3 Traits Of Digital-Forward Banks

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“Customers are disillusioned with traditional banks, but they still have one key advantage over fintechs,” says Paul Thomas, Managing Director of Provenir, “and that’s customer loyalty.”

As an industry veteran Thomas has seen digital disruption affect all parts of the financial services industry, from the market launch of low-cost overseas payments to the development of two-minute loan approvals. “From my position in the industry, I’ve watched startups come in and take advantage of a changing industry landscape to provide consumers with products, either under-served by their banks or where the bank experience fails to keep up with changes in consumer behavior,” he said.

Agile fintech businesses are able to use technology to address challenges that have been plaguing the industry for years and Thomas expected traditional banking institutions to follow the lead of the digital disruptors. They didn’t.

“It was about 5 years ago when I became really disillusioned with my own bank. I’d been using them to make overseas payments for years, but each month it cost me around $150 in fees. By this point, other payment options existed that reduced those fees to just a few dollars, but I stayed with my bank out of loyalty. Finally, being offered the promise of lower cost, faster delivery, and a better experience, I contacted them and asked them if they could compete. Their response was; ‘sorry, it’s not possible.’ The problem? Low-cost cross-border payments are available, but big banks had yet to embrace the technology or alternative payment methods that enabled them, “While my bank couldn’t help me, a disruptor could,” he said.

This isn’t a story unique to one bank or payments specifically, but a general theme across the industry. What banks need to realize is that although loyalty is their biggest advantage, it has a limit, and without the adoption of key changes fintech businesses will slowly but surely take bigger and bigger bites out of their business.

Leveling the Playing Field

“While it’s easy to blame banks for their lack of digital progress, it’s not all their fault. Large financial institutions face much higher levels of scrutiny, which makes it much harder for them to make radical changes and adopt new technology.”

As a provider of risk solutions to both fintech businesses and large financial institutions Thomas’s perspective is unique, “Making changes in a financial institution isn’t a simple process and just getting a new solution implemented can take years. Everything is tied into a core infrastructure, which makes it incredibly difficult to bring in new technology or even make adjustments to existing systems and products.”

On the other hand, Thomas and his team have had very different experiences working with fintechs, who are able to adopt changes very quickly. With a lack of legacy systems and a digital-first approach, it makes it much easier to design and deliver new products that drastically improve the customer experience. Many fintechs also specialize in one area and their razor-sharp focus and commitment to delivering that single experience make it much easier. So how do large financial institutions compete when the playing field isn’t level? Thomas identified Goldman Sachs as an incredible example of a large financial institution that has been able to innovate and capitalize on brand loyalty to not just level the playing field but gain a competitive advantage.

Banking on Brand Loyalty—Marcus by Goldman Sachs

Marcus by Goldman Sachs needs no introduction, their marketing team have made sure of that, but what many people don’t know is how Goldman Sachs went about creating Marcus. Like all other successful businesses, the Goldman Sachs’ team invested heavily in research and data to identify consumer pain points and determine what new product could solve these issues. The team focused on areas where their tech-forward approach to risk management could give them a competitive advantage. This process is pretty standard, but what makes this situation unique is how Goldman positioned Marcus within the business. Instead of fitting a new department within the existing organization, Marcus was built from the ground up with a new team, new product, new technology, and perhaps most importantly of all—zero legacy.

“What’s most impressive about Marcus is that they brought a new product to market in record time without sacrificing the Goldman brand,” said Thomas, “The lack of inherited legacy systems really gave them the opportunity to take an innovative approach and create a digital-forward lending experience.”

While Thomas was quick to point out that there is no one size fits all roadmap for digital transformation within large financial institutions, he thinks that leaders within the industry could learn a lot from the approach Goldman Sachs took, “Brand loyalty is incredibly powerful, what Goldman did with Marcus was not just give the Marcus team a brand name to use, they gave them the opportunity to create a fintech business within Goldman Sachs”

By providing the Marcus team with independence Goldman empowered an agile culture that was able to quickly make decisions and launch new products. But perhaps most importantly they created a lending experience that can not only compete with tech startups but also use brand recognition to outperform them.

Key Factors for Empowering the Success of Digital Innovation

While all businesses can’t follow the same path to innovation success Thomas believes that there are a number of factors that make digitization more achievable, “There’s definitely commonalities between businesses that are successful at adopting a digital-forward approach and those who embrace these 3 things significantly outperform those that don’t. Marcus is a strong example of this.”

  1. Source Extraordinary Talent

Creating innovation within financial institutions is about more than technology, it’s also about embracing diverse and extraordinary talent who can create unique, market-leading solutions. Again, let’s use Marcus as an example, they created a new and incredibly talented team to focus on one specific business line and the results have been astounding. Embracing diverse talent is an area that Thomas strongly believes plays a key role in digitization success, “time and time again I’ve seen financial institutions trying to innovate with the same technology and operational teams who designed and built their existing systems and processes. There are so many examples of existing teams, who have an understanding of the business and the legacy technology, handed responsibility to implement transformative change. For example, just because I have experience of small business lending processes in my bank, with each loan taking months to approve, doesn’t mean I’m qualified to lead the initiative to turn that approval process into a decision in minutes. Businesses who bring in new talent across technology, data science, and risk—and not necessarily from the financial industry—are more successful at innovation and taking products to market fast.”

For banks, finding the right talent should be at the forefront of their digitization plans and, “a commitment to bringing this talent onboard should be a key part of their innovation strategy.”

  1. Explore Strategic Partnerships

Thomas was also keen to say that when people suggest that banks don’t want to change, they’re mistaken: “banks aren’t standing still, they’re investing in innovation centers, innovation personnel, different ways to make their business more digital, but very few choose to work with fintech partners.” Fintech is exploding throughout the world, with select businesses already developing secure and innovative solutions that could quickly help banks compete with their digital-forward competitors. “Banks that embrace the outside world and work with fintech partners have access to a huge range of talent and technology providing rapid solutions for their problems, which leaves them free to focus on brand and customer loyalty. You just need to look at Marcus to see how successful this can be.”

  1. Create Innovation Silos

Even if they employ the best IT talent in the industry, banks will always face problems when trying to integrate new tech solutions with legacy systems, but these systems are often integral to the business, “Banks understandably don’t want to sacrifice their entire technology stack to make improvements to one part, just like you wouldn’t buy a new car because you got a flat tire.” But their new digital-only competitors don’t have this issue, “they’re not trying to fit a NASCAR engine in a Model T chassis, they get to build their dream car from the ground up.”

One solution to this problem is to silo new innovation projects within the business. Silos are often seen in a negative light, but when it comes to tech solutions, deliberately creating a silo can empower innovation, “When you limit the involvement of legacy systems in new initiatives you not only make it easier to bring in new tech solutions, you also remove the constraints caused by outdated technology. It gives your team the freedom to choose the right solutions without worrying about existing processes.”

Capitalizing on Brand Power

Even with the high levels of scrutiny, legacy systems, and growing number of competitors, banks can still have the opportunity to thrive in a digital-forward market, “If banks actively seek fintech partners who can provide instant tech solutions to power their digital plans, it will quickly put them on a level playing field with the digital-only players in the market. Now is the time for banks to focus on their strengths, leverage their brand power, and use customer loyalty to drive the business forward.”


Paul Thomas is the Managing Director of Provenir, a fintech business that provides risk decisioning technology to financial services organizations. Provenir empowers businesses to quickly implement sophisticated risk models and fully automate their risk decisioning processes. Provenir partners with many of the most innovative financial services businesses across the globe. See the innovative ways Provenir’s clients use the Provenir Platform to create first-class lending experiences here.

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