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Benefits and challenges of innovation in the financial sector - New trends in the financial sector

Strengthening the innovation culture of banks

By Hamers Ralph - Chief Executive Officer, Executive Board, ING


The banking industry is facing an unprecedented wave of change. The digital revolution that has disrupted so many industries and had such a profound effect on consumer behaviour and expectations is now changing the face of the financial sector. New entrants are moving into financial services in large numbers with business models that offer a superior customer experience. That trend is supported by changes in regulations, like the EU’s PSD II directive, that make it easier for non-banks to offer payments services in a single EU-wide payments market.

Innovation is essential if banks are going to adapt and stay relevant to customers. Providing a superior digital customer experience is the key area where banks need to focus their innovation efforts in order to succeed. The seamless experience consumers get when dealing with digital leaders like Amazon or Google is the standard we need to aspire to. And the massive shift to mobile devices as the primary interface between consumers and businesses means people now expect constant improvements in digital capabilities and features.

These are all trends that fintechs are focusing on, and by doing so they’re making important inroads in areas traditionally dominated by banks. Banks have special competencies that ensure we play a role in the future, like expertise in risk management. And studies show consumers trust us more than other businesses to handle their personal data responsibly and confidentially. But the rise of fintechs also shows we can no longer take for granted the role of financial intermediary and advisors for our customers.

To continue to do that, banks need to deliver a differentiating experience in this new environment. They have to excel at innovation driven by the customer’s need for a clear and easy banking experience, available anytime and anywhere and that empowers them to be in control of their finances.

That requires attention for the innovation culture within banks. ING has a history of being a pioneer in banking. With ING Direct, we proved we could compete successfully in markets others considered overbanked. Our franchises in for example Spain, Germany and Australia are still growing at a rapid pace. Just like today’s fintechs, we provided an easy digital banking experience based on simple products and services at good value that found a new market that competitors were not serving.

We’re building on that culture of innovation by creating an atmosphere where all employees can play a part in generating ideas that we can translate into new products and services for customers. One way we do that is through Innovation Bootcamps where any employee can submit ideas for customer-centric innovations. The best ideas are selected and developed into prototypes we can test with consumers.

We’re also taking steps to encourage a culture of experimenting, testing and learning. Banks are traditionally risk averse. Managing risks to ensure we prudently handle customers’ funds is a core competency. That doesn’t change in this new environment. At the same time, we need to create the space to try out new ideas. That also means accepting and managing the risk of failure by for instance mastering the skill of “failing fast”.

Banks need to create space to try out new ideas.

In this environment, we need not only to deliver innovations. We need to deliver them fast and at competitive cost. We’ve reorganised our bank in the Netherlands based on small and agile, multifunctional and multidisciplinary teams that are end-to-end responsible for customer delivery. That’s a radical approach for the banking world, based on the models of digital disruptors like Netflix and Spotify.

And finally, fintechs may be disrupting our industry, but we shouldn’t approach them as something to fear. There are many opportunities for mutually beneficial cooperation with these newcomers. Fintechs have ideas that can improve banks’ customer experience and we have distribution, capital and expertise that can spur their development. Whether focusing on partnerships, co-investment or both, banks need to develop their approach to fintechs as part of their strategy to adapt in these changing times.