Background
Fintech is all the rage in financial services today. But what is the innovation trend consumers perceive? Is it possible they think financial innovation slumps instead of proliferates? This post looks at 70 years of innovation in the category to better understand the long-term trends and implications.
Findings
Shift from product to distribution: Innovation from the 50’s to the 80’s included a lot of new products. These were often driven by bank creativity and by banks supporting legislation that would benefit the consumers: credit cards, interest checking accounts, innovative mortgages, and index mutual funds. This has changed in the past 30 years. Most innovation has been in how consumers access services, not in what they can access.
Shift from banks to disruptors: Early innovation was driven by the traditional giants. Bank of America pushed out the BankAmericard. Citibank designed the CD. Merrill Lynch created the Cash Management Account. But today, the innovation has come from non-traditional firms pushing out new technology to facilitate consumers’ interaction with money: Apple Pay, BitCoin, Kickstarter, Venmo, Betterment. Traditional banks and brokerages have been playing catchup with their version of robo advisors and P2P payment systems (e.g. Zelle).
Shift from full-service to self-service: Most innovation of the past 30 years has enabled consumers to do it on their own – digital banking and brokerage, online investment tools, mobile deposits.
Intuitive leaps, not consumer requests: The list of innovations, from credit cards to P2P payments, has been driven by creative leaps, not consumer request. Henry Ford famously remarked that if he’d asked people what they wanted, they would have answered “faster horses”. Similarly, financial innovation has often met a need that consumers did not articulate – but that creative strategists realized provided an opportunity to both help customers, and make money.
Implications
Whither banks? Despite large banks spending big money on strategy and product development, for them financial innovation slumps. More productive paths have been via collaborations (Zelle) or buying startups (Black Rock buying the robo advisor Future Advisor).
Innovation isn’t something you ask a consumer to define, despite the millions of dollars the industry spends on focus groups and surveys to understand consumer needs. No question consumer attitudes, behavior, and financial realities should influence thinking on innovation, but it’s clear you need the creative people to take that and generate next-generation ideas.
More broadly, where is innovation headed? How many more tools, apps, and currency will actually add value? Previous posts have suggested that no one has found a solution to helping most Americans save and invest in a way that benefits them. In fact innovation may cause consumer harm. Absent a financial innovation leap forward in this area, everything else may just be window dressing.
Sign up for the weekly insights email!
The small print
The list of innovations and their categorization is all my opinion. We could argue over if an ATM is a product or a distribution innovation. I welcome the debate!