The future of financial services innovation

Over at Bankwatch, Colin says: 

Its too bad this innovation panel brought out the usual bank thinking by focussing on what they thought they were doing that was innovative rather than greater focus on lessons learned.

Now, let me just be clear and say that I was the moderator of that panel so I have a vested interest. But whether the content was illustrative of the true state of banking innovation or not, I think Colin's comment brings an important point to the fore: that innovators in banking perceive themselves as unable to talk about what they are really doing. 

Now, I had plenty of time to talk with all the panel members before the recording session, so I could see that they were planning to be careful about what they'd say. It is the pereneial problem for any highly commoditised industry, of course: even the minor incremental changes you make have some competitive value, however short lived. Therefore, you say nothing. 

Similarly, one doesn't wish to be seen critising one's own employer, which I suspect is what management would have thought of any of my panel who dared to explain the mistakes and lessons they'd learned from their innovation efforts. I well remember one case that occurred when I was at LLoyds: I'd written a post about the then-new Bank of America Centre for Future Banking and said something along the lines of "gosh, imagine how much incremental innovation they must be doing to afford that". My management came down on me for implying that I wasn't being given enough money to innovate. I changed the post.

Bankers tend to be nervous disclosure of anything, really.

This, actually is the real problem with innovation in banking, and in commoditised industries in general. The mania to protect intellectual property and reputation means that innovation teams are constrained from sharing anything at all. And we know that little islands of innovation are only every able to accomplish little things, left to themselves. If you want really groundbreaking innovation in banking, then first you must free your innovation teams from such constraints.

Two years ago I moaned about this problem here. I'd suggest that nothing much has changed since. 

I guess the ultimate point I'm making is that whilst it may seem from public disclosures that nothing much is happening in the innovation space in financial institutions, that's not really the case. I'm getting lots of emails from institutions that are picking up the practices from Innovation and the Future Proof Bank, and I conclude that there's a realisation that its time to take a position in the emerging innovation economy. Bankers aren't stupid, and they are as capable of realising the changing competitive reality as anyone else.

All this secrecy is fine, of course, so long as your satisfied with incremental innovation in banking. Little innovation islands in institutions, as I said, are rarely capable of much more.

The next step, I expect, will be recognition that truly groundbreaking change can be had if institutions combine their innovation assets. That time is coming, I think. This will not be more of the same M&A, it will be institutions recognising that together they can create systemic changes, and that their position of strength in doing so is more than enough to combat the much more agile startups that are eating their business at the edges.

7 Responses to“The future of financial services innovation”

  1. September 16, 2010 at 3:53 pm #

    Speaking as the organiser of this webcast at Finextra (and as someone who has been trying to get bankers to talk for 16 years) thank you James for your moderation and for this post.
    My one quibble with Bankwatch's criticism is that it seems to focus only on the quotes I used for the on demand marketing copy. I am 100% behind debate, but what, no comment on the webcast? Did Bankwatch even watch it? Hmmmmm

  2. September 16, 2010 at 4:52 pm #

    My thoughts on why incumbents struggle with innovation fwiw:

  3. September 19, 2010 at 10:03 pm #

    @Elizabeth – you are quite right that I was focussed on the quotes. I had no intention to comment on the webcast nor on the moderator, my friend James.
    I was focussed on how it is that banks broadly speaking often pronounce what I see as their normal day to day tactical deliveries as innovation as opposed to actually innovating.
    Anyhow apologies for being negative. Banks make me that way periodically.

  4. September 21, 2010 at 7:37 pm #

    This does illustrate a general problem though — I have the same problem with blogging, because I want to show off about some of the cool stuff that we're doing for clients, but the clients naturally want to keep a lid on it until they're ready to launch. I try to illustrate points by picking on general themes to illustrate what I think is useful thinking instead.
    But I think there's a particular problem when it comes to banking because, as you note right away, most of the innovations are incremental and therefore (frankly) easy to copy. I was just in a discussion about this today with respect to a panel discussion at a different conference.

  5. September 30, 2010 at 10:10 am #

    Maybe we should all be focusing more on the “agile startups that are eating their business at the edges”.
    These non-traditional organisations operating on the fringes of the banking sector can bring innovative solutions that are unconstrained by legacy systems. For instance across the online payments industry, developers and entrepreneurs can now be empowered to create and introduce payment applications in niches that they understand better than the banks ever can.
    There is an important role for banks to ensure the integrity of financial systems, to underwrite transaction risk and to provide reliable and timely settlements, while many non-financial players are better equipped to understand the needs of specialised market segments.
    Therefore, there is a huge opportunity for a symbiotic relationship between banks and entrepreneurs to deliver really meaningful innovation. Some financial institutions are starting to open up their systems, notably in the prepaid and e-commerce sectors, and it is fascinating to watch the impact of this opening up on financial services innovation.

  6. October 20, 2010 at 10:24 am #

    Cool! When I read your post I really learned something about Banking and Bankers. I got some idea.

    • August 21, 2011 at 4:58 pm #

      Thanky Thanky for all this good iformnation!

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