In my role, I talk a lot about the innovation pendulum. It’s the idea that enthusiasm for innovation in banking swings back and forth with risk appetite in response to market conditions. For instance, in 2021, at the height of the fintech bubble, excitement around innovation was at an all-time high. Bank executives talked constantly about the possibilities of Banking-as-a-Service (BaaS) and working with newly minted fintechs. Recently, with that bubble burst and regulatory scrutiny ramping up, the pendulum swung back the other way. All of a sudden, few wanted to talk about innovation. 

Staying on top of this pendulum is key to keeping up with competition in banking. Obviously, this is much easier said than done. I suspect, for instance, many executives let out a sigh of relief when the latest innovation hype began to dwindle. It took the pressure off. The problem with that is, we aren’t going to stay in this place. In fact, there is already chatter about the new administration’s expected pro-innovation stance and its potential to drive a resurgence in fintech funding and activity. Those resting on their laurels may well find themselves unprepared very soon. On the other hand, those who used this time to plan for the next swing should be positioned for success.

There are two parts to this: the first is mindset, and the second is foundations. Financial institutions (FIs) with a forward-thinking mindset are much more likely to keep innovation at the forefront of the conversation inside their organization even when it’s not at the forefront of the industry conversation. Such a mindset allows for creative juices to continue to flow (and planning to continue to occur) in lull periods. Beyond that, FIs that have a long-term view are laying the groundwork for the future. As we’ve written, there are plenty of innovations that are not particularly adventurous but are important to staying current structurally. For example, we continue to see strides in areas like core modernization, data analytics (which will lay the foundation for artificial intelligence), and payments.

What it means to be prepared will be different for every bank. The point is that we should be thinking about the next wave of innovation whenever the pendulum swings away from excitement. That doesn’t mean taking on unnecessary risk, or breaking from the pack. It just means being strategic with time.

Here are some questions you might consider: “What is the industry likely to look like in 3 to 5 years?” “What are customer expectations likely to look like?” “How are other industries changing and impacting customer expectations?” “Do I have the right infrastructure to succeed in a future that doesn’t yet exist?” “Am I flexible enough for the unknown?”

That last one is the kicker because it speaks to both mindset and foundations. The truth is, we don’t really know what is going to happen. No one does. But the ability to succeed isn’t about predicting with accuracy. It is about embedding flexibility into your organization so that you can adapt easily when you need to. It is about looking ahead and at least considering the next step, and the one after that. Like the pendulum that oscillates back and forth, it is about being able to move responsively. So, if you think your organization might be static, it is probably time to shake things up. Not everyone needs to move quickly, but everyone needs to be able to move.