Having worked in the past to get banks to launch innovative solutions, they often seem to have the same problem as most corporations – what is the business case? Although the margins in most banking products mean that they often won’t even look at a case below multiple millions of NPV even if it brings huge market advantage or will make their customers smile. The excuse is often that banks like to avoid rolling anything out if they have to do it alone and risk alienation in the market or paying for infrastructure that other banks will then leverage. However, I think one of the greatest issues in retail banking innovation is protecting the integrity of banking systems and avoiding all but the lowest risk – which is sharply juxtaposed by the innovation and risk taking at the other end of the banking market.
Rulebooks and standards are indeed a symptom of this lowest risk denominator approach to innovation, but are not the cause. Perhaps what banks should be doing is investing in innovative companies in order that they can capitalise on the technologies or business models once they are proven to be in the right risk profile. For example – when seeing potentially disruptive companies like Square popping up, banks should say ‘I’ll have a slice of that’ and invest in it to see if the business model is viable. Once it is proven, the bank rolls it out but from the position of an investor instead of a customer. This has been the process for technology giants for many years – and is why big players like eBay snapped up PayPal. This means that banks can become indirectly innovative and also help bring through new technologies with risking their integrity.