Financial Innovation Trends: A New Catalyst Emerges

 Guest Contributor: James Pasmantier, Vice President of Professional Services at Brightidea

Innovation is never easy, and the Financial Services industry is far from a safe haven for the common challenges faced by all organizations.  These days, the concept of ‘financial innovation’ has come under scrutiny, see one example in an Economist debate on the subject here.  If you pull back and consider what financial innovations have contributed to overall growth and societal well-being, through improved services, protections, access to capital, etc.- it is hard to pinpoint the current state of innovation in the financial services industry. One of the industry’s greatest innovations, securitization, proved to be unsuccessful when its method of pooling various types of debt to investors was abused and aided the resulting housing market decline.  While there are no doubt roadblocks, and unfortunate examples of innovation gone wrong will continue to grab headlines, there are still many positive examples of improvements and positive steps forward that indicate innovation is alive and well. An increased focus on collective problem-solving, and purposed collaboration among stakeholders, backed by a commitment to streamline and optimize the actual process of innovation through smarter management, better technology, and a renewed commitment to openness, are rising to meet ever-changing needs.

Challenges

A McKinsey Global survey found that 67% of executives in the financial-services industry view the need for increased innovation necessary to meet long-term and short-term performance goals. However, there are organizational struggles that prevent companies from structuring their innovations and seeing them through. The survey states that “around 70 percent [of executives] rate their performance as poor or merely adequate in the following categories: establishing clear incentives to innovate, setting clear targets and metrics for innovation initiatives, prototyping ideas for rapid commercialization, systematically providing funds for innovation projects, and developing a network of external partners.” While many organizations regardless of industry face the challenges mentioned above, there are additional hurdles which Financial Services has to address.

There tends to be a lot of incremental innovation because banking is a highly commoditized industry.  Incremental innovation itself isn’t a bad thing and is often undervalued. Financial Services is also heavily regulated which provides a whole host of issues ranging from limiting what new products can be offered to who you are even allowed to communicate with.  Security is also a major concern for everyone from the large institutions to the individual customer.

Success Stories

Fortunately, there are a fair amount of success stories, many of which are the result of the industry’s relatively high level of investment in technology.  For example, Mint.com features a free user-friendly online platform that allows users to manage their money from multiple financial institutions.

One of my favorite recent examples comes from a leading risk consultancy company, K2 Global.  They are addressing some of the industry’s challenges and recent bad press by developing a creative technology offering.  Stemming from hedge funds’ efforts to locate and stop possible misuse of confidential Information, the company has developed Insider Trading Detection Software, which has succeeded in allowing them to inspect the personal, social, and business relationships of their traders and analysts.

Former executive at Kroll, Jeremy Kroll says that insider trading is now an “enterprise risk” as misuse of confidential information can affect an entire enterprise, rather than just those involved in the hedge fund. Therefore, technological developments, such as Insider Trading Software, are necessary to track the trading relationships and detect activity that does not follow SEC requirements before it leads to a regulatory inquiry.

Here is a brief look at one particular study that details how Brightidea software helps financial services companies achieve success through improved cross-silo collaboration and better tracking & documentation of the full innovation pipeline.

SWIFT’s Innotribe Innovation Across Organizations

Innovative energy can come from within the corporate system of a company, while also from the customers themselves. The Society for Worldwide Interbank Financial Telecommunication (SWIFT), which provides a worldwide inter-bank network, looked both externally and internally to find ideas for new financial technologies that would determine future infrastructure for growth and foster collaboration with the company.

Innotribe.com, an online idea portal powered by Brightidea software, was created to tap into the innovative power of both their customer and corporate bases. Launched February 2010, the site uses the concept of crowdsourcing by allowing users to share and discuss ideas regarding innovation in the financial industry.

Conclusion 

While there are a host of barriers within financial services, innovation is alive and well.  Cross-industry challenges such as defining the right incentives and industry specific ones like the regulatory environment aren’t going away any time soon.  However, with a commitment to investing in technology that allows business to harness the collective brainpower of their employee and customer base, innovation in financial services will continue to drive benchmarks that create growth and provide a solid foundation for the future.

Paul Volcker famously said that the only recent positive financial innovation he could think of was the ATM machine.

Source: Mother Jones Blog

About Maureen Lowe

President and Founder of Financial Technologies Forum, LLC. Editor-In-Chief of FTF News. Entrepreneur, Jersey Girl that recently returned to Jersey, Loves to Bake, Married to a Kiwi, First Time Mom
This entry was posted in Financial Technology, Wall Street and tagged , . Bookmark the permalink.

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