Many consumers are disappointed with the level of technological innovation from their banks, and financial institutions must meet customer's expectations in a digital world or face the consequences.
That is the warning issued by Mark Jamison, managing vice president of Capital One Labs. Capital One Labs is a small division of the larger bank that is tasked with developing innovative digital products and "re-imagining the way customers interact with their money." Jamison gave a keynote talk on innovation in banking at the CEB TowerGroup Financial Services Technology conference this week in Boston.
Jamison noted how the advent of smart mobile devices have been a catalyst for "creative destruction," a term first coined by early twentieth century economist Joseph Schumpeter. He referenced several industries that have been greatly marginalized by recent technological advances, including travel agencies, atlas publishers and camera makers. "There have been major industries eaten up by apps," he said, adding, "Of the original Fortune 500 list [first published in 1955] less than 15 percent still exist today."
This warning is especially pertinent for banks, he noted, who face increased competition in some aspects from nontraditional competitors, such as Google, PayPal, Bitcoin and Green Dot. "I think they're more of a threat that many people realize," he added.
Jamison advised banks to incorporate characteristics that are usually indicative of the most technologically innovative companies, such as speed and agility, collaboration and dative design.
Speed and agility are key for any innovative company, he said, because "it's important to rapidly test and prototype" new products, rather than develop something for 12-18 months before bringing it out to market, only to find it's something consumers don't want.
Regarding collaboration, Jamison said banks should not be afraid of open platforms and enabling external parties to build out their proprietary platforms. He pointed to Simple (formerly BankSimple), which has deals with federally insured banks to hold its customers money, as prime example of this.
Jamison also advised banks to utilize data analytics to target their customers with more relevant offers. He said Capital One runs algorithms on millions of customer card transactions to determine the most common "co-occurences" -- that is where customers who spend money at one retailer are most likely to also spend money. Banks can further mine data to determine what times of the day certain offers might be relevant.
Financial institutions certainly don't lack the sheer amount of data to glean this information. Jamison noted that in 2012, two zettabytes of data were created, which is more than what was created in the entire history of the world up until that point, he said.
"All this massive amount of data is out there," he added. "They key for banks is figuring out what matters and what doesn't."