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Fighting back against the fintech innovators - four quick wins for incumbents to kick start innovation

From retail to travel to construction, start-ups disrupting established players is the new normal. Within personal banking, brands such as Monzo, Transferwise and Starling are increasingly well-known, with customer-centric offerings powered by technological and regulatory changes.

Three sky scrapers shown from below with plane flying overhead

What’s not always so apparent in the world of fintech, where the headlines tend to focus on new ideas and products growing at breakneck speed, is that many of the larger incumbents are comfortable with innovation. Are they slower? Almost always. But as they increasingly bring big budgets to bear on the problems that matter, and leave behind outdated ways of working, it’s no longer looking like ‘big banks under threat’ and more like big banks starting to thrive.

HSBC has just opened two data and innovation labs in London and Toronto that will house specialists in areas such as analytics and robotics. Revenue and profit there is up, and they reported investing a billion dollars in the first quarter of the year to enhance digital capabilities. The group has stressed that it will seek to build partnerships and co-develop with firms working in AI. It’s a similar story at Lloyds Banking Group, currently engineering a £3bn digital transformation.

Meanwhile, Moneycorp, a specialist in currency exchange, hedging and international payments saw an opportunity to bring retail banking-style customer centricity to currency exchange and international payments. As a result, the company partnered with my company, Futurice, to co-create a best-in-class international payment platform tailor-made for the digital-first economy.

Speed is still an issue though, and digital innovation at most financial services incumbents has lagged behind. Just recently the FCA warned that innovation levels at many banks has been low – rejecting the premise that “regulatory initiatives and technological developments may cause unprecedented change to business models.” To some extent, lack of progress among established banks is understandable. A complex web of regulatory, security and compliance issues, combined with legacy IT systems (things we deal with a lot) means attempts to introduce innovation can be an uphill struggle. Everything from dealing with legacy code, through to hiring, reskilling and restructuring workforces can be a lengthy process.

Nevertheless, if incumbents are to effectively address the fintech start-up challenge, – and make the best use of their advantages more quickly – it’s crucial for them to accelerate the pace of change.

The encouraging news – as the FCA recognised – is that provided they can reconfigure their legacy IT systems, many established banks have strategic and resource advantages over their start up rivals.

Based on our experience of working on innovation projects with the likes of Nordea, Moneycorp and VW Financial Services, here are four suggestions for banks trying to accelerate along the innovation journey.

Find a small problem and solve it efficiently

Don't start with digital wizardry. This is neither realistic nor practical. Instead, start by talking to customers about the ways they relate to your brand, products and services. Do the same with employees and those involved in delivering these things.

Here at Futurice, our tried and tested approach is to zoom in on an individual business problem or subset of problems that are worth solving from a customer and commercial point of view. Having identified the problem, we look at how it can be tackled in a human-centric way and with minimum investment. Taking a pragmatic, lean approach allows innovation teams to demonstrate concrete results early so that the wider company can see tangible benefits. One real life example of what this looks like is the Face Recognition Experiment at Helsinki Airport which Futurice conducted with Finnair and airport operator Finavia.

This tightly-targeted, low cost experiment addressed a specific digital transformation issue and positively impacted Finnair and Finavia’s brand image as customer experience champions and new tech pioneers.


Build consensus around the business case

It’s important to have a water-tight business case if you want the board to step outside its comfort zone and back innovative digital services. Therefore, the key is to focus on consumer demand and business benefits rather than talking generally about “digital innovation” or the threat from disruptive start-ups. There also needs to be a high level of engagement with the board or business owners – they need a chance to input and be involved.

This isn’t the only ‘hearts and minds’ job however. When it comes to delivering digital innovation initiatives, you also need to be clear about how the business case connects and delivers for different divisions of the bank – new business, marketing, customer service – to secure broad-based buy-in.

Building consensus is a challenge but it’s essential. It should include agreeing problem areas, identifying the impact you want to see and for whom (customers, employees etc). The chief digital officer (CDO) will have a key role, mediating between business leaders, many of whom have conflicting priorities. In financial services, or where there is a ‘zero-risk’ operating environment, you also have to ensure the client’s regulatory and compliance teams are fully engaged in the product development conversation.

Open innovation processes to external partners

As the HSBC example shows, transformation can only really happen if the financial services incumbent listens to external as well as internal ideas – a concept generally referred to as ‘open innovation’. Openness can be introduced in various ways – but here are three.

Firstly, start moving towards co-creating with customers and third parties rather than top down directives from the board – because then you’ll truly know what consumers want.

Secondly, be platform agnostic in order to connect with the open source community. This makes it relatively easy to find a solution for a specific coding problem.

Finally, collaborate with experts such as consultancies or developers who are actively involved in launching innovative services. Leading Nordic bank Nordea, an Open Banking pioneer, has 3,300 developers registered to test APIs via its Open Banking platform and recently launched its first product to result from the initiative, a reporting tool called Instant Reporting. Similarly our partnership with Moneycorp involved Futurice being embedded in Moneycorp’s activities, rather than being a siloed and outsourced vendor. This helped introduce a new agile mindset – with key benefits including better use of data to analyse and respond to online customer behaviour.

Get services to market quickly

Digital technology, competition from Fintech start-ups and changing customer expectations are shrinking the timetable for launching new products and services. What used to take years can now be done in months or weeks.

In this context, embracing design thinking and agile processes, allows businesses to innovate and bring user-centred products and services to market more quickly than a conventional R&D set up would allow. To evolve the company’s product launch strategy, Futurice helped Moneycorp roll out an iterative release process: something we advocate strongly to best in class companies across several sectors. In simple terms, this is about prioritising speed to market over perfection.

Perfecting products or services takes enormous amounts of time and doesn’t always suit a competitive and rapidly changing environment. By focusing on speedy iteration, Moneycorp generated real data with an MVP (a minimum viable product) within months not years.

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As HSBC, Lloyds, Moneycorp and Nordea are demonstrating, introducing innovation into established finance brands doesn’t need to be the banking equivalent of turning a supertanker. Start small, open up, build consensus and remember that when it comes to launching an MVP; done, released and learning in the wild is better than aiming for first-time perfection. If you’d like to find out more about Futurice can help, please message me here on LinkedIn or email David.Mitchell@futurice.com.


  • Portrait of David Mitchell
    David Mitchell
    Managing Director, UK