Bank Tech Innovation and the Great Recession - 2010 Outlook

By Bill Bradway, Bradway Research

The opportunities for bank tech innovation have been expanding over the past 40 years. When I started my banking career in 1973, the automated cash dispenser/ATM was the emerging innovation. Over the past 36 years I have followed wave after wave of promising "innovations." As the banking industry begins its recovery from the Great Recession, eyes and minds are shifting their focus back to identifying the most promising bank tech innovations for the next few years.I attended two separate bank tech industry events this Fall: Finovate 2009 (New York) and BAI's Retail Delivery conference (Boston). The two events were so unlike each other you almost wondered if they were about the same industry. The first one featured 31 vendors and each one had exactly seven minutes to do a live solution demo in front of about 425 attendees. The second show had about 175 exhibiting bank tech vendors (down dramatically from its peak in the late 1990s) each of whom was praying for seven minutes with a bank or credit union attendee.

What should bank and credit union execs think about when they decide to pursue investments in innovative solutions? For starters, we could probably disagree on what counts as an innovative solution. The rule of thumb that I used was that a "new" solution meant either (1) a very small customer base and no legacy solution or (2) a "significant" change to an existing solution (e.g., the iPhone to cell phones). The "best bets" I selected are either most likely to succeed commercially (e.g., generate organic revenue growth) or are positioned to reshape their solution space. Key factors in my analysis included each vendor's solution-business model, its projected success in acquiring customers and the solution's capacity for generating revenue from clients. Now, that does not mean each of these "best bet" solutions will be right for every bank or credit union. Rather, these factors are going to determine which innovative solutions have the right ingredients for success and will meet the needs of enough banks and credit unions to make a difference.

In my two reports covering these events, I conclude that the outlook for bank tech innovation in 2010 is promising (assuming a gradual economic recovery unfolds). That said, there were only a handful of best bets for 2010 that I selected as high potential commercial success stories that were spread across seven categories:

1. Online fraud detection and mitigation; 2. Online personal financial management; 3. Mobile payments; 4. Integrated multi-function branch application suite; 5. Integrated online banking/billpay/mobile; 6. Multi-channel fraud prevention; and 7. Integrated enterprise risk architecture with risk solution tools.

Bank and credit union execs should note that there were multiple vendors for each category, but only one was picked per category. These seven vendor solutions deliver a unique and appealing solution capability that meets a compelling business requirement that benefits U.S. banks and credit unions. Of course, the future upside for each vendor's solution will depend on how well each vendor implements its business plan.

For those managers that are making innovation decisions, two key questions to ask are: Will my innovation solution/vendor have a good chance of succeeding? Why (or why not)? Clear, affirmative answers to these questions lead to a third one: How will this solution make a meaningful difference to my institution and its customers? Explain the tangible benefits for both customers and your institution.

Good luck with your innovative initiative(s)-clearly, the successful ones do make a difference for the customers, the institutions and some bank tech vendors. Drop me an e-mail if you see another category with a compelling "innovation" solution, or feel free to leave a comment below.

Bill Bradway, founder and managing director of Bradway Research LLC, analyzes the business strategies and IT investments of US banks and credit unions.