Some financial institutions, daunted by the challenges posed by nimble financial technology start-ups, have been using "innovation laboratories" to help speed up their transformation into digital businesses.
But analysts at research firm Forrester have called this approach into question, arguing that it is better if innovation comes from within.
They said payment solutions, investment products and other services prototyped in labs often face cultural, structural and procedural barriers during implementation.
Senior analyst Oliwia Berdak suggested that the business units at a bank or insurance company should lead the innovation team as they are the ones seeking solutions to the problems they face.
The business leader can form cross-functional teams with representatives from departments such as security, compliance and regulations to develop new digital solutions, she said. Such a team would "own" the new digital solution, which would then have a better chance of being implemented successfully.
"Culturally, there is an aversion to risk, while habitual thinking is common," Ms Berdak said last Friday at a Forrester seminar here on digital businesses and innovation in financial services. "Structurally, senior executives don't want to change. Some are near retirement age and simply don't want to rock the boat. Procedurally, rigid incentives that don't reward creativity will not support innovation."
Financial technology start-ups here and overseas are disrupting the financial industry by using the latest technologies to develop new payment solutions, robo-advisers and other services, as well as tools to make bank processes more efficient.
In the past two to three years, innovation labs have been set up here. One example is LumenLab by insurer MetLife.
Forrester research director Frederic Giron said financial institutions needed to tackle culture first in their journey to becoming digital businesses. He cited DBS Bank as an example, noting that it is nurturing a spirit of innovation throughout the bank as part of its efforts to become a digital business.
In a case study he wrote on DBS released last Friday, Mr Giron said the bank did not bolt on an innovation unit. Instead, it focused on innovation by aiming to harness all of its 22,000 employees as an innovation engine.
South-east Asia's largest bank set up an innovation group in early 2014, which then worked with different business units to create compelling innovation programmes.
These helped business leaders to develop their innovation agenda and solve their digital business challenges themselves.
The activities included bankwide hackathons and innovation challenges. They focused on bringing together multidisciplinary teams of employees, start-ups, students and academics to provide new ideas.
Experimentation was encouraged and, most importantly, all innovations focused on providing excellent customer service.
Mr Giron said in the case study that DBS already has strengthened its image as a digital bank.
DBS has also launched new digital products. The DBS Treasures team developed a financial education mobile game for its wealth management clients. Another team created a management tool to predict automated teller machine and branch use. It provides predictive maintenance capabilities for ATMs, among other things.
Mr Giron, who also spoke at the Forrester seminar last Friday, warned that financial institutions should not roll out five-year digital strategies because technologies change rapidly and any multi-year plan will become obsolete quickly.
"Banks must focus on business strategy to become a customer-obsessed organisation. Then use technology to help them become better, build more capabilities and identify product gaps."