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Why is innovation so difficult in banks

I attended a very good innovation meeting last week and there one senior banker said that innovations in banks are so difficult because there is an obsession with business cases. No innovation investment is allowed to fail (is this attitude imported from credit risk evaluation?) and the endless business case argumentation actually puts innovative people off. If this would have been the case in society at large not much innovation would have taken place.

But of course there are other reasons - like the fact that much of innovation has to be done together with competitors to succeed- creating rulebooks and standards for payments, e-invoicing, cards, trading, e-id etc. This is both difficult and against competitive people's basic spirit and you can get to move forward with the speed of the slowest (if all have to agree - as is often the case in bankers associations). This again leads to the nimble banks trying to break loose and do it on their own - successful only in small countries.

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Comments: (4)

A Finextra member
A Finextra member 04 July, 2011, 15:23Be the first to give this comment the thumbs up 0 likes

Having worked in the past to get banks to launch innovative solutions, I would agree to some degree with the sentiments that you express (particularly business case!). However, I think one of the greatest issues in retail banking innovation is protecting the integrity of banking systems and avoiding all but the lowest risk - which is sharply juxtaposed by the innovation and risk taking at the other end of the banking market. 

Rulebooks and standards are indeed a symptom of this lowest risk denominator approach to innovation, but are not the cause. Perhaps what banks should be doing is investing in innovative companies in order that they can capitalise on the technologies or business models once they are proven to be in the right risk profile. For example - when seeing potentially disruptive companies like Square popping up, banks should say 'I'll have a slice of that' and invest in it to see if the business model is viable. Once it is proven, the bank rolls it out but from the position of an investor instead of a customer. 

Bo Harald
Bo Harald - Transmeri, Demos, Real Time Economy Program,MyData - Helsinki Region 04 July, 2011, 17:58Be the first to give this comment the thumbs up 0 likes

I agree that protection of the banking system integrity should always be of highest priority. A matter of similar dignity is to keep mission critical IT-systems up and running. Innovative services and new channels lead to needs for upgrade in legacy systems and as radical rebuilding is difficult, expensive and risky such upgrades can become increasingly difficult to accomplish - and thus slow down innovations. 

This is very difficult for outsiders to understand. So trivial changes suggested - and nothing is happening. Bankers must be both lazy and stupid.


Brett King
Brett King - Moven - New York 11 July, 2011, 03:22Be the first to give this comment the thumbs up 0 likes


I agree that the fascination with a 'business case' is a key issue. The problem facing banks today is that technology is moving so fast, that by the time there is enough empirical evidence to show a business case, you've already lost ground and market share.

There will have to be a better way.

In respect to risk - I think the biggest risk banks face in the near term is no longer being relevant to their customers.


Bo Harald
Bo Harald - Transmeri, Demos, Real Time Economy Program,MyData - Helsinki Region 12 July, 2011, 09:11Be the first to give this comment the thumbs up 0 likes

Well put Brett. The longwinding "business case analysis" even for small investments is being justified by the multitude of demands from fragmented organizations. But the answer is not to centralize decision making - but decentralize: grant powers to those who have been appointed to their tasks - and ask them to increase small fail fasts


Bo Harald

Bo Harald

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Transmeri, Demos, Real Time Economy Program,MyData

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04 Nov 2008


Helsinki Region

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This post is from a series of posts in the group:

Innovation in Financial Services

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

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