Edition 16 - Financial services innovation is inconceivable.

Hey folks,

Hope you’re having a great week. The sun is very much shining in the UK and life feels just a little bit sweeter when you can get some sun on your face doesn't it??

Today I’m going to talk about the word innovation. I think this might be one of the most overused and most misunderstood words within the financial services industry so this edition is sure to hit home for many of you.?

I hear it so frequently from organisations who are either trying to convince themselves, their CEOs, boards, the market or their customers that they are indeed innovative, but it often gets me thinking of the movie The Princess Bride. as I’m not convinced that word means what they think it does.

If you have not seen the movie The Princess Bride, stop reading and immediately go watch it. I don't care if you are on the way to work right now, just call in sick and get this done. Also, don't come at me with excuses like “but David I was only born in 1992” or whatever. If you haven't seen it then maybe I don't blame you but I do blame your parents!

Still here? If you’re reading this, you’ve clearly watched the movie and know that it is packed with life lessons and the most everyday quotable quotes. It also captures the reality and horror of innovation within the walls of corporate companies so perfectly.

This is not a hit piece on how stupid banks are and how dumb their leadership is, it’s a love letter to those frustrated disruptors. Having spent over 6 years inside a few of those big beasts client-side, and the rest of my career trying to help them, I can fully and wholeheartedly feel your pain. Come here; give me a hug!

Enjoy!

Innovation… I'm not sure it means what you think it means.

What does the word innovation mean to you? New things? New channels? New opportunities? Reacting to new threats? New business models? New partnerships? New technologies? New customer challenges? New ways of working? New skills? New issues??

I mean, all of these would be right. It feels nice to write all of these down, oddly cathartic in a sense, but all would be equally valid views of what innovation could and should mean without the mention of shiny labs or dancing robots.

Let's put this into some context with some news that came out last week. The first version of Apple's iPod was released on October 23rd 2001 to much fanfare. With the changes that came with iTunes, the iPod materially changed the music industry forever with the controls, business models, and expectations of a generation being rethought. This had widespread effects not only for their industry but more broadly car manufacturers no longer supporting CDs, CD manufacturers no longer burning them and a generation of lovers having to make do with a playlist to share their feelings, not the hard-earned and hard made CD mixtapes to show their affections!!?

Apple sold an estimated 450 million iPod products as of 2022 making it one of the most impactful product lines, not just for Apple, but for anyone, ever.

Fast forward to today and 20 years later Apple has discontinued the iPod product line, evolving their offering and making this stalwart of their lineup no longer relevant to their customers with their product line and customer problems they are solving.

Stop and think about that for a second. In a 20 year cycle Apple built a product so wildly successful that it changed the whole world and then, in that same period, made it no longer relevant to their customers and evolved beyond it; inconceivable levels of innovation and business model evolution when you sit within financial services.

We operate in an industry with so much potential. To bank the unbanked, to change the world, to democratise access, to democratise opportunities and that could truly, simply and conceivably make the world a better place to be. So why are we not seeing this scale of change?

What does innovation mean to you?

I’m sorry to break it to you, but, despite what our parents told us, we cannot all change the world. So what does innovation mean in our industry? What would this level of disruption mean for us and the customers of our industry? How would this make people's lives better? How differently would we feel coming into work?

To understand our relative lack of change we have to understand its origin. Sadly a company’s focus on Innovation usually begins the moment a senior executive, usually, the CEO or the CIO, declares it to be a key strategic priority and promises analysts that significant investments will be made. We have all seen the BBB’s as I call them, or Big Budget Broadcast to give them their full title.

It usually is just an announcement of the size of the pile of money they will spend making something happen, with almost no detail on what I can only imagine is like blood in the water to the consultancy sharks who turn up and show them how shiny their teeth are.

This big show then trickles down to business units and functions, with each subsequent layer told to “be more innovative” and “come up with more innovation.”

Then, one day, the responsibility for innovation lands in someone’s lap and stays there. To be honest, it’s usually an exciting day for the person because they’ve been asking questions, suggesting ideas, and pushing for innovation for a long time, and now the powers that be have permitted them to do something about it.? They may even have been given a title and budget specific for innovation and then the game is really afoot.

But what “innovation” was sadly was never defined, just merely the budget for it.?

We could change our mobile app? Yes yes. We could change our payment capability? YES YES. We could change our core system? YES YES YES! We could change our business model. NO!!!!

This sadly is where the challenge of many innovation departments becomes impossible. I’ve met some of the smartest and most passionate people trying to make a difference in these roles but to no avail. With all their determination they are constantly being held back by senior leadership who just aren’t prepared to risk failure.

So innovation in financial services is doing what we do already better, not doing anything new. I will stop here and wait? Tell me where I'm wrong. Show me?

So what is Innovation in financial services?

The CEO may think it is just admiration from their board and keeping their job. More practically, maybe an entirely new business, something flashy and new that rivals anything coming out of China but that won't happen.

The business heads may think it’s a new product or technology, something just different enough from the current business to be newsworthy but not so different that it changes how things are actually being done.

And the new Innovation owner thinks it’s new ideas, lots of brainstorming sessions, and networking with entrepreneurs and startups. Maybe a trip to Silicon Valley or two.

What is clear is that there isn’t alignment between all these stakeholders in what it is, let alone what is needed to be sacrificed to make it happen.

Letting go of what we hold dearest.

So we have to be realistic. New product developments, new technologies and new ways of doing the same things we have previously done, or to better distribute the products that have excited us for well over 200 years? Sure. Anything deeper, more meaningful, more structural or more beneficial to customers? This will require such deep-seated change within not only the bank you're badged with today but the industry as a whole.?

So we give up? Hell no. We keep fighting, keep explaining, and keep showing people there are better ways. I believe in a better world where the purpose of financial services organisations is to make their customers better off. Not in a “treating customers fairly” charter buried in some marketing type way, but in the fundamentals of how their business models operate.?

How many more people are able to buy a home, feed their families, retire earlier, take time out? Look after themselves? How do we measure our success? How do we equate that pain??

I hear your tuts. Don't confuse this with me thinking banks need to become charities, but they do need to become highly focused do-gooders because you have to be able to do great for doing good else it's unsustainable.

What can we learn from the iPods’ rise and demise? It happened on purpose and with purpose. All of Apple's board, senior management and employees all agreed on what innovation looked like and it was big, messy, business model impacting stuff to make it happen. When they have conquered the world they challenged themselves rather than waiting for someone else to come along and do it to them. The iPod demise didn’t cause Apple to meet their makers but the need for them to meet their customers and more importantly meet their changing needs.?

The world in 2001 and the one in 2022 were fundamentally different. The needs of their customers, technologies available and a multitude of other things were different and therefore the solutions to those problems are different.?

Do you want to try and tell me that the financial instruments and products of 250 years ago, made to solve those problems of then, have any place today with all the complexity and chaos we now have? Or their business models for that matter?

Without alignment as to what “innovation” means and what it needs to deliver, the stage is set for misalignment, frustration, and ultimately failure.? All because that word, “innovation,” does not mean what you think it means as they say in the movie. Sorta.

Hope you enjoyed that. See you next week.

David x