Innovation in the financial sector has arguably lagged. Over time, hierarchical structures, regulatory pressure and “the way we’ve always done things” have propped up archaic practices which overlook customer experience in favour of stability and security.
This was once passable. After all, what used to make a good bank?
Brand - established, familiar, trustable. Products - stable, risk-averse, secure. Service - local, face to face, traditional.
The 2008 Financial Crisis brought change. Trust evaporated overnight, leaving customers’ faith in the banking system challenged. This void created opportunity for a series of unheard-of challenger startups to enter the market. On a mission to change everything about banking, from consumer to b2b, sales to service, currency to lending - they quickly began to disrupt the financial services market. A willingness from consumers to try something new has since allowed names like Zopa, TransferWise and Monzo to establish trust, achieve brand recognition and gain market share.
At the heart of these successful financial startups is innovation. Each is led by new ideas for how financial services should work. By challenging the status quo, many of these startups now thrive amongst the more traditional major banks. This makes for a competitive environment. To stay ahead, financial organizations of all sizes need to continually adopt new innovation approaches into their strategy.
One innovation approach which can be effectively applied in the financial sector is Crowdsourcing. At the simplest level crowdsourcing refers to the concept of outsourcing a task to a crowd. It’s potential applications in financial services are vast. Yet, so far, only some financial organizations, large and small, have adopted this approach - each with varying success.
Key drivers of the rise of crowdsourcing, like societal change and advances in technology show no signs of slowing. The online workforce alone is set to grow to 5 billion by 2020. Arguably then, crowdsourcing is a growing opportunity for financial organisations to develop their innovation strategies.
So, where to begin?
Let’s look at five examples of how crowdsourcing has already been applied in the Financial Sector:
1. Crowd Lending
The idea of Crowd Lending, better known as “peer-to-peer” lending is based on the concept of a crowd of individuals putting up their own capital and lending to each other, with minimal interference from intermediaries. A popular crowd lending platform is Zopa, which uses the crowd’s capital to allocate loans to individuals seeking an alternative to traditional banks. In 2016 they approved almost £700 million in loans showing that the market for Crowd Lending is growing.
Newer entrants like Seedrs and Funding Circle, commonly referred to as crowdfunding platforms, allow the crowd to lend to SMEs. Similarly, LendInvest allows the crowd to lend directly to property developers.
2. Community Marketing
Building a community can increase engagement and turn your customers into brand-advocates.
Whilst trying to promote their international services for expats, HSBC sought to leverage user generated content in the form of a community message board. They created an online forum which allowed expat users to share advice on topics such as buying/renting property abroad and registering for local services. While the platform required investment of resources to moderate the forum, it resulted in increased customer engagement and kept expat services at top of mind.
Mint.com created a similar community site, where it’s members could exchange financial advice and money saving tips.
Both HSBC and Mint.com have since removed their community sites, suggesting that maintaining such a project isn’t without it’s challenges. However, some start-ups such as Revolut have adopted the concept, altering it to provide a community-based support function. If customers (the crowd) can help each other solve problems using your financial product, think of the potential customer service savings.
3. Seeking Internal Innovation
Financial institutions can use crowdsourcing to seek ideas and innovations from their own employees. This approach is particularly useful for niche applications focussing on security or sensitive data where an external crowd could present risk. It also works well for seeking new ideas for retail banking, where front-line employees often have the best insight. Swedish full service bank SEB created an internal platform which allows all employees to make suggestions for improving the bank. Reddit-type functionality means employees can comment on and upvote the best ideas. InnoCentive@Work is one example of an off-the-shelf platform that facilitates this internal innovation.
4. Seeking External Innovation
Ideas and innovations can also be crowdsourced externally. This provides the advantage of the fresh perspective offered by those outwith organizational confines. Simple applications can be sought direct from customers as in the case of Barclays and RBS who created online platforms for customers to submit their suggested improvements. More advanced applications could be sought by drawing on the pooled expertise offered by crowdsourcing networks like InnoCentive, where a diverse crowd can provide ideas and innovations in the form of solutions to specific technical and strategic problems.
5. Credit Scoring
Startup Lenddo takes inspiration from times where eligibility for lending was based on character. Instead of relying on credit referencing agencies whose data is based on previous financial history - Lenddo assesses credit worthiness by scoring a user’s online reputation, using data from social media sites like Facebook and LinkedIn. Users can improve their score by building a network on Lenddo of their peers. These peers act as a social capital and can vouch for each other - improving their credit score. The approach is revolutionary, enabling lenders to reach borrowers in emerging markets who often lack a fully-documented financial history.
It’s only the beginning for crowdsourcing in the Financial Sector.