3 Characteristics of Agile Banking – and How You Can Apply Them to Grow Your Business

September 28, 2020 by Stefanini
Digital transformation doesn’t stop at providing customers with online banking. Learn how and why banks should consider adopting agile banking methods!

The majority of today’s banks are trapped within a physical branch distribution model that makes them susceptible to disruption from technology companies. And if financial institutions fail to quickly and digitally transform their business models, some may not survive.

However, it is important to understand that digital transformation doesn’t stop at providing customers with online banking or connecting with them on social media. Rather, real change stems from refocusing development, which serves not to solidify the organization, but adapt to the customer. This process requires transforming the entire business process into one that integrally involves change. This leads us to the obvious solution – an agile methodology. How can financial institutions take the necessary steps to reshape their enterprises? Read on for the answer!

The Push for More Agile Banking

To stay competitive, financial institutions have begun to adopt the same project management principles and data flows that software development companies use. These techniques, once mastered, offer a plethora of benefits, most notably in the lofty goal to deliver business objectives faster and better.

For those who are unfamiliar, agile development refers to the iterative process of building and testing products rather than waiting until the completed project is delivered. This work process assumes that if problems occur or changes are needed anywhere along the line, they can be addressed sooner and won’t need to be rebuilt. In contrast with “waterfall development, “ in which a final product is delivered before testing, agile principles allow companies to follow a transparent, data-driven approach that enables them to continuously test and learn. This method helps in speeding time to market by providing a minimum viable product (MVP) that can be adapted quickly and meet users’ needs. In fact, according to McKinsey, agile methodologies can increase product development speed and decision efficiency by five times.

The New Digital Model and the Need to Adapt

The question then arises: why is the agile operating model relevant for banking? The answer is both simple and complex to address. The main reason is that change in the industry has been accelerating, which requires banks to make changes very quickly to their priorities and operating processes. The banking industry is also digitizing very quickly, which is causing many financial institutions to have to compete with pure digital players. Further, banks have grown quite complex and functionally siloed, especially amid regulatory changes and the diversity of channels. By adopting agile methodology, organizational processes are simplified and more accountability is created at the front-line level.

As banks continue to contend with new digital methods of doing business, another benefit to being “agile” is the fact that it lessens the risks associated with the digital angle of your strategy. For years, banks have been trying to “value assure” the results of large IT programs after experiencing large and expensive failures. Now, both market and client behavior is changing so fast that it is very difficult to plan all of it before you get started or even write out the content of a five-year project right from the start. An agile approach gives banks the chance to solve pain points in the client journey in a micro fashion and build on these changes incrementally.

Agile and the Innovation Mindset 

However, it is important to note that an agile culture must be nurtured across the enterprise and not be limited to a single “innovation” team. Organizations should look into initiatives like hackathons, ideathons, and immersive learning experiences based on the principles of failing fast with a focus on cross-functional collaboration; this focus will help firms remain ahead of the innovation curve.

When it comes to banking, the agile way of working can apply to more than IT-related projects. Banks should look into agile practices on a business-wide basis, including wealth management, customer experience, and marketing.

Agile Banking Meaning and Characteristics

The world of banking is still relatively unfamiliar with agile concepts. Banks’ access to their data comes with complexities not faced by many of their new tech competitors due to the commonality of in-house developed systems, acquisitions and mergers, and an aging core platform. As the digital revolution continues, more and more legacy systems will be replaced by new platforms built in more current languages; therefore, the opportunity to try agile methods of software development will start opening up.

According to McKinsey, there are several ways to define the term “agile” for banks.  Like many entities, agile banks are defined by the following characteristics:

1.      Made up of teams: agile teams have ownership over a particular mission or business outcome, and are able to deliver on that mission autonomously. For instance, an agile development team is a group of people that work together to create software applying the principles of cross-functionality and self-organization. These teams are dynamic in that their priorities change constantly, which means that the mission and team composition may change as well. These dynamic teams are supported by a stable backbone, including performance management and governance structures, and capabilities that are empowering. So, an agile-minded bank is composed of a large number of high-performing, small teams, each with a clear mission that they can deliver end to end. Agile organizations are led by the WHAT and less on the HOW: teams are less hierarchical, multi-disciplinary, and product owners and tribe leads need to be much more than entrepreneurs as they are fully accountable to instruct teams on HOW they want to achieve the results while the WHAT is defined in collaboration with the top.

2.      Cultural shift: agility doesn’t stop with organization structure – it also involves changing the hearts and minds of the bank’s employees and leaders. In this new culture, everyone is welcome to give their opinions and their ideas, and all are invited to the table and solve problems together. By taking advantage of this empowered attitude, agile banks become more nimble in how they think about the problems they need to solve, the opportunities, and how they create and apply the solutions.

3.      Well-rounded: finally, to describe agile accurately, you must include five crucial elements: strategy, structure, people, process, and technology. By addressing all of these areas, financial services companies can become agile rather than just “doing” agile.

When financial institutions embark on an agile transformation, the first place to start may seem obvious – the IT department. After experiencing success there, look at the wider organization to speed up decision making. From there, examine your customer-facing areas like financial product design and marketing before moving on to the support functions. However, this approach may not work for every entity and some financial institutions may need to be more aggressive. If a bank understands what their landing point is, they can look to other players in the industry for examples, and roll out agile end-to-end in one area of business, like a product, service, or a customer journey. Of course, scaling agile in this way is also known as a phased approach; it will likely leave adopters with many lessons learned that will only result in increased knowledge and experience for banks.

At the end of the day, the best approach depends on the bank’s starting position. Some organizations are advanced on the IT journey while other companies will choose to start in a business line or IT project. In the long term, if the bank is clear about why it is starting where it is – and what the roadmap is – these are all very good starting points.

Our Agile Squads Model

At Stefanini, we recognize how design thinking and the agile philosophy can help financial institutions adapt and thrive in the digital world. We take a dynamic mindset and apply it to all areas of your organization, emphasizing solutions over technology.

We have eleven unique Solution Squads and can deploy the right complement of talent, including strategic thinking, problem-solving and design skills, capitalizing on our broad digital ecosystem of professional experts.

Are you ready to get started? Get in touch with us today!

At Stefanini, we recognize how design thinking and the agile philosophy can help financial institutions adapt and thrive in the digital world. Are you ready to get started?