to balance how to manage risk at the same time they want to bring new customers into the fold. Layer over that the complicated regulatory environment, and that makes the onboarding process more complex, too.

“It’s a very complex process,” Gilbert agreed. “Particularly for more complicated merchant acquisition and for high-net worth individual onboarding. It’s also a process that’s highly exposed to the requirements for compliance, [and] that’s highly exposed to the formal and informal risk.”

But onboarding a customer, he says, should be all about marketing, engagement and the user experience — just like most other aspects of business. It’s about presenting a simple, brand-reflective value proposition that signals to their clients that they have the right processes and tools in place to bring a particular company in the direction they need to go.

“The dichotomy we’re helping institutions manage is trying to make the idea of trying to make a process as appealing and as engaging as possible so that they don’t lose customers early on,” Gilbert said.

“It’s a tough one to get right, because you’re trying to so hard to really give customers a rich experience. The temptation is to try and compromise in some of those areas of formal compliance, but you can’t. We spend a lot of time with our clients trying to solve that particular set of problems,” he added.


Keeping On Pace

Square was brought up as one example (also represented at Innovation Project) as to how to become an innovator by simplifying the onboarding process. But, from the traditional bank perspective, there was too much risk. Banks would often claim they are simply not set up that way.

So, Webster asks: How can companies like Agreement Express get FIs beyond that belief?

“There is a lot to be learned from Square — both good and bad — but mainly about the customer centricity of the process and the efficiency and elegance they’ve introduced into their overall onboarding approach,” Gilbert said, noting that it is an approach that can be achieved.

“A lot of [innovation in onboarding clients] is about workflow efficiency. It’s about simplicity of automation,” he said. “[But] I don’t think it’s fair to say that traditional institutions can simply replicate what Square can do — that they can fight their own route through it. It must reflect their own specific brand promise to their customers and create their own efficiency level and elegance to their process that allows customers to engage. A process that keeps the abandonment rate low, keeps the engagement rate high and allows for customers to feel satisfied [with the] whole process of onboarding to the company.”

What it comes down to in the end is the mindset shift in the industry that this can be achieved — that alone can be a driver of innovation, as Gilbert points out.

“There is a significant mindset change required — particularly as it pertains to their ability to innovate,” Gilbert emphasized. “The ability to innovate isn’t much more complicated than the desire to focus on a customer’s experience within an organization. Banks, payment companies and other traditional institutions are really well-equipped to innovate in that context, but they need to stop thinking about what needs to change from the status quo [and] think more about how they need to leverage the assets they have.”

That includes assets like being involved with the customer early on in their lifespan, which gives the financial institution a rich opportunity to think first about the full customer experience and then “build an innovative environment around that,” Gilbert said.

And that begins by starting with a cultural shift and an understanding of enablement internally, Gilbert explained.

“There’s a level of insight from top of business down that’s necessary to help employees feel empowered to come up with creative new solutions. These things sound generic, but when you are talking culture change, it is deep and embedded into the organization to be able to create that change. There’s an attitude shift needed,” Gilbert said.

That attitude shift needs to be scaled across all departments and ubiquitously thought about in terms of how it can be used to onboard and engage customers. Which should all be done, of course, with one philosophy in mind.

“Really put that customer-centric philosophy to work,” Gilbert said.




The pressure on banks to modernize their payments capabilities to support initiatives such as ISO 20022 and instant/real time payments has been exacerbated by the emergence of COVID-19 and the compelling need to quickly scale operations due to the rapid growth of contactless payments, and subsequent increase in digitization. Given this new normal, the need for agility and optimization across the payments processing value chain is imperative.

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