Time for banks to innovate?

Only a crazy bank would try to innovate during a recession, right?

Wrong, according to Clayton Christensen’s firm Innosight. It might be tempting to batten down the hatches, cut spending, and focus on incremental improvements to your core business. But a failure to keep innovating will hurt your ability to compete in the longer term. In the words of Amex CEO Ken Chenault, “A difficult economic environment argues for the need to innovate more, not to pull back.”

That doesn’t mean you should blindly pour big dollars into huge “boil the ocean” projects. It’s important to keep your projects diverse, and to prune out “zombie” projects so that resources don’t get tied up in things that clearly aren’t working.

In other words, focus on specific, practical projects, some of which can deliver quick wins. When you find a winner, expand the project and reap the rewards.

So, what are the right innovations for banks and lenders in these times of economic uncertainty?

Here are two suggestions for stealing market share in a recession, both of which use targeted innovation to make it easy for customers to bring business your way.

Innovation 1: Customer-centric account opening

Let’s suppose that a customer is in the market for new banking services. Maybe a couple of newlyweds are deciding where to open a joint bank account, link some credit cards, and take out a personal loan for their honeymoon. Or maybe a new startup business needs an overdraft, some business credit cards, a transaction account and a cash management account.

Assuming that one bank’s product features and pricing are broadly similar to the next, how to help yourself to win their business? According to The Better Banking Blog, a good place to start would be a streamlined account application process. It makes perfect sense. If one bank makes you fill out the same details about 10 times in 10 different places, then makes you wait around while someone in the bank fills out a few more paper forms, they aren’t exactly making things easy. But if the customer can go online (or into the branch), fill out one simple questionnaire, then sign up for a tailored set of products, the experience will be quicker, easier and happier. I know which bank I would choose.

So why not start small? Take your most popular home loan and deposit product and make it easy for new customers to apply for either or both via one seamless interaction. If it works, and customer satisfaction goes up, extend it to other products.

Innovation 2: Broker self-service loan documents

Just as customers don’t enjoy writing their name 10 different times in 10 different places and waiting around for hours, neither do brokers. In a recent survey, the single biggest complaint that brokers made about banks and lenders was that they were too slow to approve loan applications.

So if you want to win more business via broker channels, rather than losing that business to more nimble competitors, then one approach would be to give them a fast, intuitive and flexible online tool, so that your bank is the easiest and quickest to deal with, rather than the slowest and most painful. Remember, in the mind of a broker, a quick deal is a good deal.

Even better, when you capture all the important data from a broker up front, you have everything you need to speed things up in the back office. If the customer data fits a safe lending profile, they can be auto-approved, rather than having to wait for the credit review team. And by capturing and validating the data electronically, you can seamlessly generate a full set of tailored documents, so that the customer can be signed up within hours not days.

Sounds good in theory, but what’s the ROI? The honest answer is that you won’t know at this point. That’s why you need to dip your toe in the water with a small proof of concept. As this Mortgage Banking magazine article explains, successful projects share several important traits:

  • moderate upfront investment
  • compressed implementation times measured in weeks not years
  • the generation of near-term, measurable savings.

This approach is far more likely to succeed than a “wrenching overhaul of systems”

In other words, start small and go for ‘quick wins’. You’ll learn a lot about your processes while getting a much better sense of whether there’s a compelling business case for progressing further. And it’s a much better strategy than simply cutting costs.

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