It’s hard to tell what really goes on inside a bank. If they’re to be believed, banks are hiring digital and tech talent and moving them all into the C-suite, they’re testing and investing in new technologies, partnering with startups.
Alternative solutions out of the fintech startups aren’t that different. Those companies may be more in tune with consumer needs today and offer viable alternatives to the existing financial industry’s shortfalls, but surveys show it can take some time for people to come around to those ideas anyway.
Here are five charts that surprised us this year by either debunking or augmenting what our reporting has told us.
Employees don’t always know where or how innovation is budgeted and managed
It doesn’t really matter where innovation teams get their funding for projects, but it needs to managed comprehensively and banks currently lack the leadership or direction to do that well. Hiring and retaining innovation talent and leadership has been a challenge for banks this year. Most banks don’t have a chief innovation officer and only half of banks have C-level staff that champion innovation.
Most innovation budgets are taken out of an organization’s technology budget, according to a report by Celent. Of some 30 innovation program leaders surveyed, 67 percent indicated they pulled innovation funds from the technology budget, 43 percent from individual business units’ budgets, 30 percent from a separate venture capital type fund for early ideas. Some 30 percent of organizations have a centralized innovation department budget and 10 percent indicated innovation isn’t part of the budgeting process.
“One of the things we see in these successful programs is human resources plays an active part in all sorts of different points in the program,” said Michael Fitzgerald, Celent’s senior analyst who authored the report. “In practice though, innovation leaders are pretty reluctant to get HR involved. The perception is that HR is about layoffs.”
Goldman Sachs is investing aggressively in consumer tech talent
Goldman Sachs is an old investment bank that’s now making an aggressive move into consumer products. As such, it no experience in consumer banking and has responded by resolving to hire the right talent.
CB Insights analyzed more than 2,000 open Goldman Sachs job listings in September by division and business unit and found 46 percent of them were in technology, with the highest amount for core platform roles, followed by operations engineering and then equities technology.
While traditional consumer retail banks are still getting acquainted with the idea of the platformification of banking — stubbornly, since rethinking banking services as a platform often means weakening a company’s brand by becoming the “dumb pipes” — Goldman Sachs has aspired to a platform approach and quietly been working on it and readying itself for the consumer market. According to Matt Wong, CB Insights fintech analyst, Goldman is also hiring engineers to build a digital advice platform for the mass affluent market and its Marquee platform, which gives clients access to analytics, trading and data tools.
Banks aren’t really minding the ethical concerns of artificial intelligence
Most banks believe artificial intelligence will have a large impact on the industry, but few are actually investing in the technology or even planning for it. Some 58 percent of banks indicated that AI might be too expensive to implement and deploy. The same percentage listed security as a concern — although 13 percent indicated they weren’t concerned about security at all.
But most striking is the high percentage (31 percent) of people who said ethical considerations — eliminating bias, abusing AI and displacing people’s jobs — weren’t at all a concern, even though they’re the largest sources of uncertainty for most consumers who don’t work with the technology hands on.
“That might be more of a short term response to the kinds of pilots you’re seeing, where they’re more assisting personnel in completely different actions like robotics process automation or data analytics so you’re not really losing the personnel” to new technology, said Stephen Greer, an analyst at Celent.
People still aren’t really using mobile payments
Loyalty and rewards incentives may not be enough to make consumers like mobile payments, and it could be on retailers to find what would keep people coming back to their mobile wallets. Mobile payment adoption among Apple, Android and Samsung Pay today is low. Paying with cash or card works just fine for them, customers say.
While many people have enrolled in Apply Pay or used their Samsung Pay wallet to pay for something once or twice, regular, most people aren’t using their phones to pay regularly.
Only 27 percent of iPhone users (with the operating system to use Apple Pay) have ever used Apple Pay — and only eight percent use it on a weekly basis, according to First Annapolis statistics. For Samsung users, that number falls to six percent, and for Android users, three percent.
People might dislike banks, but fintech isn’t better
Transparency is the big sticking point when it comes to why small businesses still prefer banks to online lenders. Customers aren’t clear on what the requirements of their loan products are, how they qualify, why they don’t or what exactly they’re paying for — and transparency is so often part of customers’ frustration with the legacy institutions. They’re also dissatisfied with higher interest rates and unfavorable repayment terms, two common issues for the growing industry, which continues to have a higher cost of capital and for customer acquisitions.
Online lending solutions can be a little misleading. They’re good solutions for customers whose expectations have been raised by the expediency of the digitized commerce sector, but the reality is that banks’ core functions are still in the dark ages: while in other industries, convenience and price go in tandem, in financial services convenience comes at a cost.
“A lot of online lenders are failing,” said Rohit Arora, CEO of Biz2Credit. “They’re catering to a larger proportion of customers now compared to banks – not in terms of dollar value but in terms of units. And customers need more education, you have to explain to them why you’re charging a higher rate.”