The case for a 60-40 technology imperative in financial services

The innovation dividend

Even in the 2010s, we knew that companies that embraced technology change outperformed rivals. But this is more than software eating the world.

Financial firms that get the most out of their transformation spend have a different mindset. For example, a company with an innovation mindset might not only build a mobile banking app for small business customers, they’ll also shift all their processes to run through the app, add hooks to common point-of-sale and invoicing systems, and create an app-first customer experience that is driven by an AI-backend with an entirely conversational interface.

A financial services company with a maintenance mindset might build the server message block mobile app but view it as merely another channel, even though most of its customer interactions are running in the mobile app. Or it might refactor code to make its existing app more efficient and require less bandwidth to load and update. This might save money with optimization, but it’s a short-term gain. What it fails to do is drive innovation, open new business lines, new ways of interacting with customers, or significantly streamline and improve core internal capabilities and agility.

Making bigger bets has never been more critical

Financial services innovation today is on overdrive. Consumers can invest in more types of assets using more vehicles, choose from numerous payment options and expect much faster execution on transactions. Notably, those are largely generated by innovation, not optimization.

The shrinking returns from optimization will likely continue in cloud and software, where markets are mature and pricing strategies well-honed. Tweaking existing product experiences can marginally improve user experience but this tack won’t afford significant advantage in a hyper-competitive market.

The finance sector is inherently risk-averse. But even conservative CFOs observe the explosion of new services and competitors juxtaposed against ongoing market consolidation in legacy product lines. It’s leading to greater market concentration and fewer growth opportunities. The future will likely bring even more competition as non-finance firms — think Apple, Walmart and Amazon — grow their financial services offerings to compete with finance leaders.

In this competitive environment, a 60-40 innovation blend becomes existential. Financial services firms that prioritize innovation can reshape themselves to drive new products and revenue streams while doing a better job at the most important job — giving customers what they want.