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Finovate Europe 2013: Digital Financial Innovation
Benjamin Ensor, VP, Research Director
I've spent the past two days at Finovate Europe in London, which has rapidly established itself as the leading European retail financial technology event of the year. This year's event was bigger than last year's, with 64 exhibitors spread over the two days.
Here are my impressions from the two days:
Innovation is hard and usually incremental. Our expectations are so high. It's easy to sit in the audience and think 'I've seen something like that before'. It's a lot harder to develop truly new ideas, let alone build them and market them. Innovation is necessarily incremental, moving into the adjacent possible opportunity as my colleague James McQuivey puts it (see him explain it on video here). True invention is extremely rare. As James puts it in his new book, "The most powerful ideas consciously draw from and incorporate elements that were being developed by others along the way, ultimately generating the best outcome in the shortest time at the most efficient cost." That's what makes events like Finovate so useful.
Some leading European financial firms are getting serious about innovation. It was great to see so many financial firms exhibiting their latest innovations, including: BBVA (Spain), Crédit Agricole (France), mBank (Poland), and PrivatBank / Liqpay (Ukraine). Crédit Agricole has opened up its data to external developers who can code their own applications. Those developers have created 19 new apps in six months, compared with the two years it took the bank to create its own mobile banking app. Some 100,000 customers a month are browsing the bank's app store, without any advertising. mBank's innovations are different but similarly impressive (or 'awesome' as someone put it on Twitter) with the bank previewing 10 innovations that combine to deliver a new generation of digital financial services. The friendly rivalry and exchanging of ideas between leaders like these can only be positive for their customers.
Leaders are embracing open innovation. The most common expression wasn't 'frictionless' or 'engagement', it was 'open APIs' (application programming interfaces). By opening their APIs to external developers and encouraging open innovation, firms like BBVA and Crédit Agricole are innovating far more quickly than they could by relying entirely on their own resources. The Open Bank Project wants this to move even faster.
Firms are partnering to bring innovations to market more quickly. A consistent theme of Finovate was how often innovators are partnering with other companies to bring new services to market more quickly, or spread them more widely, as ezbob is doing by partnering with firms like Channel Grabber. These firms are building the future of digital financial services; traditional firms can join them or get left behind and watch their businesses slowly being disrupted.
Many payments innovators are converging on the same idea: a mobile digital wallet. There were numerous clever and well executed new payment services, aimed at speeding, simplifying and lowering the cost of person-to-person, point-of-sale, and cross-border payments. Ultimately I think all of these applications will become part of a mobile digital wallet. So too will the new loyalty and rewards propositions, like Birdback and Cardlytics. In a market that is so strongly determined by network effects it is hard to see them all surviving the digital wallet wars, even allowing for a different winner in every country. For the individual firms the challenge is to grow and innovate fast enough to become attractive partners or acquisition targets for bigger fish like, say, Apple, BNP Paribas or Telefonica. The next few years look uncomfortable for MoneyGram and Western Union.
There's room for more innovation in wealth management and retirement planning. Millions of Europeans need to save more for their retirement than they are doing today. Most of them aren't getting the financial advice they need. Helping them to save more so represents both a huge challenge and a huge opportunity for retail financial services firms. Only a few exhibitors are addressing this challenge, including rplan, IND and Comarch.. In the Netherlands, EyeOpen has initially focused on mortgage advice, but its model of online financial advice will obviously extend to investments.
Europe's insurance industry isn't innovating. I continue to be surprised at how slowly Europe's insurers are responding to digital technologies and empowered customers. Although several of the innovations were relevant to insurance, none were explicitly about insurance. I struggle to think of a single systematically innovative European insurance company. (I can think of plenty elsewhere, like Geico, Migdal and Progressive). I don't buy the argument that agent channel conflict is the root cause, because that hasn't stopped agent-based insurance companies elsewhere from innovating. What am I missing?
The best innovations make customers' lives easier. My favourite innovations are the ones that make customers' lives financial lives simpler and help them make better decisions. I love Meniga's new 'to buy or not to buy' feature and IND Group's use of stories to help people think about their finances.
