Here's what you didn't know about financial services innovations

Find out what are its biggest challenges.

Singapore Business Review recently caught up with Dr. Anne-Laure Mention, Head of Research Unit, Public Research Centre Henri Tudor in Luxembourg, and Dr. Marko Torkkeli, Professor of Technology and Business Innovations, Lappeenranta University of Technology in Finland. 

Here's what they got to say on financial services innovations:

1. Financial services innovations have overwhelmingly evolved in the past years. What can you say has been the biggest milestone in this evolution?

The biggest milestone may be grounded in the overwhelming complexity of financial products and the increasing shift from an intermediation business to off balance sheet activities. This has drastically modified the “raison d’être” and the core business of the banking sector, with subsequent effects on the entire society. 

2. What challenges do you predict to loom ahead for innovations in financial services?

In our views, the financial sector will be facing many more challenges in the future, emanating from new trends in society, new regulatory constraints, increasing complexity and new ecosystems. Among the most critical challenges, we would like to stress the need to “think outside the box” and to swiftly adopt a different mindset. In our opinion, financial firms are still trying to fix the system as it used to be, and we claim that this attitude should be changed, as the financial system has changed drastically over the last few years. We believe the role of financial services is highly likely to evolve in the future and executives must consider these evolutions in defining their strategies.

Our recommendations would include, among others, to increase customer centricity, to adopt new means to make needs emerge and capture those, and to respond to the increasing need for transparency. Dropping the traditional mode of organization in silos and developing a culture which is less risk averse and fosters innovation are other critical factors. Financial firms should also be aware that innovation may occur outside the boundaries of their own firms and own industry, and may wish to benefit from novelties emerging from other market players and knowledge sources.

Another key area revolves around supporting the value creators, by refocusing business activities on the intermediation model and consequently supporting the proper running of the entire economy. From a policy perspective, we strongly claim that financial literacy should be part of educational programs for both financial services actors and their customers. 

3. Are there any trends that the financial services innovations seem to follow? What are they?

There are multiple trends affecting and shaping financial services innovations, such as the increasing role of technologies, the need for streamlining processes and operations so as to achieve greater efficiency, the demand for more transparency and customer-centricity, the constantly evolving regulation which affects the systems, procedures and processes of the entire organization, the increasingly stronger interrelations between organizations with the systemic effects that this implies, and the emergence of new market players which to some extent compete with the financial sector, such as the telecom industries, retain industry and the crowdfunding sphere.

The sustainability of those offerings, as well as their influence on the design of new ecosystems, is of prime interest for the financial industry. Moreover, these new service bundles and to some extent, the competing and cooperating market players, should definitely be taken into consideration by financial sector players in their strategies for shaping the future of financial services. 

4. Please tell us more about the book that you are about to release and what people can expect from it.

Our book, “Innovation in financial services: a dual ambiguity” deals with the multifaceted nature of innovation in financial services. It embraces innovation that originate in the financial services sector per se, encompassing mainly products and services, together with innovations that stem from other industries, such as the information and communication technologies industry and that are adopted by the financial services. The different contributions reflect the diversity of the innovations developed and adopted by this industry, from both an academic and a practitioner perspective, and covering several continents. Some illustrations include the increasing role of customer-centric approaches and the need to open up the innovation process, both internally and externally, so as to benefit from synergies with suppliers, clients, universities and many other partners. Pragmatic examples from leading financial services firms are included and provide real life insights on the challenges and the rewards of the innovation process. The accrued importance of technologies, with the emergence and convergence with e-, m-banking and the increasing need to automate internal processes are also widely discussed in this book. The targeted audience embraces academics, thought leaders and executives from multiple industries with an interest in innovation in and for financial services. 

5. How will you and Dr Torkkeli's book be of help to innovations in financial services?

With this book, we aim to raise awareness on the role of innovation and its effects on society. Recently, innovation in financial industries has attracted much controversy and the “dark side” of innovation has been overemphasized to the detriment of what innovation should be in our view. We define innovation as “Changes in the offerings of banks, insurance companies, investment funds and other financial service firms, as well as modifications to internal structures and processes, managerial practices, new ways of interacting with customers and distribution channels, with a measurable impact on society, either in economic or intangible terms”.

Overall, our purpose is to stress that innovation should be properly designed, sustainably managed and correctly implemented so as to produce positive effects and support the proper functioning of the entire economy. Both academic contributions and practitioners insights included in this book aim to show how sustainable and effective innovation can be achieved. Nevertheless, there is no “single best way” to innovate, so it should be seen as mind opening rather than a recipe to be closely followed.