Innovation’s not a function. It’s a mindset
As one of the keynote speakers at London Fintech Week, Simon Rogerson was keen to talk about the value of innovation within financial services.
To stay competitive, traditional financial services companies will have to put innovation right at the heart of their business. The rate of technological change will only get faster, and those who do not keep pace will struggle to survive.
There is no point innovating unless you’re prepared to let it change your entire business. To be frank, established firms will find this a challenge.
But it can be done. Here are some ideas.
Spin out… then spin in again
Back entrepreneurial colleagues who you trust to build stuff, and get them to do this away from the ‘mothership’. That way they’re free to create whatever culture and practices they need to be successful. When they’ve built a proven product, bring them back in. Let them work with the rest of the business to scale the idea.
This is the approach we’re taking at Octopus. Our innovation arm operates as a standalone part of the Octopus Group, using technology to develop better products and services for our customers.
Over the last two years, this team has successfully developed peer-to-peer lending and cash management products, and is now working with colleagues in Octopus Investments to scale them.
Use your best asset: distribution
Distribution is the biggest asset traditional financial services companies have. So, make the most of it.
Some established companies can struggle with this, as they’re reluctant to cannibalise an existing profitable business by offering a new alternative. They will need to get over that fear.
Be prepared to disrupt your entire existing business
While developing new technology can be a challenge, it’s not the hard part. The hard part is adapting the company’s culture and organisation to make best use of what technology can do.
Genuine innovation goes far beyond setting up a hub in Shoreditch, or creating a new department to worry about ‘tech’ and ‘digital’ so other staff don’t have to. You’re either ‘all-in’ or you’re making a token effort.
Don’t rely on acquiring winners
It’s tempting to wait and see which new entrants succeed and then just acquire them. This may feel risk-averse, but it’s actually very dangerous. It’s notoriously difficult to integrate a new business with an existing one. If you do go down this route, be prepared for a clash of cultures, conflicting objectives and misaligned risk appetites, all of which can hinder future development.
More importantly, the pace of change in financial services is now so rapid, you probably won’t have time to wait and see. Consider that the world’s largest fund, China’s Yu’e Bao, didn’t exist until 2013. It now manages more than $250 billion and grew by more than 30% in the last year.
The only thing riskier than innovating…
New companies take business from traditional ones because they offer their customers something better. Customers expect more from companies than they used to. As technology continues to advance, they will expect even more.
That makes innovation essential to survival. Innovative companies are those that take risks to create something better for customers. Those that aren’t taking those risks are in the riskiest position of all.