Finance and Innovation

Screen Shot 2014-08-05 at 01.16.20Fast Company listed their most innovative companies for the year, including a top ten for innovation in financial services, companies who are building great things for their customers; new services and new platforms.

There were very few on the list I’d ever heard of so I started reading through the list and the company profiles; I started to wonder (a) how new are these companies? and (b) why is it so hard for incumbents, despite their resources, to innovate their way onto this list?

Answering that first question, here’s list of the companies in the top ten with the year they were established. Only two of the ten are more than ten years old.

Company Name  Established  Service Provided
 Nice systems  1986 Consumer service for mobile, including within apps.
 Square  2009 Send money via email.
 Bitcoin  2009 Cryptocurrency, removing all the middlemen in financial services.
 GiveDirectly  2008 Donate via cellphone, direct to the recipient.
 Dwolla  2008 Building a better banking network and launching a credit card.
 Transferwise  2011 Peer-to-peer international currency transfers.
 OneID  2011 Creating a single login – no more remembering multiple passwords.
 Mastercard  1966 Re-imagining the mobile-payment network with MasterPass.
 Estimize  2011 Crowd-sourcing estimates on company performance, and doing better than most of the pros.
 Etoro  2007 A social network for traders, lets you copy the investment of other traders.

All of these innovations take advantage of something in the digital space, some on the growing world of mobile. To be fair the banks have also been active and innovative in this space – just not at the same rate. Some of the innovations above support and use

There’s already some discussion on why it’s so hard for large companies in established industries to innovate. Even the best techniques from Silicon Valley aren’t a magic path to increasing innovation according to this HBR article. It comes down to culture; the things that make a company successful at execution at scale aren’t the things that make a company naturally great at innovation. There are companies that are able to innovate and to scale their operations, but it’s a rare combination.

Is there something about the financial sector that makes it even harder? Perhaps, some sectors (music, travel) show a similar batch of relatively young companies, but the energy sector has more than twice the number of companies over 10 years.

I think there are two things that make it harder for financial services companies to innovate. The first is the risk mindset, in theory financial services companies should be expert at assessing risk and take decisions that maximise return for an accepted risk. In my experience the growing pressure of public opinion and increasing regulation have reduced whatever appetite there was for risk since the global financial crisis. And that’s the second thing – the global financial crisis began in 2007 and during the crisis and in the years since affected financial institutions have had to focus on legal cases,  restructuring, cost control and divestment. All of that left little room and few resources for innovation. It’s probably not a co-incidence that half of the companies in the top ten were started between 2007 and 2009.

It’s great that there’s innovation in finance, and many of the solutions are customer-focused either as improved service or as de-mystifying the world of finance. I hope it inspires the “old” banks; there are more opportunities for more innovation.

Image; Fixing the Money Pipeline / ShellyS / CC BY-NC-SA 2.0

Advertisements

What do you think?

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s