On October 1st, Haydn Shaughnessy led a seminar at SIBOS in Boston, United States. SIBOS is the world’s premier financial services event, an annual conference, exhibition and networking event organised by SWIFT for the financial industry.
The topic of the seminar was Innovation and Banking. As a preparation for the seminar, we were asked by SWIFT to study innovation in the financial services sector using the Elastic Innovation Index. The Index is a tool for assessing innovation inputs (or capabilities), as opposed to innovation outputs (new products, new services). The Index therefore provides a measure of capability and readiness to change rather than a measure of what has been achieved in the existing execution process. In total we assessed 150 financial services companies globally, and, to date, analysed 60 of those in detail.
The value of the Index lies in illuminating the debate around what actually fuels structural change in an industry and how enterprises should respond to it.
Typically in financial services, as in all other sectors, there is a strong focus on the start-up ecosystem as a potential engine of disruptive change with, comparatively less attention paid to other important factors. These include: the structural impact of high capacity global mobile telecommunications, the availability of high performance business platforms, new software development techniques, the disruptive power of open source development communities, or the democratization of communications.
The Index captures these factors and allows us to question whether financial institutions are capable of change, as opposed to being capable of investing in the start-up ecosystem.
In order to follow the arguments the reader will need to become familiar with a small number of new concepts:
Internet of Finance (finance as a merging of information and value)
Internet-defined sectors of industry and commerce (where internet software defines the competitive structure of a sector)
Distributed and consensual control (or decentralization of control)
Open source disruption
Highly leveraged labour inputs beyond any productivity norms that currently exist in finance (the use of self-determining small groups, like the start-up ecosystem, to deliver key innovations).
Overall our conclusion is that several financial institutions have the capability to be masters of the Internet of Finance but this is a new industry and there are already entrants in there defining the competitive conditions.
Banks need to act at a strategic level more quickly than they realize. Right now their response is tactical and lacks an understanding of how industry structures change. That is, they are relying on the Fintech start-up community to deliver change, when in fact it will deliver new companies and capabilities to the new industry structure, not the old one that banks inhabit.