What Happens When Banks Meet Disruption with Innovation

John F. Kennedy once said, “Change is the law of life. And those who look only to the past or present are certain to miss the future.” Over the past couple months, we’ve taken an in-depth look at why it is important for banks to anticipate the future by making use of hard trends like technology advances, demographic change and globalization. 

Increasingly complex and expanding regulations are driving higher inefficiencies and compliance costs into the existing banking industry model. While a challenge for many, this ongoing disruption represents an opportunity for new market entrants to capitalize on the conditions and capture market share.

The mortgage industry is a particularly good example of how this kind of disruption can be good for innovative companies. An August 2015 white paper released by the Collingwood Group does a good job of profiling the situation. 

“The new class of emerging innovators in the mortgage space is primarily composed of Technology companies that are working to solve business problems, most often from the customer’s point of view. By contrast, many incumbent lenders would describe themselves as mortgage companies that embrace technology as a key business requirement, but not necessarily a core competence.”

The white paper discusses how crowd funding firms and marketplace lenders are engaging end consumers in the development of new products and services. The result is thoughtful offerings that use new technologies to meet the evolving needs of a widening customer base. For example, marketplace lenders are tapping into technology innovation trends to connect interested investors with individual borrowers in an online platform. In so doing, they are creating a new way to meet the needs of individual participants and small businesses.

Consequently, marketplace lending has quickly become a significant industry. The Collingwood Group points out that the 100 marketplace lenders that exist today produced $8.8 billion in 2014, and together are expected to reach a trillion dollars by 2025.

Along with the accelerating pace of development, technology also captures incredible volumes of big data about consumer and market behavior. This new source of intelligence represents a way for banks to build underwriting models that will make existing, less effective models obsolete. These new models produce a broader analysis of credit that is better aligned to serve a growing base of new buyers (i.e., Millennials, ethnic minorities and newer immigrants).

The mortgage and consumer lending market is only one example of where forward thinking companies can take advantage of opportunities produced through disruption. Especially for existing banks trying to compete with new market entrants, innovation is no longer a luxury. It is an imperative. Across the board, institutions are working to ensure long-term success as they grabble with an evolving market and a changing customer base.

The time is now to reevaluate how you are using technology tools and big data to build and nurture the changing customer base.

Have you begun to explore the benefit of big data in strategic planning and innovation? How are you using technology to drive change and streamline business processes?

Join the conversation about using foresight to create winning business strategies.