Thought Leadership

Are Legacy Financial Institutions Capable of Innovating?

October 29, 2018
Are Legacy Financial Institutions Capable of Innovating?
By Bryan Adler

The culture of the banking industry isn’t particularly friendly to innovation. Let’s start with that elephant in the room.

As JP Nicols, Managing Director of FinTech Forge, commented in The Financial Brand, “Innovation is simply not in the DNA of most bankers. They’ve been trained throughout their whole career to identify and avoid risks, but innovation is about taking small risks and failing fast and cheaply and learning from those mistakes to get to the right answer quickly.”

In addition, community banks and credit unions are saddled with legacy systems, stuck in long-term contracts with less-than-innovative core vendors that are less-than-flexible about partnering with third parties that can threaten their add-on products. A survey found that 83.6% of banks and credit unions run core processing systems that do not have a sandbox for development innovation!

Because we at Vetter set goals to help financial institutions optimize profitability, ensure compliance and improve customer experience while expanding your reach, I’ve studied some of the common bottlenecks to digital innovation community banks and credit unions experience, and how to work through them.

Less is more. When banks talk about innovating their digital operations or customer service or building in data analytics, it’s definitely overwhelming. However, starting with a simple task, like cleaning up the customer contact and other information in your database, can start the ball rolling. Once this data is prepared, it is useful for many departments, from marketing to collections, and having it all in one place means customer service representatives can get a more comprehensive view of the customer for cross sales and other opportunities.

Innovation must come with the end user in mind. Start with the customer/member journey, as BCG advises, or how employees use particular systems. Solve a real problem for them. Employees may require tools that work together to simplify their processes and streamline customer service. Consumers may just want a simpler way to transfer money to and from external accounts. Then, identify methods to create and scale these developments across the organization to determine what will be most efficient and effective all the way around. Find a solution to a real-life business problem. Innovation for the sake of innovation is a bust.

Obliterate silos. It will help employees recognize the needs of the entire company and not just their individual department, so ideas with greater impact can blossom. Additionally, if a solution is created for, say, customer service you may find it would really benefit a problem loan officers and others are experiencing, too.

Funding. Your organization must speak with its dollars. To make strategic innovations that truly will boost profitability or efficiencies, the investment – not expense – must be made. It may be painful to get a $500K project past your CFO, but when it increases profitability many times over within a few years, you and the CFO will be glad you did.

Human resources. Banks and credit unions very often lack experienced innovators and don’t have the funds to go out and get them. Willingness to collaborate with third-parties is a must, so must get beyond the idea that fintech companies are trying to eat our lunch. Legacy institutions must partner to survive in the modern financial services marketplace. Check out the cool work DCU is doing with its FinTech Innovation Center.

To solve for your organization’s particular bottlenecks, Forbes advises initially cutting back on what you’re forcing through it, whether it’s a piece of technology or a department, such as compliance. Be very picky about your selections. Step back and look at the entire situation.

Identify the narrowest of bottlenecks; these determine the pace of the entire company. Measure and monitor them, and work to unclog those first. How can processes be streamlined or technologies updated? Tradeoffs, such as building pieces of an overall system rather than the entire systems at once, can make tweaks here and there that grow into big efficiencies. Finally, third-party experts, who know the issues but also bring a fresh perspective grounded in experience with 100s or 1,000s of organizations, can be useful to unplug your digitalization bottleneck.

< Back to all articles

Interested in profitable and sustainable growth?

Sign up for a complimentary growth strategy consultation today:
Our support team is ready to help you. Call us at (646) 518-8238 or email us at