Six Years of Financial Services Innovation

Anticipation is building as FinovateFall 2013 is returning to Manhattan on September 10 and 11 for the seventh consecutive year. With more than 70 cutting edge firms doing 7 minute demos in front of a sellout crowd of more than 1,000 bankers, investors, analysts and the press, it is the premier showcase and networking event for what is new in the world of fintech.

While the overarching innovation theme remains the same, it is interesting to see the ebbs and flows of presenting categories and companies through the years. It is more interesting to realize how fast things have changed in the financial services industry.

Finovate 2007: When Mobile Was Young

The brainchild of the Online Banking Report and NetBanker blog publisher, Jim Bruene, the very first Finovate conference was held in New York City on October 2 of 2007, when 20 of the most innovative companies in the financial, banking and lending space gathered in front of a handful more than 200 banking executives, analysts, investors and the press to offer a glimpse of the future using the now familiar 7 minute demo format (no PowerPoint slides allowed!). The one-day event was quickly sold out, with overflow space provided for late registrants to view presentations via a video feed (see all 20 videos from the first Finovate conference here).

While only six years ago, a lot has changed in the financial marketplace. In 2007, mobile banking was in its infancy, with just a few hundred thousand users across three different platforms ('mobile website' was the most popular). Interestingly, the discussion at the time was whether mobile banking would be a standalone profit center or just another cost center for banks (still up for debate by many). And despite a lot of hype at the time, only one bank (Citibank) and one vendor (mFoundry) had launched a fully downloadable, custom mobile banking app.

The themes for the 2007 show and number of companies presenting were PFM (5), mobile banking (5), payments/billing(4), P2P Lending (2), online tools (2), mortgage lending (1) and security (1).

The presenter list included (in alphabetical order); Andera, Billeo, CheckFree (acquired by Fiserv), Clairmail, Firethorn (now Qualcomm Retail Solutions), Geezeo, Digital Insight (an Intuit company), Identity Theft 911, iPay Technologies, Jwaala, Lending Club, Metavante (acquired by FIS), mFoundry, Mint, Monitise, MortgageBot (now part of Davis + Henderson), MShift, Online Resources (acquired by ACI Worldwide), Prosper Marketplace and Yodlee.

The Best of Show winners of the first Finovate were a two-week old online personal finance start-up named Mint, a mortgage marketplace from MortgageBot named Marvel and the peer-to-peer lender Prosper. The biggest winner, however, may have been the financial community, since the success of Finovate 2007 was the foundation for a growing series of global Finovate events that now include an expanded 2-day FinovateFall event in Manhattan, a second two-day U.S. event, FinovateSpring in California, a one-day FinovateAsia (30+ firms) and the two-day FinovateEurope (60+ firms).

With technology always at the forefront, Finovate 2007 was the first financial services conference to proactively court the blogging community, with bloggers from four countries covering the 2007 event (live blogging and a ton of tweeting continues during all events). In addition, all of the presentations are streamed for later viewing for attendees and non-attendees on the Finovate web site.

FinovateStartup 2008 - The First West Coast Show

Only three months after the the success of the first Finovate show in NYC, Jim Bruene announced a slightly modified version of Finovate2007 called FinovateStartup to be held in San Francisco in late April of 2008. With a focus on showcasing the hottest financial technology start-ups, the format of 7-minute fast-paced demos remained the same as did the opportunity for the attendees and innovators to network.

With an original goal of securing 20 cutting edge fintech firms for the second Finovate conference, Jim and his team quickly surpassed their goal with a final lineup of 40 startups despite a tightening credit market and bigger financial industry storm clouds on the horizon. Included in this lineup were several firms using this event to introduce new products. (recap of presentations available thanks to Scott Loftesness of Glenbrook Partners with video archives of the presentations provided by Finovate)

Compared to the first event held 6 months prior, the second event's diversity and expansion of themes was apparent, with new savings/checking products, financial comparison tools and investing/asset management being new themes. In addition, while PFM tools still were prominent at the event, security services and investment/asset management firms had greater representation. As can be seen from the word cloud below, the industry still lacked significant mobile/payments discussions.

Riding The Storm Out: Finovate 2009 - 2011

There is not a banker alive who doesn't remember the financial crisis that started in 2007, 'peaked' in 2008, and is with us to a degree still today. Some of the many impacts of this period were that budgets were highly scrutinized and cut, investment in the future was scaled back and innovation at many financial organizations took a back seat . . . except at Finovate. 

While it would have been easy for Jim Bruene and his team to fold up the tent in late 2008 and restart the Finovate concept a few years down the road when times were better, Finovate continued to provide the premier forum for innovation. Despite the economic conditions (or because of it), companies wanting to showcase their new products increased, registrations multiplied and the trade and business press took notice. Maybe it was the ripple effect of the introduction of the first iPhone in 2007 and the rapid increase in acceptance of mobile apps, but interest in financial innovation increased during this difficult period.

