Banks have a reputation for being slow and traditional. It’s an industry ripe for disruption. And that’s what we’re seeing: Dwolla, Simple, Zaarly, and even Starbucks are getting into the act–not with higher margins or whiz-bang technology, but with new customer experiences and business models. This post points to such innovations in finance.
by Jim Kalbach
Below are links to two lists of recent innovation in the financing industry:
- Forbes: 10 Financial Innovations That Make Your Life Easier in 2012 (opens new window)
- FastCompany: The World’s 50 Most Innovative Companies — Top 10 for Finance (opens new window)
If you look at what got those companies and services onto the lists, it doesn’t seem to be mega-revenue generating ideas or advanced technical solutions. Instead, the focus is on service and experience. As the title of the first list, above, clearly indicates, innovation in finance is about making people’s lives easier and better.
Take Dwolla. It’s like PayPal but you can use social networks to transfer money. While this may seem uncomfortable for some people, the company is handling a large volume of transfers. It’s a quite clever and innovative solution that we may start seeing more of in the future. And there’s virtually no expensive, futuristic technology involved: all of the mechanisms to make Dwolla run already exist.
Simple is another example. They’ve changed their business model to get rid of all the things people hate about banking in general. For instance, there are no surprise fees: no monthly account fees, no overdraft charges, no debit-card fees or charges for using another bank’s ATM. This means they’ve had to rethinking their revenue streams completely. Even their marketing strategy is innovative, relying on word of mouth and social networking more than advertising.
Keep in mind that the definition of a “disruptive innovation” according to Clayton Christenen (who coined the term and wrote the original theories on disruption) is not about advanced technology. Instead, disruptive innovations are those that are cheaper, easier and more convenient to use. They address an underserved market need.
In discussing how to disrupt markets, innovation guru Scott Anthony even advises us to “love the low end” in his book The Silver Lining. He encourages companies looking for disruptions to consider to low-end solutions. At first these may not generate a great deal of revenue, which is not attractive to large companies. But that’s what we’re seeing newcomers to the finance world do more and more–entering the market at the low end.
Expect big changes in the way financial institutions and your finances, in general, work in the future. These changes aren’t likely to be tech-driven, rather based on innovative customer experiences and innovative business models.