How Community Banks Can Create a Culture of Innovation

April 5th, 2017

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Historically, customer convenience has always been the driving factor in choosing a bank. However, the way we define convenience is changing. Previously, it meant the proximity of bank branches to the customer’s daily route. Factors like customer service, product differentiation and knowledge were also important, but usually the more branches a bank had in convenient locations, the more customers it had. Even today, in most major cities the banks with the highest deposit share are those with the largest retail branch networks.

Times are changing and technology is a great equalizer for community banks. As consumers continue to decrease their use of cash and checks, so has the value of large branch networks for cashless customer segments like professional services. Today, customers seek technologies such as mobile banking, mobile deposit, remote deposit scanners and ACH platforms to manage their banking needs. In their mission to serve their communities, community banks should strive to meet the product needs of their customers as well. Whether your community is defined as blueberry farmers in Maine or multifamily landlords in Boston, banks can integrate technology into the daily lives of their customers to enhance their banking experience while redefining the meaning of convenience.

Founded in 2002 with $6 Million capital, Leader Bank has grown to $1.2 Billion in assets with 265 employees and seven full-service branches in the greater Boston area. Some of our more recent new product initiatives include ZRent, an electronic rent payment technology for landlords that was launched in 2015 and which automates the rent collection process. ZRent currently has 3,000 users and processes over $24 million in rent payments annually. Partner banks join the ZRent network in order to expand these rent payment capabilities to their clients and attract property owner clients. And in 2016 we introduced an automated loan notification system which updates borrowers on their loan statuses as they move through the underwriting approval process.

Over the last four years we have learned some key lessons in introducing new products within the community bank environment. These insights might be helpful to other bankers. The traditional product development cycle has an emphasis on the “great idea” and launching it in a “big way.” This approach may work well for building real estate or other things in the physical realm, but not necessarily for a financial or technology product:

We have adopted a different approach to the product innovation cycle that is more appropriate for financial products within community banks.

Identify Customer Problems by Listening
Instead of putting significant resources towards focus groups and brainstorming sessions to come up with solutions to serve our communities, we propose just listening to your customers with an open mind. “Listening” to customer problems means paying careful attention to the questions and comments that our customers mention in their day-to-day interactions with us. The key is creating a tight feedback loop between customer service, who receives the customer suggestions and the decision makers that create the solutions.

Learning and Research
Next we research each problem to determine whether it applies to our general corporate strategy and if we can offer a valuable solution. Then, instead of hiring a team to tackle the problem, we engage employees with downtime to actively contribute to research. We find that our employees are a great demographic representation of the communities we serve and can teach us a lot about the customer experience we are trying to improve.

Go Small and Go Live
If the research is positive and we have a solution, we will quickly launch a basic prototype of the solution. We call this “go small and go live.” Going small allows us to launch a basic solution without requiring a large budget. This provides great flexibility to factor in customer feedback and continuously improve the concept until it hits the mark.

We employ a concept of “stretch” to move projects forward without the need to formally request a budget for these initiatives. We do so by providing highly-motivated employees with the opportunity to take on additional projects. This type of “stretching” has multiple benefits including higher employee engagement and development of employee skills with no additional costs for the organization.

Tweak, Tweak, Tweak
At this point, feedback on your product is critical to its development to ensure that it will fully meet customer needs. Your team must place an emphasis on receiving customer feedback through any available channel, including surveys, customer phone calls and in-person meetings. From there, a tight feedback loop from the customer service people to the product managers is critical.

Scale and Automate
Once your product has received enough iterations of feedback and tweaks to validate that it meets a proven customer need, it is time to scale and automate. At this point a project manager should seek a budget for marketing, sales and the automation of time-consuming manual back-office tasks. Since the product has been thoroughly tested and used by a beta group of customers and employees, there is enough history to create a realistic return on investment pro forma that can prove to the finance team that investment dollars will not be wasted.

Finding a good idea is easy if you keep your eyes and ears open and listen carefully. Be cost efficient by using existing resources to get a minimum viable product to the market. Once you have established the value of the product and have results to support your claims on a smaller scale, you can seek additional funding to expand and scale the product’s capabilities.

jtuli

Jay Tuli is EVP at Leader Bank and oversees its product development division which creates innovative banking products for community financial institutions, including Zeugma Rewards, ZRent and ZDeposit.