During the shows from 2009-2011, innovation trends continued to be in flux (at least if measured by the products being showcased). Some interesting trends included:

• Twelve companies at the 2009 FinovateStartup did demos on PFM solutions (representing close to 25 percent of presenters).
• Small business solutions began to appear in early 2009 and have continued to be a steady category today.
• Search and comparison tools were strong during the period.
• Mobile solutions became the break-out category in late 2009 and early 2010. That trend continued in 2011, with the emergence of mobile photo bill pay and other tools.
• Safety and security tools remained in the spotlight, reflecting the fiscal conservatism that prevailed and the need for safe havens for funds.
• Alt-payments and alt-lending became a more popular category during this period.
• The emergence of real-time information distribution.
• Rewards platforms and savings tools emerged (and won Best of Show honors) beginning in 2011

As the presenting themes continued to grow and change, the interest in financial innovation continued as well. Finovate grew exponentially to meet this need. 

• FinovateFall 2010 was the first two-day event, reflecting the extraordinary desire to both demo and participate in this unique forum. Despite (or possibly because of) this expanded forum, sold out events became the norm.
• The number of demos at the FinovateSpring and FinovateFall events reached more than 60 per show.
• Audiences multiplied from the first Finovate shows, surpassing 800 at FinovateSpring 2011 and reaching 1,000 in NYC for the FinovateFall 2011 show.
• FinovateEurope was introduced, reflecting the worldwide scope of fintech innovation. While being held in London, presenters came from Europe, North America and Asia. The first show had 3 dozen presenters over 400 participants.
• Coverage in both the financial and mainstream business press exploded during this period. In addition, Twitter became an excellent micro blog of highlights as they occurred.
• All demos continued to be catalogued for future viewing on the Finovate site.
• FinovateSpring 2009 (58 presenters)
• FinovateFall 2009 (32 presenters)
• FinovateSpring 2010 (36 presenters)
• FinovateFall 2010 (56 presenters)
• FinovateEurope 2011 (35 presenters)
• FinovateSpring 2011 (64 presenters)
• FinovateFall 2011 (63 presenters)

FinovateSpring and FinovateFall 2012

The Finovate events for 2012 were filled with familiar categories, new subcategories of previous themes, and categories that didn't even exist when Finovate began in 2007. FinovateSpring 2012 highlighted firms presenting payments and rewards platforms, new mobile solutions and the beginning of social media integration. In addition, solutions emerged in response to new government compliance needs as well as in response to the reduction of fee income.

It is amazing how much change can occur with innovation themes in six short months. Possibly because of rapid changes in the acceptance of mobile devices and related apps, the increased concern around authentication and security, the beginning of marketing's emergence from the financial crisis of 4-5 years prior, and the slow acceptance of certain innovations by the public and financial institutions, the word cloud of FinovateFall 2012 themes looks nothing like the themes of the Spring.

Not only have the themes continued to change, the subcategorization also illustrates the micro segmentation of new solutions.

My First Finovate: FinovateSpring 2013

FinovateSpring 2013 was the first Finovate that I attended in person (previously, I live vicariously through others by following the live blogging and twitter mentions). As has become the norm, the event was again sold out, and you could feel the energy upon entering the venue (see my recap 'Musings of a Finovate Virgin). It also had the feeling of a class reunion since, while presenters may come and go, those who attend the event try to make it every year.

As was true with the themes in 2012, the changes in key categories seemed to evolve based on consumer demand (security services, small business), new tools and visualizations (wealth management, investing and mobile applications), new segments (underbanked) and even some advanced applications (P2P lending and B2B payments). 

Most interestingly was the emergence of so many crowdfunding solutions compared to previous shows and the disappearance of PFM in the traditional sense. As could be expected, the categories of mobile, payments and security/authentication solutions remained strong.

FinovateFall 2013: Fintech Innovation is Alive and Well

With FinovateFall 2013 a week away, there is no doubt that innovation in financial services continues unabated. Finovate will have another sell out crowd in Manhattan on September 10-11, and there will be another exciting roster of 60+ companies ready to demo their solutions.

While some may have a strong business case and a pent up demand for their solution, others may be trying to 'make a market' for their innovation. Some are hoping that their demo will spur new funding for their innovation, while others are extending a product category by an established vendor.

As in the past, there will be more than 1,000 registrants who will cast their ballots for their favorite presentation, naming them 'Best of Show'. Some of the votes will be cast based on presentation style. Others will be cast based on the 'cool factor' (which doesn't always reflect a desire or need to buy). Still others will cast their ballot based on which solutions they believe have a valid chance in the marketplace.

The networking will be one of the primary side benefits with end of day cocktails and even the introduction of the Bank Innovators Council on the Monday evening before the FinovateFall 2013 kickoff.

