Canadian Banking’s Now or Never Moment
Hint: It’s not blockchain, AI or open banking.
Banks (and sometimes bankers too) suck
The banking industry has been under fire for some time, whether it’s the “changing customer expectations”, shrinking margins or new disruptive entrants — pick your favorite consulting insight or conference punchline. And now, every retail bank is trying to figure out their digital relevance strategy — there likely isn’t a single bank or credit union that doesn’t hold this as a strategic priority. However, it seems we may have entered peak groupthink in the industry. There may be wisdom in common sense, but usually, true differentiation can only be realized where consensus isn’t reached.
We have opted to look at the Canadian Banking industry with a particular focus on retail digital innovation. We also really like growth, so much of the analysis and opportunities identified focus on market strategies over cost strategies. We did our best to collect info in the public domain, but know it might not be perfect or exact — we ask you to look at the forest, not the trees on this one.
What is a now or never moment?
There are always a few options an organization can pursue to compete and win in the market. Companies can opt to go head-on with competitors, being better in the existing market while fighting for existing demand. But for one to win this way it means many will lose at the same game. This strategy can be sound, and a full pivot away from what is usually the cash cow doesn’t make sense. But winning at execution is hard and there is a way to go after new markets and sources of demand by using new business models and innovations that can provide just as much success for organizations. It’s all about whether you want to fight for the pie or grow it.
We believe that when the incumbents in an industry start to swarm on the same things, new entrants begin challenging the status quo, and societal changes speed up — that many organizations have a moment, a short window, in which they can differentiate if they are brave enough to. We call that a Now or Never moment.
I think we have some group think on our hands
You can start to see where a lack of different thinking shows up when you start to see how similar everyone is talking about and approaching certain ideas in the industry. We looked at where companies are investing (based on annual reports) and what topics are showing up at conferences and whitepapers. Shockingly, this highlights how it’s not surprising that everyone is sort of doing and investing in the same thing.
Word clouds are kinda played, but I thought this was the best way to show what you could have expected at 2019/2020 conferences in banking (and likely what would have informed future-looking strategies at most institutions in North America).
This isn’t to say these areas shouldn’t be invested in, but by thinking that these activities will result in competitive advantage instead of just allowing you to rise alongside all boats is an important caution to keep in mind.
Below are some common areas of investment and some thoughts on where these strategies can easily go wrong.
Groupthink Area # 1 — Let me guess, is data your differentiator?
https://giphy.com/gifs/L3nXFWuo4WzHcv2jis/html5
I love data, but I only love data when it’s actually solving a problem. I see a lot of companies investing in “foundations” but not having a strong vision for the actual role data will play in their organization once that foundation is built. Likewise, data is often used in the broadest terms and with the most obvious use cases. If I had a penny for every time someone explained a “next best offer” or a “you know, personalization” value proposition. It feels a bit like an investment first and figuring out how to use it later strategy and I worry many organizations will have data lakes, governance, policies and reports that will still be a step away from driving actual revenue and engagement from customers.
Takeaway: Avoid investing in tech for tech’s sake and have a compelling use case for what data will actually do for your customers. Don’t assume that once you have the data, you’ll figure out how to monetize it after the fact.
Groupthink Area # 2 — You are probably going through an “Agile Transformation”
https://giphy.com/embed/1yifu1fegHblPYc1Iw
I particularly liked the title of this whitepaper from a consultancy “A discussion on Agile in banking: Beyond buzzwords”. I think a lot of organizations have jumped into agile because it’s being touted as the thing to do, but this is an expensive and often high-risk endeavor. There are a ton of buzzwords and lots of people learning as they go, therefore it becomes a relatively high risk if the organization doesn’t enter this deliberately. Picking the right delivery mechanism for your goals and strategies is more important than embarking on another major organizational transformation (did someone say ERP? BPM?) or watering it down into “Wagile” or “iterative waterfall”. The process itself is less important than the governance and cultural changes that come with it, and being honest about your organization’s capabilities and ability to change will make this either successful or very expensive.
Takeaway: Pick a fit for purpose delivery strategy that shortcuts time/costs to results and don’t do it because all the cool kids are.
Groupthink Area # 3 — Trying to attract younger generations & develop amazing customer experiences
https://giphy.com/embed/NAcNfRrU6f2bC
Senior leaders are, well, senior. And many of the experiences these leaders are trying to create are both for a customer that’s different than them and that leverages ways of working and delivering experiences that are also new (i.e. design sprints, ethnography, etc). Some of the biggest mistakes I have seen organizations make is not investing enough in understanding their customers and then assuming what Millenials want (a la Emojis and the failed Finn app). I’ve also seen so many vanilla value props made that eliminate friction from the experience or assume a “digital channel” will net acquisition, often to a fault (i.e. name any of the recent Robo Advisors). And lastly, I’ve seen a lot of copy and pasting, which creates a bit of a “Frakenbank” experience with complex, non-complementary and enormous feature sets. To build new and interesting things, you need new and interesting people, and often those who have been in large organizations (or have recently come from other large organizations) struggle to really think empathetically and differently.
