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Innovation in Financial Services

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.

The Next Big Thing - and what is it takes to be that thing

10 February 2010  |  3012 views  |  1

When something happens for the first time - it's avantgarde.
If you see it twice - it's original.
On the third time - it's plagiarism.
On the fourth - it's pastiche.
But when it happens for the fifth time - it's a genre...
(Anonymous)

In the never ending discussion on innovation vs. execution (see Sara Lacy's great post here) I tend to be an avid supporter of the execution point of view; I've yet to see a great idea execute on itself, but I have seen pretty dull ideas becoming hits because of laser focused hard work. And, of course, it is my personal tendency for building and running strong organizations rather than engaging only in ideation. The reality of the business, as well, shows us companies that succeeded with strong execution on the ideas of earlier, less successful and agile companies (see the article for some examples). This is why I really like the dynamics of a new genre of products and services - if you follow closely you can track the evangelists, the copiers, the big and small players all mixed together, fighting for their place.

The dynamic is pretty straight forward - after a need is established by the avantgarde, in come the strong execution oriented players; proliferation kicks in, and many companies rise to offer similar services and products, each with its own twist. This stage ends with convergence - first with aggregation services, and then with the big winners emerging from the crowd of competing companies. Finally, when these winners become too big or fail to innovate, new avantgarde kicks in, discovering new niche segments that the giants were overlooking.

Social networks are, generally speaking, beyond the genre stage. Facebook and Linkedin emerged as winners, and though there are aggregation solutions out there I personally don't see any need to mix my personal and professional business networks. In fact, Twitter has signaled a new niche (together with Yammer, its LinkedIn-like twin), taking the Facebook status line to the extreme - but the cambrian explosion of networks has passed. It might be best reflected in the coverage and attention Ning - the DIY social network platform - is getting (or not getting) these days compared to 2008.

Online games are in an earlier stage; although there are a few major players in every part of the ecosystem (hardware, portals, platforms, publishers etc.), the barriers are still low and any garage geek can develop the next game. Until now, major game publishers have overcome this by cloning, executing quickly and gaining more and more traction; but as the market becomes more sophisticated and gamers' expectations rise, we will see changes. Acquisition of smaller studios by larger ones to get hold of new IP, traditional game companies entering the space and introduction of known franchises (I vote for Star Trek!) will all come into play, signaling the the battle for control is far from over. But there's another interesting story here - and that's payments in the virtual space.

New ways to pay and be paid have caught the eye of entrepreneurs and VCs alike. Investment money is running like crazy, funding the next-next innovative, zero-click-super-social payment service. Kwedit gets $3 million for letting people pay if they feel like it, Square is making news by enabling coffee shop sales via iPhone. We have hit the spot where there are just too many payment options, and platforms try to answer the need for convergence. Now, I have the utmost repsect for new inventions, but as I started this post, you also need to know how to execute on them (Square is going to discover that, with Verifone's generous help). Remember the three pointers for a successful payments service? Easy, Enabling, Trustworthy. Getting those nailed doesn't take mere ideation, but good old fashioned execution on boring stuff like compliance, reconciliation and relationship management with card associations. And merchants are not early adopters like most gamers - getting them to expand to yet another payment service, in a highly fragmented market, is hard. Merchants are looking for a broad and established user base. Succeeding in this is much harder, and therefore constitutes a bigger barrier, than in other industries.

I can only give only two general advice: one, is do not underestimate compliance and regulation; they will either limit your market (SMBs don't usually work with non-compliant payment services) and you may be facing huge fines even before you start profiting. And two - make anything possible to establish yourself as reliable - it's a merchant's biggest nightmare to have their payment service vanish one day, or to see their customers' data accessed by fraudsters. Guard you system, adapt your best grown-up face, and think about availability because being cool is great, but will only last that much. For success, you need to understand the basics of executing on a successful payment experience, to complement the big technological and business ideas.

Watching the payments industry over the coming two years is going to be extremely interesting, much more volatile than we were used to. Hopefully, some of these incredible minds will adjust to the demanding type of execution the industry requires, and will make it on the other side of the convergence.

PS
Two quick ones: due to a new role I'll be taking on in Paypal, the content and nature of my posts my shift a little. I apologize in advance to those who expected the deep dive on mobile payments threat analysis. On a similar thread, I will be at the Engage! expo next week - buzz me if you'd like to chat.

TagsPaymentsRisk & regulation

Comments: (1)

Uri Rivner
Uri Rivner - BioCatch - Tel Aviv | 11 February, 2010, 11:05

A great example of turning an idea floating around for ages and having a laser focus execution is Better Place. For those not familiar with this American-Israeli startup, here’s a Financial Times article about the massive $350 million funding raised from HSBC to support the company’s ambitious plans. In a nutshell, what Better Place offers is spreading a national grid for charging electric car batteries at homes and offices, so when you go the office in the morning you plug your electric car to a charger in the parking lot; when you get home in the evening you plug your car to a charger near your house. This way you can drive your electric car for years without ever stopping in a gas station. If over the weekend you take the kids to a country ride and drive over 100 miles (160 km), then you’ll go to one of thousands of battery switching stations spread throughout the country; a robot will switch your battery in 2 minutes and you’re good to go.

The business model for Better Place is: you buy kilometers. Just like in mobile carriers, you subscribe to Better Place, get a subsidized car and the road equivalent of ‘air time’. Your gas bills will change to clean-tech energy bills (as the company guarantees that for every KW of power they take from the national power grid, they’ll produce a clean energy KW using technologies like solar panels and air turbines.

This is a dramatic game-changer for eco-friendly cars. Starting with a focus on the infrastructure instead of the vehicles (which was what car manufacturers did for decades) allows you to quickly bridge the gap between a utopian idea and reality.

If the execution is right, that is.

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