Few people have spotted new revenue opportunities. Most of the innovations promise either to cut costs or improve customer loyalty – if they aren't proposing to disrupt the established financial industry as firms like Holvi are. There are few opportunities for new revenues other than merchant-funded rewards.
Moven is impressive, but overhyped. I have huge respect for Brett King for taking his great ideas and turning them into reality at Moven. The work that he and his colleagues have done is impressive. But Moven is being overhyped by others because people underestimate the sheer difficulty of launching a new retail bank. It's hard to think of more than two or three successful (i.e. profitable and growing) direct banks that haven't stumbled somewhere along the way in the past decade. Moven's biggest impact may be in encouraging traditional banks to raise their game, rather than in the customers it takes from them. I will be glad to be wrong.
Do beautiful interfaces matter? We saw many beautiful interfaces from firms like Ayondo, EyeOpen, IND, Meniga and mBank. I want to believe that beautiful interfaces have a direct business benefit, and intuitively I think they do. But I haven't seen any evidence to prove it. (By contrast there's plenty of evidence that intuitive user interfaces that help users complete their goals have numerous direct business benefits). Beauty is in the eye of the beholder, so perhaps there's no way to measure it.
Finovate is attracting a few more senior attendees. Among the heads of digital and directors of strategy and innovation, there were two or three chief architects and two or three board members or other very senior retail banking executives (e.g. Bank Hapoalim, Bank Millennium Poland). I'm surprised more don't come – but then I'm not sure how many board-level financial services executives have truly grasped the impact empowered customers and digital disruption are already having on their businesses.
British firms were again notable for their absence. Big firms like Aviva, Co-operative Financial Services, Direct Line, HSBC, Nationwide, Prudential and Santander had no one at an event almost on their doorstep. Barclays, Lloyds and RBS sent big delegations. Is it surprising that Barclays is starting to out-innovate its British peers? (To be fair to the insurers, there was almost no insurance innovation on display).
Most of the innovators are younger than I am. Is it that younger people have simply internalized digital technology in a way that older generations haven't done, or just that they simply refuse to accept that something can't be done better with digital technologies? Either way, age and experience are no barrier to innovation in an era of digital disruption.
Overall, I'm reminded of William Gibson's comment that "The future is here; it's just not evenly distributed yet". Congratulations to Crédit Agricole, Etronika, mBank & Efigence, Meniga, Moven, Pockets United, Sum Up and Virtual Piggy for winning best of show.
Thank you again to Jim Bruene, Eric Mattson, Greg Palmer and everyone at Finovate for putting on such a great show.
Here's my simplistic grouping of what the exhibitors presented:
Financial firms: BBVA, Crédit Agricole, mBank, Moven, and PrivatBank / Liqpay.
Shopping, loyalty and rewards: Birdback, Cardlytics, Dashlane, Dynamics, and ERN Global (Looop).
Payments and money movement:
Digital wallet: Fiserv and Virtual Piggy.
Point of sale: Sum Up and Kalixo.
Bill payments: PhotoPay.
P2P transfers: Biletu, Pockets United and Trustly.
Cross-border P2P money transfers: Azimo, CurrencyFair, Kalypton (Tereon), TransferWise and XendPay.
Corporate foreign exchange: Kantox and The Currency Cloud.
Digital banking platforms and apps: Additiv, Comarch, Efigence, Five Degrees, Mistral Mobile, OpenTech and Temenos.
Money management: eWise, Figo, IND Group, Meniga, and GMC Software Technology.
Personalization: Backbase and Etronika.
Channel integration: CR2 and Nice.
Voice control: Finantix (banking assistant).
Trading: Ayondo, BBVA (StockBuzz), BörseGo (Guidants), Heckyl, QuantConnect, and Sage (BlackSwan).
Wealth management: Comarch, Financial Simplicity and rplan.
Financial advice: EyeOpen.
Funding: ezbob and Kabbage.
Small business banking: FreeAgent and Luminous.
Security & Fraud: Acuity Systems (TraitWare ID), Akamai, Device Ident, Metaforic, TSYS, and VoiceTrust.
Compliance: True Office (Accelus).
Defy easy categorization: Holvi, ITSector, Open Bank Project and Yseop.
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