Thinking

Innovation in Financial Services? Be Careful What You Wish For!

 

When invited to contribute to this issue of Innovation Quarterly, I agreed immediately. The title of my contribution sprang to mind in an instant: Innovation in Financial Services?  Be careful what you wish for!  It also felt like a nice continuation of my contribution to issue two, where I had talked about the future of innovation, warning of ‘the dark side’.  As soon as financial services was mentioned I was immediately thinking about all the things I consider wrong with the sector:

1. the misconduct in financial services institutions that so significantly contributed to the 2008/09 crisis

2. how single reckless individuals seeking their own personal gain can bring down an entire organisation with dire consequences for uncounted individuals

3. the unsolicited and rather annoying phone calls, texts and emails I get about being eligible for financial compensation because of the mis-selling of one financial product or another

4. how my blood pressure rises every time I try to call a financial services organisation only to be put through reams and reams of Interactive Voice Response options - only to find out right at the end that I have called out of hours, or that ‘we are very busy right now’

Arguably all innovations - but benefiting whom? Should the conclusion be that less innovation in FS is warranted? It certainly seems that this was the conclusion of those in the industry: whereas results of a McKinsey survey  conducted in 2006 with financial services executives found that they were expecting spending on innovation to increase in 2007, NESTA reported in its 2012 Innovation Index  that the fall in investment in innovation of £24bn since the 2008 recession had been driven to a large degree by financial services organisations reducing their innovation-spend.

Is that the right solution though? Do we really not need any innovation in the financial sector?  If no innovation were required why is it then, that, for example, the introduction of a bank offering online only services was such a success?  First Direct, a member of the HSBC Group was launched in October 1989 - rather ahead of the internet wave.  Within 18 months it had acquired 100,000 customers, broke even in 1994 and has been profitable since 1995, reaching 1 million customers by 2003.  Not bad.  A more recent innovation in banking is Simple; without being a bank it offers its customers all banking services via a smartphone app. How about PayPal and price comparison websites? Or how about crowdfunding? 

Crowdfunding is something perhaps most closely connected to  the world of innovation as it is an extension of the concept of crowdsourcing - and as it is often innovations that require crowdfunding as no traditional lender would be interested in providing funds for projects that do not meet certain assessment criteria!  According to a another NESTA report published in December 2012, in 2011 nearly $1.5 billion was raised through crowdfunding with 453 funding platforms operating worldwide; with an annual growth rate of  63% this is certainly a force to be reckoned with.  

So should I reconsider my reaction to “innovation in financial services, be careful what you wish for’?  My answer is: yes, and no.  If I pose the question, are the users of financial services products are happy and satisfied customers, the need for some kind of innovation becomes blindingly obvious. At the same time I would like to repeat: ‘be careful what you wish for’.  What we need is not just any innovation, not innovation for the sake of it, and not innovation that benefits the few at the (potential) cost to the many.  What is needed is meaningful innovation, responsible innovation, innovation that helps create a future rather than undermine it.

We need to think differently about what innovation should deliver

What could starting points for such innovation be?  Perhaps there are some common themes to be extracted from the examples above, as well as my list of ‘upsets’ with which I started this article?  Two simple and perhaps rather obvious questions come to mind.

1. Will our innovation provide a real benefit to our customers?  If the answer is yes, benefits for the company will generally follow.  Part of this is to consider customers as human beings rather than numbers, data segments or target groups.  It is all very well that it is possible to speak to a computer, in terms of user experience though it tends to be miserable, even if it works perfectly fine.  According to the aforementioned McKinsey survey “Executives rate their companies as no better than adequate at fostering innovation through practices such as using consumer insights to drive new ideas.”

2. What are implications for the long term and sustainability (from all three perspectives: profit, planet, people)?

In short, innovation, in general as well as in the financial sector should address a need (whether this is explicit or implicit) and it needs to create value.  Technology should be used to support and enhance the customer experience, not the reverse. This means not doing something because it is possible, but because it creates value.  In fact, this reminds me of the three simple question a large European consumer goods company asks itself before embarking on a project:

  • Is there demand - would anyone actually want it?  

  • Is it desirable - is it a good, positive thing to do? 

  • Is it doable - can it realistically be done?

Is that too idealistic?  Can we afford to be that idealistic?  Let me counter that: can we afford NOT to be so idealistic?!  Again it seems I am not alone…  2008 saw the launch of the Innovation Financial Lab , an initiative by the WWF and the ICAEW, a professional membership organisation, supporting over 138,000 chartered accountants around the world.  The Lab was set up because “After the financial crash we saw a huge opportunity. Lots of people had good ideas about how to improve the system, but there was no common platform for those ideas to be shared and turned into action. The Lab is a place to incubate and accelerate these ideas and to exemplify the kind of financial system we want for the future.”

What are the implications for innovation in the Financial Services sector?

Through working with stakeholders the Lab has identified the following characteristics of a future financial system:

  • Resilient: a financial system which accepts that the unexpected will happen and is able to adapt to a changing environment

  • Transparent: a financial system which is accessible to the general public, with increased societal financial literacy

  • Sustainable: a financial system that aligns social and environmental values with profit motives; one where the negative impacts of consumption are reduced through behaviour change; one that invests in a sustainable world

  • Trustworthy: a financial system where social contracts are as important as financial and legal ones

  • Inclusive: an inclusive financial system where everyone has a stake, a share and a say

  • Integrated: into other parts of the financial system. Less self-serving and with closer relationships between ownership and the control of enterprises; a system which manages its risks rather than trading for its own sake

  • Principled: a financial system which delivers well-being and runs with ethics and integrity

Perhaps that too would be a better checklist against which to judge innovation in financial services!

So, in my mind there is no doubt that innovation is required in the financial services sector.  What needs to be reconsidered, it seems, are the starting point and motivation.

 

About Dr Bettina von Stamm

 

Dr. Bettina von Stamm is an original and visionary thinker in the field of innovation, who has focused on enabling innovation in large organisations since 1992. 

She is the founder and director of the Innovation Leadership Forum (ILF), which brings together leaders and decision makers in large organisations to embrace the challenges of innovation in a non-competitive and non-selling environment. 

Through the ILF, she offers a variety of innovation MasterClasses and coaching for senior managers and innovation leaders to help address barriers to innovation and to help them create sustainably innovative organisations.

She is also a Visiting Professor of Innovation at several prestigious universities throughout the world. 

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