In the seemingly placid world of financial services, technology companies currently dominate the popular imagination. Industry watchers scrutinize lists of the most disruptive financial start-ups and study detailed articles on such sophisticated Fintech-enabling technologies as blockchain and neural networks. Even more importantly, Fintechs have caught the attention of investors. According to PitchBook, global venture capital flowing into financial technology companies reached $17.4 billion in 2016.
What does the rise of Fintechs within banking mean to the industry? As venture capitalist and Fintech proponent Marc Andreessen famously said of banking, “we can reinvent the whole thing.” While that is likely an exaggeration, Fintechs have already launched pioneering alternatives for a wide range of fundamental banking functions including wealth management, foreign exchange trading, and small business and consumer loans. These are collectively forcing traditional commercial banks to increase innovation and deliver more value to their customers.
The advent of these new companies, however, is unlikely to portend the end of established commercial banks. In comparison with Fintechs, banks have several advantages.
First and foremost, banks have significant resources. According to the Federal Reserve, the total assets of all commercial banks in the United States were estimated to have reached $16.5 trillion as of August 2017.
Typically, commercial products are fairly complex and are sold through a salesforce rather than being marketed to the general public. Commercial banks usually have sizable salesforces with years of selling experience. They also have an established and sophisticated customer base to whom they can offer diversified financial, lending, and deposit products; this base far outstrips the number of customers that even the most successful Fintech usually attracts. And finally, banks have a deep well of knowledge about the way the financial system operates.
Commercial banks have a choice. They can bet on their inherent advantages and hope to absorb new technology by acquiring Fintechs. Alternatively, they can choose the harder option of leading the charge on innovation, either directly or in partnership with Fintechs.
At Capital One, we have adopted the latter approach, embracing holistic cultural and technological changes that we believe will help make us a leader in driving innovation. Our bank’s recent experience developing a new virtual card application within our internal commercial banking platform illustrates our desire and capability to bring innovation to the marketplace. It also highlights that adopting a nimble product management process like those at the heart of the Fintech revolution will challenge traditional cultural and organizational norms for commercial banks.
Using Emotion as a Metric
Given our history as a company focused on financial innovation, Capital One wanted to be an early leader introducing virtual card to our commercial customers. A virtual card is a single-use, unique 16-digit credit card number that a buyer can issue to a vendor to pay for a specific purchase. The vendor processes this payment using the same system it would for a traditional plastic credit card. Capital One has enabled our virtual card customers with a software application that provides the functionality to manage this process.
While the solution was attractive on paper, we soon realized that we had our work cut out for us in building a usable system. At first, the system was hard to set up, tough to learn, and incredibly difficult to troubleshoot if a transaction failed.
The procurement process of commercial entities typically differs from consumer experiences in that the person who makes a buying decision for a commercial entity is rarely the person who uses the product day-to-day. As a result, the decision makers for a commercial entity often use checklists and Requests for Proposals (RFPs) built around lists of features and needs ostensibly identified by the entity’s product users. In theory, a system that meets these features should be ideal for the organization’s users.
In response, commercial banks have raced to white label vendor solutions that check off the criteria on the lists. However, Capital One quickly decided that we needed to go beyond the basic requirements to provide truly user-friendly systems—and for this we drew our inspiration from Fintechs.
Technology companies and commercial banks usually differ in their respective approach to design philosophies. Fintechs often adopt from design thinking pioneers such as IDEO. The traditional Commercial banks have traditionally focused on delivering features and view design as an afterthought for beautifying the product. The latter has resulted the delivery of commercial banking solutions that are functionally adequate but are neither efficient nor easy to learn or use.
With this in mind, Capital One has embraced human-centered design as an integral part of creating our new virtual card application. Far from being excluded from our process, the customer instead serves as a primary touchstone throughout. The bank involves end users to understand their needs and preferences at each and every stage of the product management cycle, eschewing the market norm of relying upon assumptions and perceptions.
For Capital One, this meant going back to our customers, observing their behavior, and identifying sources of friction with our existing products. One of the distinguishing features of human-centered design is the value it places on tracking user emotions to help reveal the source and impact of product bottlenecks. After all, these flaws are called “pain points” for a reason.
In addition to identifying pain points, our Capital One team sought to understand which features our existing application lacked that would improve the customer and user experiences. During this empathy phase of our product design iterations, our team discovered that our legacy product’s navigation lacked a consistent and intuitive touch, was time-consuming to select payees, and made it difficult to make multiple payments at once.
Our next phase of design development was “ideation and prototyping.” We focused on each issue, proposed a potential solution, sketched a prototype, and presented it for feedback with a focus on how using the prototype made them feel. This stage in the sequence helped our team assess whether we accurately understood the customer’s issues and whether we had devised an effective solution. We replicated this process for each of platform’s main features platform until our customers’ feedback indicated that the product exceeded their needs.
We found that a particularly impactful pain point occurred when the buyer-user attempted to determine the cause underlying a vendor’s virtual card transaction decline. We learned that buyers often did not learn of the decline until they were contacted by the vendor. To address this, Capital One created a “decline” notification that appears in real-time on our customers’ account dashboard (itself a new feature). By clicking on the notification, the customer can immediately review an explanation of the reason for the decline and steps to remedy the situation.
Technology and Processes That Serve Design
To implement approaches like this, Capital One also followed the example of the Fintechs by using best-in-class technology and the Agile delivery method. We created full-stack Agile teams, with designers, product managers, and engineers constantly collaborating. Each team is fully resourced, so they can independently build features without the help of other teams. The teams deliver features in short increments, maximizing responsiveness and enabling Capital One to test and adapt rapidly.
The success of this approach is underpinned by technology built to be flexible, scalable, and capable of delivering information in real time. Our new virtual card application is cloud-based, providing multiple layers of redundancy and instantaneous scalability. It makes extensive use of application programming interfaces (APIs), enabling Capital One to rapidly incorporate changes and reuse code. We also invested heavily in Developmental Operations practices, enabling deployment of code into production in minutes rather than the usual two-week to four-week testing cycle of traditional approaches.
In harnessing these and other advances, Capital One has a distinct advantage over other commercial banks. Capital One as a company has massive enterprise level investment in the core enabling infrastructure and technology. In addition, Capital One has created a substantial team of software engineers, designers, and product managers dedicated to our virtual card platform and product development. This allows us to draw on insight and experiences gained by other internal teams that have already addressed issues similar to those found during the discovery phase of our virtual card product management process.
The New Commercial Bank
How successful will commercial banks be in adopting the methods and technologies that are changing the industry? That will depend on the commitment and resiliency of each institution. Fintechs have absorbed the lesson of companies like Netflix and Spotify by recognizing that functionality alone is not sufficient for success—and that an intuitive user experience has financial implications. Prior to the rise of digital technology, commercial banks had little incentive to offer much more than strictly functional products. As a result, commercial banks that have set their sights on becoming more like their Fintech counterparts have a lot of catching up to do.
But knowing what to do and doing it are two different things. Adopting agile and human-centered design methodologies, for instance, is a much larger and more significant project for a commercial bank than just establishing another team. It requires a fundamental transformation in corporate mindset and sustained and dedicated resources to make this change possible. To alter direction, commercial banks must overcome the inertia generated by their bureaucracies—and with new, more ambitious, and better-capitalized financial companies appearing on the scene, the banks have limited time at their disposal. We expect that the commercial banks that will emerge stronger from the technology revolution are those that have already set those wheels in motion.