Innovation in banking and the changing financial services policy landscape

July 2017

“The hardest judgment is, are we doing enough, going fast enough, and what is possible?” 

—Bank Director  

Innovation, disruption, digitization, technologically driven transformation–these are the buzzwords of the day in every industry, but especially in financial services and banking. The scale and pace of technological advancement, the need to address efficiency and adapt business models, and the emergence of fintech competitors and partners make innovation a necessity if banks are to keep pace with changing customer expectations and behaviors.  

Some critics suggest that little has changed in banking. A bank director at last year’s Financial Services Leadership Summit decried the bureaucratic hassle that his own institution had required simply to increase a credit line. A prominent list of the world’s 50 most innovative companies includes exactly one bank, JP Morgan Chase. Yet large banks are trying hard to innovate. Most have rapidly adopted online and mobile banking applications for example, and banks are among the leading investors in financial technology. Banks should have a good platform that mitigates the risk of competitive disruption: among other advantages, they have enormous scale and virtually every individual or business needs at least basic functions that banks are uniquely positioned to provide. It has been no easy task, therefore, for boards to determine where true innovation is most likely to disrupt traditional business models, where it is most needed to stay competitive, and how best to work with management to prioritize investment.

Just as the technological and competitive landscape is changing, there is potential for significant change in financial services and regulatory policy in the United States and internationally. Policymakers are considering changes that would have significant implications for banks and regulators, and supervisors are developing approaches that balance the benefits of innovation with the safety and soundness of large financial institutions and the system. Major legislative changes are possible, though perhaps unlikely, but leadership changes at major US and international regulatory authorities are a certainty.

Over the course of several months, culminating with a meeting on June 8, 2017 in New York, Bank Governance Leadership Network (BGLN) participants shared perspectives on the innovation agenda, as well as the changing US policy landscape and its implications for large banks. This ViewPoints synthesizes the perspectives and ideas raised in the meeting, as well as in nearly 30 additional conversations with directors, executives, supervisors, and banking professionals. A list of individuals who participated in discussions can be found in Appendix 1. The discussions yielded themes and insights of note, summarized in the following sections:  

  • Strategy must drive the focus and scale of innovation efforts

  • Enabling innovation requires changes to organization structures, cultures, and people

  • Changes to regulatory policy are likely, but the nature and extent of those changes remain unclear