Innovation is now seen as the main tool to increase competitiveness, attract customers and improve financial performance. However, in the pursuit of innovation, banks often face challenges that can undermine their sustainability. Numerous examples show that innovation does not always bring the expected benefits and sometimes even causes financial and organisational crises. In this article we will look at how banks, in their eagerness to innovate, fall into the so-called ‘innovation trap’ and what threats this poses.
Voice assistants: Exaggerated expectations?
One prime example of the innovation trap has been voice assistants. These automated interfaces, such as Siri, Alexa or Google Home, were presented as a revolution that could change the way users interact with technology. Companies actively adopted this channel, including banks, hoping for widespread adoption.
However, the results have been mixed. Despite the popularity of voice assistants in the US, where one in five consumers use them for distance commerce, their practical application remains limited. For example, only 13% of users of Bank of America's Erica chatbot interact with it by voice, and the frequency of requests is only once a month.
Most voice assistant functions are limited to sending messages, searching for information, or providing entertainment such as jokes or nature sounds. Banks are implementing voice channels more out of fear of missing out on the trend than out of a real understanding of their usefulness. This creates a risk that such projects will go unnoticed by customers and result in significant losses. In addition, the difficulty in mastering voice commands by many customers makes this channel less in demand.
Channel Accumulation: The Problem of Multitasking
With the advent of new technologies, banks are forced to expand their list of customer interaction channels. However, rather than displacing old methods, new ones are being added to existing ones. Thus, despite the development of digital platforms, bank branches, call centres and ATMs continue to operate.
This leads to the accumulation of costs to support all channels simultaneously. For example, the Erica chatbot is heavily utilised to assist customers with the mobile app, which requires additional resources. This situation complicates service management, increases service costs and reduces the overall efficiency of the banking infrastructure.
In addition, to attract customers, banks often offer services at reduced prices or even free of charge, which further narrows their margins. This makes the ‘innovation race’ expensive and inefficient. Many channels begin to duplicate each other's functions, creating an excessive burden on operational processes.
Innovation without profit: The risk of failure
One of the main problems with innovation in the banking sector is its low profitability. On the face of it, voice assistants and other innovations offer opportunities for market expansion. In practice, however, many such projects fail to deliver the expected returns to banks.
Banks often act under the pressure of trends, investing significant resources in dubious technologies. Social networks are a case in point: banks actively created a presence there, but failed to find effective ways of monetisation.
Innovation requires large financial investments, which creates a kind of ‘trap’: in order to succeed, companies are forced to continue investing despite the lack of profit. This process is accompanied by increasing pressure on budgets and staff, which can eventually lead to a crisis. At the same time, companies that continue to follow trends often lose focus on customer needs, which further complicates their situation. Even promising ideas can remain at the level of experimentation without proper implementation.
Banking sector outlook: Who will stay afloat?
The innovation race is increasing market concentration, favouring the largest players. Companies with greater resources can afford long-term investments in technology, even if they do not yield immediate returns. This leads to the consolidation of the banking sector through mergers and acquisitions.
Small and medium-sized banks that cannot sustain the financial burden of innovation risk being left behind. In addition, the slow pace of innovation that characterises the financial sector adds pressure to all structures, taking up time and resources.
In the coming years, the focus will be on integrating technology into the customer experience. Success will be on the side of those who can strike a balance between innovation and profitability, avoiding unnecessary costs and focusing on truly meaningful solutions. But even the big players will face the challenges of rising costs and the need to meet customer and shareholder expectations. The current situation shows that banks must be prepared for a slow process of adaptation and constant change.
Conclusion: How to avoid the innovation trap?
The banking sector is on the cusp of change, but the pursuit of innovation should not become an end in itself. To successfully adopt technology, banks must carefully assess its benefits and potential risks.
‘Innovation trap’ occurs when the drive to innovate overshadows strategic planning. To avoid this, banks need to focus on real customer needs, minimise overspending and consider the long-term implications of each implementation. Only such an approach will allow them to remain resilient and competitive in a rapidly changing market.
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