Innovation is easier and cheaper in the digital age. Banks should take advantage of this, writes Brian Caplen.
The conventional wisdom is that banks stifle innovation and that they can only embrace the digital age by partnering with fintechs. This is true up to a point but banks should also not ignore another aspect of digital – it makes experimenting cheaper and allows them to try out many more initiatives than they were able to previously before deciding which ones to bring to market.
The key is to think like a venture capitalist and to embrace the concept of minimum viable products (MVPs). This means testing out lots of initiatives at once and using MVPs to try them out on customers at an early stage and get quick feedback on their viability. The alternative conservative approach of perfecting a product before it gets anywhere near the market is a costly and old-fashioned way of working.
“Instead of an incremental approach to product development, which is pretty much the norm, MVPs give banks the latitude to experiment with novel strategies, present multiple early-stage ideas to customers, and solicit feedback in quick successive test and learn cycles,” says a report on open banking from Boston Consulting Group.
BCG cites a European bank that found 40 use cases for its open banking programme and then whittled them down to a handful that would genuinely deliver customer value. Banks that get this right will find open banking delivers huge upside in terms of increased revenues.
Brian Caplen is the editor of The Banker. Follow him on Twitter @BrianCaplen
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