Editor's note: Like Tesla, financial institutions must consider the ways to remove barriers to innovation to provide customers and members with the experience they desire.
A Lesson from Tesla?
Recently Tesla CEO Elon Musk shocked stakeholders when he tweeted that he was considering taking Tesla private. He explained that he believed this move could remove barriers on the company’s ability to innovate, and provide certain flexibility that would make it easier for Tesla to grow and expand its footprint. However, these plans were short lived when a few weeks after the announcement he shared that these plans were no longer in place.
The most interesting thing about this particular bit of news is the inferred assertion made by Musk that his company’s ability to maintain its performance was threatened by the oversight associated with being a publicly traded entity. To those that work in the banking industry, this conclusion by Musk is an everyday reality from which we can’t escape.
However, what if the oversight that comes with being a public company and the regulatory infrastructure in banking are not actually the reason why these entities are unable to keep pace with innovation? What if the actual barriers are related to something much more systemic within these organizations?
The real issue preventing banks and credit unions from responding successfully to the conditions around them may actually have more to do with the historic tendencies that have become habits. Used to, financial institutions determined their own pace relative to innovations in their business, be that new products and services or technology (e.g., the ATM). The digital revolution has flipped the script and now consumers drive the process.
These consumers are shaping their expectations not based on what other banks or credit unions are doing but on the constant innovation of big tech companies. To compete, financial institutions must break from their learned behavior about who is in control of change in banking. They must rethink how they think about digital which is no longer just a channel for delivering financial services but instead a way of life for consumers.
This means that the digital experience they offer can no longer be seen as something that is simply updated from time to time. It has to be a transformative mindset that shapes the digital banking products they chose and much, much more. Digital must insinuate itself into every aspect of how business is done – internally and externally.
While there are many institutions modernizing their digital channels, a fraction of those are considering how digital should change their org chart and comp structure. Remarkably, beyond these banks and credit unions, there are a disturbing number of banks and credit unions that still seem unconcerned at the outcomes they face as they continue to use the disparate, legacy technology that has been in place for years.
For the leadership of these banks and credit unions , a quip shared with me by an industry consultant may best describe what could await them, “If you are an executive of a financial institution and you are not thinking about digital, you are not going to be an executive much longer.”
What Do We Do Now?
First, it’s critical for the management team and the board of directors to understand what is at stake and what must be done to address that risk. All involved should work to comprehend why digital transformation is not a one-off project but rather should be a well-defined strategic objective to guide the institution’s digital future. Education and open communication are crucial to this task.
Second, focus on the long term. In a letter that Musk wrote to Tesla’s employees, he discussed how the short term viewpoint of equity investors put “enormous pressure on Tesla to make decision that may be right for a given quarter, but not necessarily right for the long-term.” All public entities, financial institutions included, risk sacrificing the future to keep investors content in the present. However, banks and credit unions should find a way to positively work toward their longer term strategies while also satisfying present obligations. Communication at all levels must incorporate the reasons why the longer term cannot be ignored.
Third, time is not a friend as digital transformation has been around for nearly a decade. Institutions that want to deliver a superior, modern digital experience must act quickly, as mediocre digital offerings will no longer cut it. This often involves partnering with a digital banking provider that enables high levels of control and quick innovation.
While transformation and change is not an easy process, it is part of the landscape in most industries. Leadership within financial institutions must focus on more than just improving technology and licensing the latest “must have.” To remain competitive, all institutions should take a close internal look and strive to truly understand what is keeping it from reaching its digital goals.