Ratcheting up the heat on bank disruption, consultants Oliver Wyman last week published the Fintech 2.0 report, along with Santander Innoventures and Anthemis Group. The 2.0 always helps to get people on their toes. In short the report says, lads, the financial startup scene is not necessarily helping banks to adapt to new realities and nor is it particularly threatening. No-one is feeling fundamentally disrupted. Yet, the technology to be very different is all around us. Time we all held hands and jumped.
To get to the next level of innovation, the report argues, incumbents in financial services need to build a different relationship with Fintech Startups. Together the two sides must adapt to new technologies like distributed ledger; they need to take it into the settlement process; they need to work more with open APIs; and they have to be ready for the Internet of Things.
These recommendations are of course easier said than done but I agree with them. They'll be familiar to anyone who attended last autumn's SIBOS session on innovation capabilities.
The SWIFT sponsored study prepared for that session, published as the Elastic Innovation Index report, went some way to analyzing what needs to be done to improve banks' innovation capabilities at a deep process level.
The report uses 38 criteria to judge a bank's innovation potential. We called the metrics "KCIs" (Key Capability Indicators). They are a set of scores for assessing how capable a bank is in adopting the technologies and processes that the Fintech 2.0 report refers to.
The metrics' project began in 2013/2014 with a review, sponsored by Bluefin Solutions, of innovative firms in all sectors, (we studied 5,000 firms to ground the work), and iare now continuing it at The Disruption House. In total we have looked at 150 financial players, studying the innovation capabilities of 60 in detail and are now extending the study to a further 30 in-depth reviews.
The Elastic Innovation Index report makes what I think is a vitally important point - most organizations, and not just banks - actually do not have the capabilities to execute on innovation at the level of process.
Many organizations create innovation initiatives that are divorced from process innovation. Over the past couple of years in banking that has meant knitting together a banker's natural deal-making talent with Fintech 1.0 startups and hoping that investing in the Finteech community would be
enough to counter risk.
However, the next step is about process disruption, or what, at the Disruption House, we refer to as process model innovation. The Fintech 2.0 report stops short of venturing into this area.
Nobody really wants to talk about large scale process change because it is where organizations generally stumble. But it is not possible to shoehorn technologies like APIs and distributed ledger into traditionally governed enterprises. To innovate now, banks need to understand how the modern enterprise is configured and plan a route to a new kind of "enterprise operating system", literally a new way of operating.
It's perfectly valid to speculate about the role of distributed ledgers in this (by the way we might also speculate about the role of centralized shared registers!), and APIs can be clearly advantageous. I wrote about these characteristics here, in SHIFT. However, if we don't start to talk about what it means to reshape the enterprise, change decision processes, and mature innovation capability, then we'll see vast investment dollars and and valuable time go to waste.
There is no real mystery around this, just a fear of confronting it - we know conventional decision processes are useless in the context of rapid change; we know many other things about how disruption destroys market structures. We also know that there is a tendency to ignore these processes as people keep their fingers crossed that technological fixes, like DLT and APIs, will defer or help avoid difficult process change.
But FinTech 2.0 is really about People 2.0. People in banking better able to innovate their organizations, people willing to work differently in organizations capable of putting process model innovation front of mind. Here are some resources:
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