One of my favorite economists is Joseph Schumpeter, a quirky Austrian American theorist who focused his work on the evolution of capitalism, offering ideas on economic growth, business cycles, and democratic institutions. Economists had identified innovation as a reason for progress long before the Industrial Revolution, but Schumpeter was one of the first to talk about how innovation actually came about. He used the phrase “creative destruction” to describe the transition from the old to the new.
Since Schumpeter’s original exposition, many other economic and business authors have added insights to the process of innovation, including Everett Roger‘s and Geoffry Moore‘s concept of“diffusions of innovation” and Harvard professor Clayton Christensen‘s concept of “disruptive innovation,” which Andera’s CEO Charlie Kroll will discuss in a webinar about branch technology in two weeks. All of these prophets of innovation emphasize that innovation is messy.
Innovation isn’t just messy for the developer trying to integrate different systems or scrambling to create a mobile app, or just messy for the business team navigating the complicated world of high-tech venture capital and private equity. Innovation is also messy for the consumer because it leads to fragmented solutions. Each new solution may do one or two things well but no one solution addresses the larger need.
Take mobile apps as an example. By far the largest outpouring of innovation we’ve seen in the last few years has been around native applications for iPhone and Android; I attend a lot of entrepreneurship events here in Rhode Island and I’d estimate that about 80% of the new ideas I’ve heard lately have revolved around a mobile app, and the number of apps available now is starting to get ridiculous:
The multitude of apps is the result of what Moore would have called “diffusions of innovation.” This is the first step in a two-step process of innovation. These “diffusions” are creative, iterative, and slightly overwhelming. To make my phone managable, I’ve sorted my apps into categories:
I’ve got social apps, my music apps, my photo, and yes, of course, my finance apps. Disclaimer: I don’t actually use all of the banking apps, I downloaded some just to snoop.
I often imagine how nice it would be if I could combine the functions of my favorite apps into one:
- If I could schedule tweets (yes I schedule), Facebook, and Linkedin posts from one platform and still get the full functionality of each service.
- If I could listen to downloaded mp3, online radio, or TV shows all from the same app
- If I could safely use a PFM with a decent UI, transfer money from my savings to my checking account, and make a mobile payment without having to login three times. Suffice it to say, the mobile app customer experience is messier than I want it to be because it’s so fragmented.
Financial innovation occurs outside of iPhone applications, and the messiness is not only mobile. The industry has been awkwardly transitioning from paper processes to digital processes for the last decade, and isn’t out of the tunnel yet. Right now some things, like checking a balance, are so easy, where others, like applying for loan, are so hard, and occasionally consumer experience falls on the snags of the switch.
Innovators outside of the financial services industry have recognized the problems that fragmentation is causing and they are responding with new solutions. Apple’s iOS 6 pulls Yelp into its mapping software, a coordination that makes it much easier to choose a place for dinner (although I have to gripe about the loss of Google’s public transit mapping), and Instagram was designed to streamline basic photo editing and sharing.
We need to follow a simliar path with innovation in the banking space. The call for a better customer experience is a cry that has swept across the banking industry this year, from technology blogs to conferences, and most of the specifics have to do with cleaning up the messy processes of innovation to create new things that are easier to use.
The second step then, in the two-step process of creative destruction, is a process of convergence. Like a brainstorming session, first you need to get all the good ideas out there, and then you need to combine them, synthesize them, and whittle them down until you’ve got a keeper. The most innovative companies in retail banking today, including one we all admire, understand this.
Convergence isn’t easy, and I’m not sure what form it will take. Maybe the mobile app will fade in favor of mobile web browsing. Maybe a new type of financial product will make the multitude of credit, debit and prepaid options a little more rational, or maybe mobile payments will wipe out plasitic all together. Maybe the branch will be still around, or maybe it won’t (join us on December 19th to discuss). Either way, I’m confident that quest for a good customer experience will drive the process of innovation for a few years yet to come.