Is innovation dead in financial services?
I think it is fair to say that we’ve been overwhelmed by the negative news in the banking industry. I can hardly read an article, blog post or hear a presentation that does not start out telling us how we are all doomed. While I believe that we’ll continue to see contraction in the market and increase in regulation and oversight, the outstanding question is… Is innovation also dead?
It is clear that technology spend is decreasing for most FIs; TowerGroup estimates a -4.4% decline in North America. Much of today’s IT budgets support existing platforms and technology services so little of the traditional budget is left for innovation. For many banks, this will stymie innovation but for others who are creative, it will position them to take advantage of the new reality. But how do you innovate?
Banks must rethink their model around innovation. It needs to move beyond product innovation to incorporate all three innovation paradigms: product, operational and business model (including new entrants). In doing so banks will find new areas to recoup lost revenue, further drive cost savings and implement better risk mitigation. Recently innovation has been conservative in nature as no one wants to own “the project that failed”. Banks in this new world need to think more like venture capitalists, willing to invest in 10 new projects knowing that they may have only 1 home run, hit a couple singles and that the rest will strike out. Yes this is a risk but banks that do, can reap big rewards.
Banks taking advantage of the opportunity to innovate now will widen the competitive gap over their competition, win the customer who are “shifting to quality” and create the institutions that will emerge over the next few years to drive the new financial services industry.