Innovation – catch it if you can
It is not easy to talk about the creative process, particularly when applied to anything as etherial as banking. However, speakers at the Summit on Innovation for Financial Services tackled the theme with gusto.
Ernst Wilhelm Contzen, chairman of the Luxembourg bankers’ association ABBL, challenged the current financial sector war-cry: « back to basics ».
Innovation, he said, should improve a service provided to clients: that is, it should reduce risk, enhance liquidity or improve the supply of capital. If innovation is used to disguise risk and confuse clients, it will result in a backlash by regulators and the public. Worse, the recent crisis has resulted in some widespread misconceptions:
- confusion between innovation and complexity ;
- a belief that all complexity is bad ;
- the view that regulation stifles innovation.
The ATM and online banking are two examples of complex innovation that was good. The UCITS Directive is an example of regulation that created a whole new industry. An innovation must prove its worth over time, in bad markets as well as good. It is successful if it is adopted.
Contzen concluded by saying that the call for « back to basics » in banking was dangerous if it implied an aversion to change, but a useful slogan if it meant placing the client back where he should be : at the centre of the picture.
Play … but stay within the rules
Anouk Agnes, Director of Strategy at Luxembourg for Finance, spoke about harnessing the process of innovation for the financial centre.
With an increasing number international financial centres fighting for market share, innovation, she said, was a key element of staying competitive. A financial centre must be able to react to changing client needs (adapt), draw lessons from the past (improve), create new products or services (invent) and exploit any flexibility in legal and regulatory changes (interpret).
The innovative process can be institutionalised if two factors are present : a flow of market data, filtered and analysed by the right mix of people. The Haut Comité de la Place Financière has put in place a working group which will be supplied with market intelligence (trends, regulatory developments, competitor analysis) by LFF and operate in sub-groups with specific competencies. Their role: to filter ideas and test their feasibility. Their only constraint : innovations must stay within the existing legal and regulatory framework and and comply with international norms. Anouk Agnes regards the Alternative Investment Fund Directive, for instance, as a clear opportunity.
The working group will liaise closely with the Luxembourg School of Finance and will focus its efforts on the five pillars of the Luxembourg financial centre: wealth management, asset management & investment funds, international loans, insurance and structured finance.
Cultivating the right attitude
Ian Poinsenet, Head of Innovation, Knowledge Management and Stratgic intelligence at BNP Paribas, was even more concrete. For him, the creative process can be harnessed and managed like any other department. Firstly, it requires the company to adopt a strategy with clear goals. « Innovation is not a goal but a means », he stressed, « There must be a value perceived by the client. It is something that is both New and Useful ».
Internal mobilisation of the strategy meant building the right team, and here BNP Paribas has not been faint-hearted : the team includes experts in philosphy, demographics, technology and sociology as well as finance. « Innovation requries more than creativity », Poinsenet explains, « you have to analyse and implement the idea. This requires very practical skills and problem solving techniques ».
The innovation team cannot work in a vacuum but must exist within the right culture. Bulding this climate has included the organisation of « innovators’ days » where guest speakers address staff, establishing a catalogue of re-usable ideas, integrating innovation into the performance appraisal process and creating an incubation team which can hothouse bright ideas. « Positive judgement is very important », stresses Poinsenet, who urges managers to avoid squshing responses. Likewise recognition – via exhibitions and tele-internviews – are the best fertiliser for new ideas.
Marconi didn’t know that his telephone would change the world
Notwithstanding the excellent initiatives spelled out above, innovation remains an illusive skill. Marc Hemmerling of ABBL cited some of the barriers to innovation in the financial sector. These include the short term view of shareholders, a business-development process that is product-centered instead of client-centred, commercial demands from the market that go beyond the competence of a bank (eg mobile phone banking), regulation, and in the case of Luxembourg, the drawback of a small population. More people, more ideas.
There was much discussion as to whether the banking sector could ever come up with anything more than “incremental innovation” – nothing truly radical: banking will always be banking. However, those that disagreed pointed to credit cards, internet banking and ATMs as “disruptive innovation” (that’s a compliment), meaning that it changes the way people do things for ever.
Just like Marconi.