When Disruption Becomes Destructive: How Can Financial Services Companies Close the Innovation Gap?

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The financial services ecosystem is going through its most profound transformation since the invention of ATMs some fifty years ago. Small, fast-moving start-ups are revolutionizing the global landscape with creative market-responsive solutions that are becoming increasingly accepted and utilized. Given the highly fluid nature of the digital marketplace, and the accessibility and timeliness of these offerings, pundits predict that this disruption in financial services megatrend will only accelerate.

disruption in financial services - ceo trends

The speed of change in the banking industry has CEOs more concerned than in any other industry. (Source: PWC)

The impacts can trigger permanent effects on consumers, companies and even countries, as the industry accounts for a generous percentage of the total world GDP. Several estimates put its total value at around $15 trillion. The combined valuation of the top 50 banks worldwide make up almost one-third of this number: a whopping $4.3 trillion (2016) according to a white paper by Oliver Wyman, a leading global management consulting firm. These banks recorded 58% growth between 2011 and 2016, a staggering number – that is until you review the performance of the industry’s newer entrants.

During the same period, the top 50 fintech firms experienced an incredible 169% growth, going from $0.4 trillion to $1.0 trillion. DAO, a venture capital firm run by a network of machines, became the biggest crowdfunded project of all time, raising $168million. The global peer-to-peer lending market, which efficiently matches providers of capital with users, was already valued at $26.16 billion in 2015.

Rescaling and reordering today’s financial marketplace are a host of nascent offerings, including robo-advisors, new types of payments and remittances, regtechs, digital banks, blockhain and bitcoin, alternative finance and insurtechs. Their agility helps them to keep the pulse of the digitally savvy consumers and makes it easy for the unbanked to join in. They develop artificial intelligence and machine learning capacities, meet the need for stronger data security and fraud prevention, and comply with regulatory requirements. In short, these start-ups are future-ready.

We believe that no incumbent company is immune to this revolution, and assuming some companies are too big to fail would be a mistake.

disruption in financial services expectation iconThe Expectations Vs Reality of Becoming Customer Centric

For any company, large or small, gaining first-hand insights into the customers’ pain points is extremely important to be able to thrive in such fast-changing times.  We now live in an era where 53% of millennials don’t think their current bank offers anything special or different than other banks, according to the ground-breaking Millennial Disruption Index. They state that they want proactive, actionable financial advice to be able to manage their financial needs better, and easy-to-use digital solutions that deliver convenience.

Millennials make up a crucial group of consumers – they are flexible-minded digital natives and there are 80 million of them in the U.S. only. To reach them can mean the difference between successful new offerings and offerings that don’t speak to the wider clientele. According to a recent PwC report on the industry, “customer intelligence will be the most important predictor of revenue growth and profitability.”

Companies can connect with millennials, and the increasingly tech-savvy every other generation, via collaborative open innovation platforms, and create a culture of dialogue, candor and engagement. For successful innovations that are aligned with evolving customer needs and preferences, they must go with the motto, “In digital we trust.”

It’s very interesting to note that all 4 of the leading U.S. banks are among the 10 least-loved brands by the millennials. Changing this perception might take time but it is absolutely necessary if they want to maintain anything close to their previous market share. To do so, financial institutions must strive to improve the quality of customer service and public relations.

A customer-centric idea management software that’s open to existing customers or the public can bridge the gap between top-down ideas and customer realities. It can provide space for the frank sharing of ideas, suggestions and room for growth. The digitization of relationship building will help financial institutions to learn more about what their customers really want.

disruption in financial services employee iconHarnessing the Untapped Value of your Employees

The finance and insurance companies have access to a large talent pool. In the United States, according to Selectusa.com, a site managed by the U.S. Department of Commerce, the two sectors employed more than 6 million people in 2015. Across the pond, the City A.M. newspaper puts UK’s number at 2.2 million workers. Harnessing these people’s industry knowledge, experience and strengths can bring about substantial disruption in financial services.

Through a collaborative corporate idea management platform, companies can foster an encouraging environment for intrapreneurship, and empower their employees to submit ideas and assume guiding roles in turning such ideas into initiatives. Their suggestions can create tools that accelerate time-to-market and facilitate technology agility that supports future innovations, not just for individual firms but for the industry as a whole.

disruption in financial services incremental iconHow to Incrementally Innovate your Way to Success

Because financial services companies must emphasize reliability, efficiency, and consistency across their branches and digital products, knowing where and when to improve processes is critical.

disruption in financial services - customer journey

Improving the customer journey was the most important trend predicted for banking in 2017. (Source: Digital Banking Report)

Some operations need one-time fixing while others need constant attention. Harnessing employee ideas through an internal idea management platform can help streamline all such needs. It can drive performance and progress towards the company vision. It can break down department silos, save considerable amounts of time and money, and improve long-term productivity.

But to be able to thoroughly institutionalize new changes, in both the short and long term, the idea management platform must be made part of the company’s overall business process, as opposed to a stand-alone, isolated project. Successful incremental innovation examples tend to always factor in the multifaceted processes of all enterprise departments so that ideation can be streamlined effectively.

disruption in financial services - disruptionThe Key to Penetrative Disruption in Financial Services

The financial services market is in such a flux that more and more innovation trends are appearing before the-still-new ones even get a full chance to run their course. One way to be disruptive in this setting is by competing fiercely against recent market entrants. Another way is to acquire the most relevant ones. But a combined approach could work better than either one alone.

There are many startups with good, applicable ideas, and some have turned these into substantial profits already. A custom technology scouting solution such as Q-scout can give companies an effective and manageable way to scan the market and manage the evaluation of successful startups, pertinent technologies and IP for potential merger and acquisition opportunities. This process can be incredibly valuable, and when managed on a platform which is integrated with both internal and external innovation management initiatives, it becomes a cohesive and comprehensive defense against any contemporary business challenge. The platform’s dedicated ‘sonar’ visualization tool allows companies to get a comprehensive overview of all activities undertaken by users, identify where the best ideas are coming from, forecast trends and lucrative opportunities, as well as rapidly identify workflow bottlenecks.

 All things considered, in today’s economy, and especially in the financial services industry, accessing and leveraging the great potential of crowds is now a crucial success factor, more than ever. Whether it’s the company’s clients, employees or the new co-players in the industry, reaching out in a structured way will allow companies to develop future-proof alliances.

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To discover how Qmarkets can help you develop a disruptive innovation strategy that will drive growth for your enterprise, don’t hesitate to contact us today. You can also try out the Qmarkets platform yourself by requesting a free demo

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