My personal passion for innovation and tech (Geek Girl alert!) has lead me to try and push financial services firms from a stone-age mentality about technology toward the Jetsons-era approach taken by most other industries. I have long held that financial services firms tend to see technology spends as merely "expense items" rather than the "revenue generators" that they can be. In other words, they will only invest in new tech when the old stuff is kaput, rather than imagine how making investments in new technologies early might give them an edge over the competition. It's an attitude born out of a financial services culture that privileges rigidity and sticking with the status quo.
But that culture has to change. Today, there is extra urgency behind the need for a shift toward innovation: many new financial services competitors that are small, nimble and on the cutting edge of technology entered the market right after the financial crisis, when established firms were busy licking their wounds. The old guard is going to need to stay on top of innovation just to keep up with the new guard.
When the Hong Kong Trade Development Council (HKTDC) invited me to attend the Asian Financial Forum in Hong Kong a few weeks ago, I got a chance to hear first-hand what kind of thinking on financial services innovation is happening in Asia. The HKTDC has more than 40 offices globally to promote offshore and existing business in Hong Kong, mainland China, and all of Asia. The Asian Financial Forum is the largest financial services conference in Asia, boasting over 2000 attendees, over 100 distinguished speakers from the private sector, and public sector--both business people and policy makers. About four out of five of the participants were CEO-level or other C-Suite executives. The conference also drew more than 500 journalists from 39 countries.
There was one session that caught my eye immediately: Financial Services Innovation Workshop, sponsored by Deloitte. I thought, financial services innovation? Was that an oxymoron? I was eager to hear what fresh ideas the executives on the panel from Deloitte China, AIA Insurance and the Shanghai Lujiazui International Financial Asset Exchange, among others, might be able to offer.
Here are a few key points they made that really had an impact on me and could have a big impact on you and your business:
• Independent Innovation Teams: To foster the conditions in which real innovation will occur, financial services firms must create innovation teams that are independent, made up of industry outsiders, and given room to fail. This also means giving them the resources they need to try things that may fail. "Give an innovation team enough budget, enough autonomy to take some risks, to fail, learn from their failure, and not be punished for their failure, and just try some really new things," said Simeon Preston, Group Chief Strategy and Operations Officer, AIA Insurance. Preston warned that if the AIA's innovation incubator were housed within the larger firm of AIA, "antibodies" might destroy the group's efforts to innovate. Gregory Gibb, Chairman, Shanghai Lujiazui International Financial Asset Exchange Co, said similarly that firms must try and innovate first and push risk/compliance to the end of the process. Otherwise, innovative ideas will never get off the ground.
• Customer-Focused Innovation: Financial services firms are very transaction-focused, but they need to pivot to a customer focus when it comes to innovation, said Preston. Firms must try to generate new ideas that will benefit the customer first, rather than deciding what works best for the institution and "stuffing" customer's needs into the model after the fact, he said. Some innovations will work great in certain markets, but not others, for example. Customers need to be "served" the way that they want to, whether it be in-person, or digitally--as in over email, mobile or skype, said Tim Pagett of Deloitte China. That means a hybrid approach. Preston agreed. In the past, firms would "demonstrate" their stability and size by the number of branches they had in local markets. Now some see a large branch network as an expense rather than a strength, said Preston.
• Networked vs. Siloed Operations: The "old" financial services business model of siloed teams and "we need to invent it here" mentality does not encourage innovation, said Christopher Harvey, Global Industry Leader of Financial Services--Deloitte. He said that separate yet networked and collaborative units would create more agility to adjust to change when necessary. Further, today's banks and other financial services firms have grown outward into providing more services rather than teaming with best in class providers to create a kind of innovation "grid," said Harvey. Financial services firms must decide what their core competencies are, Harvey said, and then create partnerships in areas where they are weaker to achieve this networked world.
• Mobile/Social/Virtual World: Some of greatest innovations down the line will likely occur in mobile payments, crowdfunding/lending, virtual currencies and alternative payment systems like Paypal and Alipay, said Gibb. He argued that even mobile payments were becoming passé and that in the future, cell phones could serve not just as communication devices but as identification and currency. This would cut down the steps between payor and payee. He conjectured that the financial services business model of the future would be a tech firm that offered financial services products.
Regardless, the future of financial services looks bold and bright-for those firms that can embrace innovation/change to be nimble and agile. This is a sea change that financial services firms need to get comfortable with sooner rather than later.