Takeaway: Invest in knowing your customer, develop an actually compelling and differentiated value prop. Don’t be scared of “friction” (friction does make mountains and babies!) and do your own thinking.
Groupthink Area # 4 — We are going to be SO ready for open banking, whatever and whenever it is
https://giphy.com/embed/MDyho6Wy4sLbRHKvIu
Again, a great title from our advisory partners, “Is Open Banking an Opportunity, a Threat — or Both?”. I think this captures a lot of the thinking on open banking. Organizations are often investing money, but even more worrying is a significant amount of time, into trying to figure out the impact of this regulation/technology change without really coming out with any strong opinions. Everyone has heard the “marketplace”, “aggregation” or “bidding” use cases. But what else could be created and why aren’t banks investing more in having a compelling, defensible and buildable value proposition that leverages the technology. Everyone is learning the regulation and technology deeply, but no one is really understanding the customer element of this conversation.
Takeaway: Avoid investing in tech for tech’s sake and have a compelling use case for what this will actually do for your customers (same takeaway as #1!).
So what is a bank to do?
Again, I’ll reiterate that just because everyone is doing it, doesn’t mean it’s wrong. It just means that you’ll be unlikely to jump ahead of the competition. Here are a couple of ideas and moments that we believe are interesting for Canadian banks.
Semi-Original Idea # 1 — Pick Customer Innovation Themes, Not Technology Ones
https://giphy.com/gifs/ZCezTJWkLdqPyv8Fgc/html5
When you look at a number of strategies with banks and financial institutions, you may notice that innovation or digital investment areas are typically grouped around technology. You might see digital, customer experience, AI, blockchain, open banking, crypto, or other big areas. Organizing around customer problems is much more value-focused and allows teams to pick the best technology to solve the customer problem as well as truly understand what the investment is trying to achieve. It’s the difference between trying to build something/anything with a pile of wood and trying to build a chair to sit in.
Semi-Original Idea # 2 — Zig where others Zag
https://giphy.com/embed/l4FAWOXDjCMu5teSc
There are lots of tools to see where your competitors are investing or where their capabilities lie (blue ocean framework, 2x2 matrices, etc.). But the important part here is to understand the market and your competition and pick a few places where you will be truly different. If everyone is bringing design thinking, dev and innovation teams in-house (hint hint), maybe finding the best of breed externals will get you a different result. Or if everyone is building a Robo Advisor (again, hint hint), maybe you shouldn’t. Or if everyone thinks the next big market opportunities are small business banking, open banking and marketplaces (yet again, hint hint), maybe you need to get there first or go somewhere different.
Semi-Original Idea # 3 — Get out of the building
https://giphy.com/embed/yoJC2yftYP4kP6Ku40
It’s really hard to disrupt from the inside, no matter how much you hear CEOs saying that’s what they are trying to do. Whether its learning from others who have already been on the journey you are thinking about going on, hiring non-traditional talent or actually talking with customers — get out of your echo chamber. I have seen organizations reinvent the wheel and think their innovation lab is SO different when really it looks the same as everyone else's and they could have gotten there in about half the time had they looked up. I have also come across so many executives who are leading product and customer initiatives who have never talked to or done a customer interview themselves. You can’t outsource this completely and if you don’t care to do this work, you shouldn’t be leading anything product-focused. Hard stop. Love customers deeply or go do something that doesn’t involve them.
Now or Never Moment #1 — Shared Finances
We really like this trend. Most banks in Canada have gone after relatively simple, single consumer propositions. However, many customers manage finance jointly, whether with a roommate, a significant other, with younger family members or with older dependents. We have even seen some customers go into financial decisions with friends. The variety of solutions solving this problem is relatively limited and we think more Fintechs will start looking into this problem and solving it, however, banks are uniquely positioned to solve this problem.
Now or Never Moment # 2 — Cult Features & Brands
Where most institutions are trying to eat the whole elephant or create full-service offerings, we think there is an opportunity to double down on both cult features and brand creation. Cult features are those that have proven to work around the world and ones that people love, and that surprisingly still hasn’t been built or really leveraged here (hint: low/no FX fees, cross-border solutions, transparent product roadmaps, self-service customer support). We also think brand matters a lot, and that some of the old school brands don’t really appeal to new segments. Pretty vanilla features can create a cult-like buzz just based on brand, colors, and design (a la the WealthSimple card). There are better cards, but this one is “cool” and from WealthSimple. We think there are opportunities for sub-brands or new brands built on Cult features to do really well.
And from the cutting room floor, we think these are interesting too:
- A real digital bank without the cinderblock of legacy dragging it down
- Family money & an authentic approach to intergenerational wealth transfer
- A bank unfazed by borders
- Small business banking actually designed for the business, not just the bank
- Advice that’s real, helpful and valuable, not a shameless sales channel
- A bank that communicates with people, not like a bank going through it’s planning calendar
- End the vanity spend — it’s us that pay for you to slap the logo on a building
Thanks
Let us know what you think and feel free to get in touch with us: alex@nowornever.network
