R&D

Banks Incubate The Innovation Fixation

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Steve Jobs said that innovation is what distinguishes a leader from a follower.

Most banks don't have Apple-esque credentials when it comes to innovation, but more are not only seeing the value of thinking out the box, but also understanding that creativity doesn't happen in isolation-hence the innovation lab.

For some banks, the innovation lab is actually that-a facility where bank employees can dream up, plan, execute and get feedback on new products and processes. Branch locations where these products and concepts are field tested with actual consumers may also play a role. For other institutions, the innovation lab is a Website, where new or soon-to-be released products and services are presented and feedback is elicited.

Bank of America has courted lots of attention for its various innovation initiatives, including its work in the far-reaching Center for Future Banking launched last March in partnership with the MIT Media Lab in Cambridge, Mass. While that's a big-picture, futuristic enterprise, the bank's Gateway Innovation Lab, staffed by seven employees, works with all lines of business exploring new concepts, building simulations and prototypes, and evaluating how new technology can be applied to specific business problems, according to Matt Calman, svp, and the research and development executive who runs the innovation lab for Bank of America.

Last year, the Gateway Innovation Lab built more than 40 prototypes, worked on nine new patents, and supported five market trials of new capabilities. Calman says his team's work can be customer-facing, though the majority is for internal usage, and can range from "outfitting an ATM with a new piece of technology to [creating] a whole new sales play." The lab also oversees field tests at the bank's retail lab in Charlotte-more of a "showcase" than a branch, according to Calman-and Bank of America's two "customer-driven banking center stores" in New York, where it utilizes technology not widely available in most branches, including videoconferencing, surface computing and new safe deposit box technology.

Retail-friendly Umpqua Bank experiments with a wide range of technology and design concepts in its Portland, Ore.-based innovation lab, launched at the end of 2007. This lab features a 25-foot interactive touch screen wall and videoconferencing kiosks and functions as a fully operational branch (or retail store, as Umpqua calls it) for the Roseburg, Ore.-based bank. Lani Hayward, evp of creative strategies for Umpqua, says the lab tries out technology and concepts "that are both edgy and ready for primetime."

But banks don't always utilize a physical location to see how their new ideas might fly with customers. Wells Fargo launched its online lab in January 2007 "to expand the dialog with customers by gathering actionable feedback on things the bank just released or was about to release," according to Derick McGee, manager, strategic capabilities for Wells Fargo's Internet Services group. Among other services, the bank is currently soliciting reaction to its vSafe document storage, which is already available to customers, and to SettleUp, a pilot offering which allows customers to track shared expenses online and send friends IOUs. McGee estimates about 15 percent of the people visiting the Wells Fargo Labs site offer useful feedback, both positive and negative.

U.S. Bancorp doesn't have a "branch of the future," according to Dominic Venturo, chief innovation officer for the bank's retail payments solutions division. But Venturo's group does often pilot early stage payments technology with employees and customers. "Not everything we pilot is ready to go commercially," he says.

One of the benefits of the innovation lab setting is that they provide an environment where employees can create and develop and make improvements based on feedback without the "fear of failure" a traditional bank product development team would face, Calman says. Banks say these facilities give them the opportunity to understand not only what is possible, but what is practical and desirable to consumers - as well as a way for consumers to feel heard and appreciated in their opinions.

"This is giving us new insights to create value for customers relevant to where they're going," Calman says. "The bottom line is that banks operate to be optimized around small improvements; we want to make breakthrough improvements here."

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