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Why financial services still have not mastered innovation

We're midway through 2016. We've been talking about innovation in financial services for a long time. In some ways, it feels like we're fighting the same battles as we were a 3 years ago. 

At the heart of this, I'm a financial services customer along with billions of other people, but I also work with some of the biggest companies in the industry to design and launch new products and services. This morning I saw the latest 'me too' roboadvisor hit the market and I had to do a double take, prompting me to write this article.

Banks, investment firms, insurers etc. keep annoucing how they're so innovative but then why aren't we seeing progress. Why isn't this market exciting? Here's my take on it.

1. FinTech is shiny, but often misdirected

A couple of weeks ago I attending a FinTech demo day in New York. 10 startups presented to a group of hundreds of developers, investors and industry experts. While some impressive technology was on display, there was little consideration for the problems they were actually trying to solve. During the demos, the startups were quizzed on their business model, details on how their solution worked and where they worked before starting their venture.

It's alarming how little FinTechs appear to be testing and developing solutions for the customer experience. 

2. Bankers design for bankers

A large proportion of bankers can't step out of their own shoes when designing new propositions. They copy what others have done, replicate unneccesary processes or design something overly complicated that a typical user cannot understand. 

A message to bankers around the world. Your customers are different to you! If you're a middle aged male wearing a suit and tie, picking up a 6 figure salary and wondering what to get from Whole Foods for dinner tonight, you need to step into the real world. 

At a conference on innovation in investments, I remember a very senior leader at an established firm dismissing Acorns as a product as it didn't have enough AUM. That's not how Acorns think. 

If you're targeting the mass market of 'millennials', you need to win them as customers early. Acorns recently launched in Australia and amassed 300,000 customers in just 6 months. Over time, that's going to become an incredibly valuable user base. Acorns got that by designing something that is actually designed for their target customer, not a banker.

3. Innovation is done in silos

To launch anything new at a corporate is hard. Corporations (and banks especially) are designed in minimise risk and maximise efficiencies. That means new ideas are often squashed before they see the light of day. 

The secret to big businesses launching customer led and disruptive propositions is to engage all areas of the business. If you have legal, risk, compliance, finance, HR etc. in the room alongside IT, Marketing, Sales etc. then they will be engaged in the process. They can identify issues early, be more likely to come up with solutions to problems rather than be the ones that just say no. 

Companies will often blame these departments for the end product not being as exciting as the original idea. The trick is to engage them in the process. Just because you're the one wearing jeans and working in a lab, doesn't mean you know it all.

In summary

I hope this doesn't sound negative, it's more an expression of how we could be better as an industry. If Financial Services can become more focussed on the problems we're looking to solve, get closer to our real customers and work as cross functional teams. The future could be bright. 


Comments: (4)

Steven Hatton
Steven Hatton - Trusek Ltd - Amersham 03 August, 2016, 07:37Be the first to give this comment the thumbs up 0 likes

If the banks had a thought through strategy of where they want to go and engaged Fintech companies and customers at an early stage to help design and build new services as part of a complete customer solution then we might see innovation that will make a difference.

That does not yet appear to be happening.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 04 August, 2016, 15:59Be the first to give this comment the thumbs up 0 likes

Some parts of financial services have indeed mastered innovation. As I highlighted in Why Banks Can't Transform Legacy Applications - Part 2, "...banks have proved their innovativeness by launching ARM, CDO, CDO2, CDS, MBS and a slew of highly innovative structured financial products that have made a lot of money for them". If some other parts of financial services haven't been as innovative, maybe it's because there is no business case for innovation in those areas? As I pointed out in my blog post, "...I've heard C-level bank executives say this, retail and commercial banking are fairly simple businesses that don't need to be overcomplicated by innovation for its own sake."

A Finextra member
A Finextra member 22 August, 2016, 17:151 like 1 like

We tend to think of innovation as big, game-changing initiatives with globally-seismic impacts... but there are great "incremental" ideas making small-but-valuable improvements to our machinery all the time. Those ideas rarely get onto the radar-scopes of the fintech conference producers, but they do happen. As an industry, I think we tend to beat ourselves up for lack of innovation a bit too much. I look forward to a short spell, hopefully not too far away, in which we can celebrate the advances we are all making.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 22 August, 2016, 19:12Be the first to give this comment the thumbs up 0 likes

@AndrewMuir + 1. 

Algo trading is arguably the only human invention that finds even the speed of light too slow, as evidenced by the laying of a new fiber optic cable in a straight line path from NYC to Chicago. I find it funny that innovationistas forget that feat of innovation from finserv and instead keep on gushing about banal features like MoMMAs (MObile Money Management Apps) that save $4.95 on a cup of coffee as though they're going to change the world.