Our 7 Questions to Prevent Bad Bank Technology
The most significant problem with bank innovation is that bankers see or hear about a sexy piece of technology at a conference or at another bank and then acquire it. The new piece of technology ends up solving a known problem but, in the process, creates more problems, and risks, than it solves. It’s called the “Shiny Object Syndrome” (SOS), which could be sowing the seeds of destruction for many banks. This article looks at the seven strategic questions you need to answer before acquiring any piece of technology.
1. Does The Bank Technology Fit within the Strategic Vision?
Often, we get distracted by the latest technology trend or get enamored by how easy a piece of technology is to use or implement. Banks have limited resources and must carefully choose their projects and priorities.
Technology platforms around cryptocurrency, student loans, or financial education may be cool and cheap. Still, the first question to ask is, does this investment help the bank achieve its vision, and will it move the needle?
If the technology in question provides a meaningful step towards the bank’s vision, then great. It may not be a priority if it does not provide a material step towards that vision. Banks have so many initiatives to accomplish that spending resources on a project that only gets you a slight incremental improvement or is not part of the strategic plan are likely a distraction.
2. Does the Bank Technology Improve the Customer Experience Across the Bank’s Platform?
To answer the question above, ask yourself – “How does the product scale across the bank’s platform to various customer segments?” In other words, can the technology be leveraged across departments and across products?
We all say the customer comes first, but our actions around innovation often put cost, compliance, or our present way of doing business first. At the micro-level, the SOS problem impacts small technology components such as how you handle document storage, e-signature, ID verification, authentication, encryption, or the movement of money.
On a macro-level, it’s about managing your channels and your customer segments. There are thousands of banks in our industry that use a different application for their online banking channel than their mobile channel. The result is two different customer experiences that cannot be brought together. Further, what might work for retail may not work for small businesses or commercial, so you risk creating a structure that inhibits your bank from ever achieving a single platform that spans all channels and customer segments.
As you choose your bank technology, envision how it will look and scale across the bank.
3. How Will My Employees Access the Bank Technology?
Next to having different customer experiences in banking technology, we make our employees have different experiences. While we talked about targeting the “total experience” instead of just the customer experience HERE, the takeaway is that we need to ensure we design the employee to the overall technology solution.
Having your branch staff need twelve different logins does nothing but hurt the customer experience, increase training costs, jump risk, and add complexity to the system. Having your customer have better information or capabilities than your employees usually results in lower customer satisfaction scores than before installing the technology. After the customer, think about how the technology can be integrated for employees throughout the organization.
4. Where Will The Data Live and How Will The Data Move?
When banks complain about not having their data in one place, they have only themselves to blame. Having your customer data in the core, on spreadsheets, in Google Analytics, and on 25 other systems is a result of not thinking through your bank’s data scheme. There is a myriad of off-the-shelf data products and services to solve this problem, but banks need to make data and data integrity a priority.
Having your data in different applications will do nothing but slow you down. Choose or build banking applications that make it easy to centralize your data into one place, and you will gain operational leverage. Only choose technology that supports the ability to easily centralize your data in a safe and accessible location.
5. Does The Technology Fit My Desired Future Architecture?
If your bank desires to move to real-time payment processing, don’t keep adding on batch-driven applications. Further, to the point above, if you require your data in one place, then choose or build an application with robust enough APIs to allow that movement of data.
6. How Does The Product Scale?
Your bank will likely grow, and one day, the technology you chose will have to support remote employees, customers outside of your branch network, and customers across state lines. Make sure whatever technology you select can grow with you so that you gain operational efficiencies.
7. What Are The All-In Risk-Adjusted Economics?
The cost of the technology and integration is likely just the tip of the iceberg. Understanding how you will support the technology and what processes have to change will give your bank a clearer picture of the project’s true scope. In costing a project, banks often leave out the cost of internally maintaining the system and the incremental labor effort associated with things like training, marketing, audit, and risk management.
Most new pieces of technology add additional complexity, so make sure you have documented the risk that the new application will have and the risk and cost that the new application will reduce. It is true that digital account opening, for example, comes with a set of risks. Still, it also dramatically reduces the cost of traditional account opening and often comes with better fraud controls. However, that is just the direct cost and risk. Digital account opening also leverages your current branch network and allows fewer physical locations to be needed in the future.
See the big picture when calculating your return on investment, and your technology decisions will become easier.
Solving This Problem
The key to preventing getting mired in bad bank technology is to think through the above questions and then go out and ONLY search or build technology that fits your requirements. Going to Finovate, getting involved with incubators, or listening to random vendor demos is fun, but it supports bankers’ worst instincts when it comes to technology. We all want the latest and greatest when it comes to technology, but this is why every bank has a garage full of underutilized technology that is often at cross-purposes to the bank’s stated goals.
Instead of letting technology drive the bank, get the answers to the seven questions above and then drive technology. The result will be that instead of adding additional costs, you will find that your technology will help reduce costs and make the customer happier in the process. That outcome is likely much more aligned to your strategic purpose than Bitcoin.