In Financial Services Innovation, Disruption Isn’t Everything

Innovation is oxygen in payments. For financial services firms, innovation is spurring speed, killing friction and fostering loyalty among customers. In fact, it should likely always be part of the corporate agenda — if it’s done right, that is.

That, itself, begs the question: What is innovation, really? When are new rollouts just necessary updates to keep a product fresh, and when are bells and whistles just, well, noise?

The question applies to financial institutions of all sizes and is especially germane to smaller banks and credit unions, firms which do not have the deep pockets or the technology of larger banking compadres and FinTechs.

In a recent interview with PYMNTS’ Karen Webster, Amir Wain, founder and CEO of payment and integrated commerce solutions provider i2c Inc., explained there is wide variation in the definition of innovation. One must take care to distinguish between invention and innovation, which are two different things, according to Wain.

“[Invention could be] doing something new and that’s fine, amid research and experiment, but unless you are able to commercialize that, it doesn’t become innovation,” he said.

Wain cautioned that innovation must not be born of a separate corporate agenda, or outsourced with separate functions as has been seen with innovation labs fostered by tech and banking giants and other traditional firms. Innovation, he said, must be linked to the core skill sets and operations of a company and synched across the organization.

Wain advised that one think of global positioning system (GPS) technology and ask this question: Was this an innovation or an invention? His assertion is that GPS was not an innovation until it hit the market as a navigation system and was successfully monetized by Garmin.

Thus, when companies come to market with new ideas, it is essential they come with a strategy to commercialize their efforts, too, Wain explained — a “commercialization agenda,” if you will. And, he said, that is true regardless of whether that strategy is predicated on disruptive innovation, a new application, the debut of a new product or process or even a new consumer experience.

Innovation works well when it is centered on discovery and solving high-value problems, said Wain. Technology on its own has no standalone, distinctive value. The same technology can be commercialized in different ways with various outcomes for the same firm, which begs another question: Is technology simply a means to an end?

Innovation is a hard bastion to defend, said Wain, particularly if it is tied to technology alone. It is relatively simple for competitors to play catchup on attributes such as screen size on a mobile device. Innovation focused on component level is not defendable long-term, however. Companies must look at trends within the larger ecosystem in their industries and in the market. They can then create differentiation that takes longer to replicate by leveraging insights as queues by which to set their innovation agendas.

If the business people who understand the company, its products and the markets within financial services are not engaged with those seeking to give rise to payments innovation, Wain said, there is a “huge disconnect” that may, in fact, doom any efforts to bring new goods and services to markets.

“The failure to innovate is failure to differentiate,” he remarked, “and failure to differentiate means failure to garner profits.”

In fact, Wain added, playing “catchup” isn’t really innovating or innovation.

True disruptive innovation is rare and cannot be a sole end goal for companies, regardless of size. But, Wain said, change, when done incrementally, can be enormously effective. FedEx, for example, added package tracking, which was less about transforming technology or process and instead added a new dimension of customer service.

What of regulation? When it comes to stymied innovation, are regulatory and compliance mandates an explanation or an excuse?

When Webster brought up the conventional wisdom that compliance costs time, money and corporate focus, all of which could conceivably be devoted to innovation, Wain noted that technology serves an important function. It helps ensure banks are compliant and can even be a jumping off point through which executives can differentiate their firms.

With a more modern and agile IT infrastructure in place, a small bank can examine how to manage compliance while fostering better user experiences in a low-cost operating environment, Wain explained. With such streamlining in place, firms can then focus on what really matters.

According to Webster, community banks and credit unions are trying to solve for pain points that may differ from population to population. What works — or doesn’t work — may not be the same for baby boomers as it is for their grandchildren. The relationships with brick-and-mortar banks simply differ, she said. And yet, certain technological advances can cut across generations, Wain emphasized, such as the ability to be notified of transactions, a feature valued by both baby boomers and millennials.

Here lie additional avenues for innovation, Wain said. Banks can isolate pain points and solve them with configurability. This may not occur at an organizational level, but by segmenting a customer base and affording consumers select products and services according to their own preferences.

“There is still a lot to do,” Wain concluded, especially when it comes to satisfying disparate demographics, and particularly for smaller banks, “but having the right tools is an absolute must.”