A couple of months ago, I wrote an article called The Innovation Pendulum. The premise of the article is that enthusiasm for innovation tends to swing back and forth with risk appetite in response to market conditions. One such condition is the regulatory environment. In the wake of Silicon Valley Bank’s collapse in 2023 and numerous BaaS bank consent orders, innovation efforts retreated. As the new administration prepared to take office at the end of 2024, enthusiasm rose again. And now, against an uncertain macroeconomic backdrop, we’re once again hearing murmurs of reluctance.

The innovation pendulum is unfortunate at best, and detrimental at worst. As an industry, we should not be at the mercy of the wind, especially the regulatory wind, which is almost guaranteed to change on a short- to medium-term basis. Instead, banks and credit unions should be making decisions based on their strategic goals. Of course, it is important to stay on top of developments and adjust for them, but such forces should not be the main driver behind how a financial institution approaches innovation.

One of the reasons this is so important is because the competitive environment will continue to evolve, even if it doesn’t look like it. For instance, it probably seemed as though the fintech industry took a pause in the last couple of years as funding retreated. But it didn’t — it only weeded out its weakest. Meanwhile, neobank unicorn Chime just recently filed for an initial public offering — a major signal that the challenger bank threat is anything but dead. And Robinhood, which is already a public company, has announced a banking product powered by Coastal Community Bank. The lesson here is that the savviest competitors are the ones building when the pendulum says not to.

But, what about the risk? Isn’t it safer with the pack? (I can hear the protests in my mind.) The answer is yes and no. It may be safer from a compliance risk perspective, but it is not safer from a business risk perspective. The trick is to be very deliberate in your strategic and business planning, so that you’ve got a roadmap you can feel confident in, and one that plays to your strengths. That last part is key because areas in which a bank or credit union is extremely competent are usually where they can experiment with less risk.

In our report on Successes in Transformation, for instance, one of the things executives we interviewed had in common was their ability to identify where their capabilities aligned with opportunity and use that to manage risk accordingly. Essentially, they were doubling down on their strengths, and thereby their expertise.

Taking a methodical approach to strategy — and pushing that through to tactical decisions — is how organizations can avoid getting knocked off course, because if you’re confident in your plan, you’re less likely to throw it out, and more likely to make tweaks, as necessary. Truthfully, we all want to get to the future. But stopping and starting is not how to do it. Finding a slow and steady rhythm, one that can withstand the whims of the market, is much more likely to drive success.