Innovation and Financial Services

Innovation and Financial Services

The current economic crisis is still hitting especially Europe. There is the need to come out of it as soon as possible, especially in order to increase the occupation of the young generation. The most effective way to go in this direction is though innovation. It seems then particularly important to analyze in more depth how it is possible to innovate. From the point of view of the motivation, there are three types of innovation:

  • Customer-driven
  • Technology-driven
  • Technology-driven

In the first case, customer driven innovation, the innovation is born out of a specific needs or requirements of customers. It can help to resolve some urgent needs for which the customers are asking or is suffering for support. An example in the case of financial services has been a single card which can be used as a credit or debit or a prepaid card. The customers did not like to bring with them more than one card, according to the use they wanted to do with it: pay before, during, or after the purchase. The banks responded and launched many type of cards of this type which are now are available in the market.

In the second case, innovation is driven by technology. In this case, the initial push to innovate is connected with exploiting some new kind of technologies. Typically online and mobile banking fall in this case. Internet and mobile technologies are expanding. Financial services launched digital banking (be it online or mobile) to exploit this technological innovation. It made possible to do banking in any place, at any time and with any device.

The third example is more complex. Design-driven innovation is obtained through the introduction of products and services that have a radical new meaning: those that convey a completely new reason for customers to buy them. The typical example is the iPhone. Customers did not ask for it. Technology was available since a long time and used in different ways. Steve Jobs launched an entirely different product that created a complete new and huge market.There are not many example of design-driven innovation in the case of financial innovation. Most of them are connected with using the cloud to create one to one relationships.

The best example I can find is Bitcoin, the electronic currency. Bitcoin is a software-based payment system introduced as open-source software in 2009. Payments are recorded in a public ledger using its own unit of account, which is also called bitcoin. Payments work peer-to-peer without a central repository or single administrator, which has led the US Treasury to call bitcoin a decentralized virtual currency. Although its status as a currency is disputed, media reports often refer to bitcoin as a crypto-currency or digital currency.Bitcoins are created in very different ways. Called mining, individuals or companies engage in this activity in exchange for transaction fees and newly created bitcoins. Besides mining, bitcoins can be obtained in exchange for fiat money, products, and services. Users can send and receive bitcoins electronically for an optional transaction fee using wallet software on a personal computer, mobile device, or a web application. Bitcoins can be used to buy products and services online.Another very interesting example of design-driven innovation is P2P payments. P2P is short for Peer-to-Peer payment. It is an online system that allows individual members to complete financial transactions by using their smartphone and sending money to another individual, or company, or charity, using the other person credentials. The credentials could be their mobile phone number, or even their old smartphone number. In this way money can be credited to a second person either through their current account, or retiring money at an ATM or with some similar schema.

Of the three types of innovation, customer-driven innovation is safer from the point of view of the investments. The greatest reward could come from design-driven innovation. We shall see more and more of them in the near future.

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