3 Reasons Why Incremental Innovation Matters in Banking
DENVER — To call it simple is to praise it too greatly.
What TSYS introduced at BAI Retail Delivery yesterday was so basic, it was almost shocking to this attendee at the conference’s Innovation Showcase. The offering: an ability for credit card users to push to issuers a notification that the user is traveling abroad.
Yes, that’s it.
Watching this demo of this push notification, which I thought was exemplary, made me realize that we (and by “we” I really mean “I”) are too often looking for some grand, game-changing, mind-altering, P&L-transforming innovation. The truth is, however, incremental innovation matters more. Here are three reasons why:
- It is far easier to look for modest innovation than monumental transformation. Consider the feature from TSYS. The company looked at a simple problem — the bungled user experience when security risk and international travel intersect for cardholders. Rather than trying to come up with some complex solution, TSYS found a simple solution: letting cardholders notify issuers of their travel. Anyone who has sat at a restaurant in London trying to pay for a meal with a credit card only to have the waiter come back to the table with a rejected transaction appreciates this ever-so-subtle tweak to card processes.
- Incremental innovation lowers the stakes. There are any number of impediments to innovation at even the most creative of enterprises. Internal politics? Sure. Too few resources? Absolutely. Conflicting strategies and visions? Clearly. And those are just a few of the potential hurdles. By taking the innovation goals down a notch, the venture is creating more palatable objectives. We’re not trying to reinvent the wheel here, just fix this seemingly small problem. There was a great line in this month’s Inc magazine about how just a small improvement in efficiency compounds noticebly over time. Small fixes can compound to a meaningful total, too.
- Incremental innovation reduces production times. Our world — especially the technology world — changes so rapidly that great delays between innovations can be harmful. Taking on a more modest objective can speed innovations to market, and to some degree, releasing some innovation is better than releasing no innovation at all. Yes, this isn’t always the case, but I would suggest that in financial services it is more so the case than in other sectors, like consumer electronics.
This culture of swinging for the FinTech fences that has been espoused in some circles seems to me to come from the venture capital community, which is looking for “big wins.” A VC will invariably consider whether a startup looking for funding has a “big idea,” and the “big idea” is not often the smart idea in a sector where regulatory/compliance has to be a forethought, not an afterthought. I was talking to one innovation banker here at BAI and he mentioned how for some startups regulatory/compliance too often gets considered after a product has been developed — that often just doesn’t work in financial services.
Embracing more modest (I would call them “realistic”) objectives can extend to venture activities for banks. Let me be clear: innovation operations at banks cannot solely be internally focused. There must be an external view that pursues innovation through startups. Without the external venture perpective, the bank risks relying on stilted internal product development that is both too expensive, too limited, and too politically challenged. But can banks engage in a successful venture strategy? I think the key is in these modest goals. The difference between a venture capital firm investing in a FinTech startup and a bank taking an equity position in a startup is that the VC firm has the pressure to turn every investment into a homerun. The bank, on the other, has the pressure to turn every investment into a success. There is a big difference between the two. A prudent, realistic venture strategy can make a bank more dyanmic, provide its customers with better products and services, and give the bank an ROI that far exceeds anything the bank can generate through an internal-only innovation strategy. Who wouldn’t vote for that?
