Many technology vendors tell me they have established digital innovation labs as a place to bring customers and inspire them. So I was wondering, have you and your leadership team visited such a lab? If so, I'd like to hear from you:
At least two dozen accelerators and incubators have been launched by financial services firms in the last two years. I believe that in five years’ time, most of these corporate accelerators will have disappeared. Why? A fully-fledged, multi-startup accelerator is expensive to run. The cost of searching, selecting, and providing seed investment and support for startups could easily reach $1 million a year. Many accelerators aren’t focused enough on customer problems or business objectives to deliver return on that investment.
So why are so many banks, insurance, and wealth management firms eager to loosen their purse-strings? Some want to identify and co-opt future disruptors, others are looking to startups for innovation. There’s been a palpable change of tone in discussions of digital disruptors in retail financial services. The ubiquitous stories about voracious startups that want to eat incumbents’ lunch have been replaced by tales of successful collaboration. Financial technology startups deliver innovation, established firms bring customers, and together they live happily ever after.
Having just watched 72 demos at FinovateEurope, I can confirm that digital financial innovation is alive and kicking. Over the last couple of days, I have seen a number of inspiring solutions to deal with some of the most difficult problems facing financial services today. The main themes at Finovate this year included simplifying and lowering the cost of payments, improving authentication and customer onboarding, using data to generate new value for personal and business bank customers, and making bankers more productive and efficient through, for example, artificial intelligence technology.
Digital executives at financial firms are taking note – the audience was packed with executives from Europe’s main banks. And rightly so. To be innovative, banking executives need ideas, data, technology, software development skills, design experience, and change management support. Often, they can't source these components internally in a timely and cost-effective manner. Partners such as innovation agencies, systems integrators, startups, adjacent firms, and even competitors can help them add capabilities quickly. This is prompting the rise of ecosystems of value – a key feature of digital business transformation. By utilizing partners' digital assets, ecosystem participants are able to hone their products and services fast and furiously — in essence, out-innovating the competition.
Over the past year, we’ve told banks that some of them would become custodians. We’ve told insurers that many of them would be forced to specialise. We’ve told wealth management firms that many would shrink. We’ve done this to show them how digital disruption could savage retail financial services, just as it has done with the music and publishing industries.
But we don’t want to be just the bearers of bad news: We want to help you deal with new players like peer-to-peer lending platforms and even Google entering retail financial services. And to be fair, it’s not all bad news. There are plenty of companies out there using digital innovation to meet their customers’ financial needs in new and better ways. Take for example BBVA which has brought its customers the virtual assistant Lola, video banking, and the crowdfunding platform called Suma. And BBVA hasn’t stopped here. The Bank is currently running the sixth edition of its Open Talent competition for start-ups most likely to affect financial services.
As my colleague Benjamin Ensor wrote some time ago, innovation often happens in clusters.This means that innovation by one company causes its competitors to not only match it but also to try to leapfrog it — resulting in rapid cycles of innovation. This is what is happening in Poland right now. During my trip there last week, a few bank executives told me of the increasing internal and external pressure not to fall behind digital innovation. There a couple of other reasons why Poland is a great testing ground for new financial services ideas; it has: