14 December 2017
Jp Nicols

JP Nicols

Jp Nicols - Bank Innovators Council

5Posts 22,336Views 2Comments
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.

Banks are Laggards in Research and Development

04 February 2013  |  4703 views  |  0

Banks don't even show up on Booz & Co.'s Global Innovation 1000 spending report. They are lumped in to the "other" category of all industries except the top nine. All of the other industries combined only account for 2% of the $603 billion spent on research and development in 2011. Average R&D intensity, that is R&D spending as a percent of sales, across all industries was 3.43%.

According to the FDIC, the banking industry generated more than $529 billion in revenue 2011 (net interest income + non interest income). If the industry spent at just the average rate of all industries, that would mean more than $18 billion in research and development spending. That doesn't seem unreasonable, since the banking industry contributes about 3.6% of U.S. GDP.

That would have put the banking industry tied for 8th place with Consumer companies at 3% of the total and just ahead of Telecom. (Adjusting for the fact that the United States makes up about 31% of the total global spend, that would scale out to about 10% in total, tied for fourth place with Industrials.)

Whatever the right number should be, I suggest it has plenty of room to grow.

"Banks bury R&D, such as it is, in equipment, outside data processing, telecommunications and other operating expenses." said Fred Cannon, Director of U.S. Research for Keefe Bruyette & Woods. "R&D would be a small share of that. Most of them aren’t really talking about it these days and the focus is on controlling expenses."

Competition for the products and services provided by the banking industry will increasingly come from outside the industry, and that competition will only increase. Overall R&D spending has been growing at a robust  9.5% CAGR since the financial crisis, and banks are barely participating in that trend.

As I wrote in this space last week, Banks Face the Innovator's Dilemma, I believe that banks that will thrive in this new era will find new ways to be relevant and provide value to their customers, and some of those ways may not involve traditional banking products. Bankers need to really listen to their customers, discover their financial pain points and embrace creative ways to address them.

If they don't, someone else will.

TagsMobile & onlinePayments

Comments: (0)

Comment on this story (membership required)

Latest posts from Jp

Gaining the Collaborative Advantage in Banking

22 January 2014  |  2923 views  |  0 comments | recomends Recommends 1 TagsMobile & onlineInnovationGroupInnovation in Financial Services

Five Shifts that Define the Future of Wealth Management

12 February 2013  |  4874 views  |  0 comments | recomends Recommends 0 TagsMobile & onlineRetail bankingGroupInnovation in Financial Services

Technology in Wealth Management: Opportunity or Threat?

05 February 2013  |  4565 views  |  0 comments | recomends Recommends 0 TagsMobile & onlineRetail banking

Banks are Laggards in Research and Development

04 February 2013  |  4703 views  |  0 comments | recomends Recommends 0 TagsMobile & onlinePaymentsGroupInnovation in Financial Services

Banks Face the Innovator's Dilemma

01 February 2013  |  5272 views  |  3 comments | recomends Recommends 1 TagsMobile & onlineRetail banking

Jp's profile

job title Co-founder
location Seattle
member since 2012
Summary profile See full profile »
JP Nicols, CFP is a consultant and former bank executive, and the cofounder of the Bank Innovators Council, a membership organization that helps support, promote, and facilitate innovation within and...

Jp's expertise

Member since 2012
5 posts2 comments
Jp's blog archive
2014 (1)2013 (4)

Who's commenting on Jp's posts