We have seen a seemingly inexhaustible stream of headlines about the disruptive impact of fintech on the future of commercial banking. By harnessing cloud computing, machine learning, blockchain, APIs, and a dozen other technologies, so the argument goes, fintech startups will bring a whole range of products to market that will marginalize the banking incumbents.
While there is some truth in this scenario, in the final analysis this critique misses the mark. Certainly, fintech has the potential to make transactions of all sorts faster, more efficient, less expensive, and more secure. But mastery of a new technology—and even the application of that technology to a new product—is not enough to produce the kind of fundamental shift that evangelists claim for fintech.
The limitations of this view are twofold. First is its exclusive emphasis on product functionality. Technology is not the only thing that has evolved at a rapid pace—so have user expectations.
Ever more sophisticated digital design for consumers has demonstrated that engagement in a task—a measure of efficiency—is a direct function of how well that design tracks the way users would like to perform it. Having grown accustomed to this level of engagement on their smartphones, business users—especially the growing ranks of millennials—now demand solutions that offer the same effortless efficiencies. Transformational banking solutions will be those that reflect a deep appreciation of users’ experiences and expectations—while harnessing innovations in technology.
The second assumption is that banks are incapable not only of mastering new technologies, but also of bridging the gap between the business experience and the consumer experience, between the mundane and the delightful. If anything, because commercial banks already have deep relationships with their customers, they have a significant advantage in developing solutions tailored to their needs. There is no reason to assume that banks will remain passive observers while fintech startups take their business.
Incremental, Iterative Design Wins in the End
Banks that succeed in this new environment, however, will need to adopt a fundamentally different approach to designing financial products than the traditional waterfall methodology they have used in the past. In waterfall, products are built to the requirements of a business case, not to the experiences of users. Once that case is established, software developers follow a sequential series of steps that eventually lead to the product launch. The danger is that after months and even years of effort, the net result is a product that fails to resonate with its users.
A more effective approach is to design to the end user experience, creating products that marry deep engagement and superior functionality, that are delightful because they are engagingly functional. This entails a combination of human-centered design and agile delivery that draws on fintech as appropriate.
There are different variants of these two approaches, but both emphasize involving end users in the design process. Human-centered design begins with shadowing end users, observing their behavior, seeing the world through their eyes, and identifying the sources of friction they encounter during their day.
At this point, human-centered design and agile delivery in many respects overlap. The end product of this discovery phase is a series of ideas about how to address these pain points. These concepts are quickly translated by a triumvirate that includes interaction designers as well as product managers and engineers into rudimentary prototypes whose major purpose is to elicit feedback from end users. This feedback in turn generates a succession of new ideas and prototypes until the prototype starts to conform to the end user’s functional and experiential needs.
The process is fluid and iterative. Compared to waterfall, the result is a faster development process and a product that has a higher likelihood of meeting the needs of end users and their employers.
In most versions, human-centered design ends with implementation, while agile delivery is open-ended, producing a constant series of incremental improvements and new releases throughout the product’s lifecycle. By continually refreshing the product, agile delivery ensures that it continues to remain relevant in the market place.
Don’t Expect Banks to Stay on the Sidelines
Capital One employed this process while developing two prototypes to improve financial processes for healthcare providers, one using application programming interfaces (APIs) and the other blockchain. The results illustrate the power of combining fintech functionality with an engaging experience.
We spent time with several of our healthcare clients and observed their financial operations from the instant patients scheduled their appointment to the moment they received their bills. As we did so, themes emerged around the difficulty of determining reimbursement rates for physicians and of collecting out-of-pocket expenses from patients.
In the case of out-of-pocket expenses, our discovery led us to realize that a significant and potentially easily reconcilable cause of delinquencies was difficult-to-read bills, delivered months after procedures or tests were performed. We worked iteratively with our clients and PokitDok, which combines a software development platform with a set of APIs that lets them capture and work with important healthcare business data. We tested the ability to estimate out-of-pocket expenses with a high degree of accuracy immediately after the procedure or test is administered.
With this capability, providers could present a bill to patients before they leave their facilities and even consider a discount for immediate payment. Taken all together, real-time transaction insights enabled by the APIs could eliminate the traditional claims clearinghouse and reconciliation layers and lower administrative costs, compress cash flow cycles, and reduce revenue loss.
In the case of claims management, healthcare providers rely on multiple standalone third-party software solutions—for patient management, electronic medical records, and billing—to generate claims, and these systems do not communicate with each other. The providers’ response was to assign additional personnel to work around these operational disconnects. In many cases, this involved manual processes like data reentry.
We used human-centered design and agile delivery, in conjunction with Gem, a blockchain company focused on healthcare and supply chain, to create a prototype that could lead to a scalable revenue cycle management network based on blockchain technology. Each element of the reimbursement ecosystem connects to the blockchain, and the shared infrastructure allows global standards that do not compromise privacy and security. We are among the first financial institutions, if not the first, to use blockchain specifically to explore the interoperability challenge for healthcare claims.
David vs. Goliath—Not Necessarily
In a recent article in the Harvard Business Review, “How Banks Can Compete Against an Army of Fintech Startups,” Karen Mills and Brayden McCarthy note that “the familiar David vs. Goliath script of the scrappy, internet-fueled startup vanquishing the clunky, brick-and-mortar-laden incumbent is repeated so often in startup circles that it is sometimes treated as inevitable.” But as they note, in the real world, sometimes David wins but other times, it is Goliath.
Our experience at Capital One tells us that it is not access to technology itself that will be decisive. The ability to master the tools and processes of innovation—in addition to fintech—are critical to creating engaging experiences that meet clients’ goals.