No matter the outcome of the voting, the diversity of innovation is broad and the excitement in the industry is strong. Innovation is a differentiator in an industry that often feels 'me too'. It is a way to potentially grow market share, retain current customers, cut costs and/or increase revenue. 

Innovation is risky but necessary. It is exciting yet frustrating. It is not for the faint of heart, yet it builds corporate character. Fintech innovation is, by definition, the future. And based on the themes for FinovateFall 2013, innovation is as different from six months ago as it will be six months from now . . . and yet many of the themes sound familiar.

While mobile, security, small business, lending and payments remain strong themes, the underbanked category all but disappears. In addition, we see the somewhat surprising reemergence of PFM and loyalty/rewards (maybe there really is something new in these spaces) at the same time that mobile wallets and customer experience get zero love.

As Bradley Leimer stated upon returning from his first Finovate . . . It is the 'The Disneyland of Fintech'™. For those attending or joining the event through social media, Finovate is definitely an 'E-Ticket' ride to the future.

Additional Resources

Finovate 'Best of Show' Winners 2007 - 2011

FinovateSpring 2012 'Best of Show' Winners

FinovateSpring 2012 Twitter Transcript

FinovateFall 2012 'Best of Show' Winners

FinovateFall 2012 Twitter Transcript

FinovateEurope 2012 Presentations (35 presenters)

FinovateAsia 2012 Presentations (35 presenters)

FinovateEurope 2013 Presentations (64 presenters)

FinovateSpring 2013 'Best of Show' Winners

FinovateSpring 2013 as Seen Through Twitter

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It's Time for Banks & Credit Unions to Embrace Change

As I travel across the country, visiting financial institutions in the midst of their annual planning cycle, it is like a trip down memory lane. While the technology and distribution channels have changed, banks and credit unions are still faced with the many of the same strategic challenges we talked about 20 years ago.

As a long time banker and friend, Michael Bencic said, "Improving the customer experience, embracing change, deriving value from data, building strategic partnerships, leveraging technology, ensuring privacy and security, cutting costs and generating fees is like deja vu all over again."

I agree. While the details behind these goals have changed, why have the overarching themes stayed the same? Is it because the planning process usually begins with broad financial requirements and many involved in the process simple dust off last year's plan and hit the restart button? Or is it because, despite a lot of talk around embracing change, the industry (and the regulators) frown upon the potential risk associated with innovation and doing things differently?

In a new report just published by KPMG entitled, Reshaping Banking in a Dynamic Business and Regulatory Climate, the author emphasizes the importance of getting out of 'survival mode' and embracing change, creating new strategies, crafting new infrastructures and focusing on the customer. While there is no denying the importance of each of these issues, this report is not much different than similar reports I read in the 1990's. The primary difference is that the risk of ignoring these issues has far greater implications.

Dusting off last year's planning document and making small alterations is not enough. It will take more than simply finding ways to 'do more with less', cost-cutting and operational improvement. According to Brian Stephens, national leader of KPMG's banking and capital markets practice and author of the report, "There must be acceptance among the entire leadership team that the rapid, unpredictable, and profound change we are witnessing is structural -- not cyclical." He continues, "The debate in not about the need for change, but what changes should be made."

As in the past, the issues that must be addressed are many. The difference is that today, while the issues may look similar to the past, the issues are more interconnected than ever before and the environment where these changes need to be made is evolving at breakneck speed.

The KPMG report provides a perspective into the following critical areas as banks and credit unions plan for 2014 and beyond:

• Culture of embracing change – In today's environment, change is constant, so banks must be nimble and innovative. "Banking leaders must choose to adapt and evolve, or risk irrelevance," says KPMG. "In the future, when banks look back on this time of change, an organization's resilience will not be measured by how much adversity it endured throughout the financial crisis and this period of recovery; rather, it will be measured by how well it adapted to it." The challenge is a tradition of rigid internal resistance to change and a consequent inability to execute. The change in culture must come from the top, starting with the board and senior leadership. And it must me more than just words.
   
• Focus on customers, not products – To increase revenue, banks must determine the appropriate customers to target and how best to package the products and services for which they are willing to pay. The challenge, related to the first issue above, is that banks have a legacy of talking to the masses and giving services away for free. Without better segmentation and an understanding of what customers will pay for, the impression of any revenue initiative will be negative. Alternatively, bundling services such as mobile bill pay, alerts, ID protection, payment services, etc. using a customer-centric perspective can results in a win-win.
   
• Deriving value from data – Banks and credit unions that can extract more value from all available data sources to develop a better understanding of customer needs can serve customers more effectively and profitably, while developing a competitive advantage and staving off threats posed by new market entrants. The challenge is that all internal product-centric data silos (retail deposit, credit card, small business, mortgage, commercial, etc.) must be integrated to provide a single customer view. Once data is integrated, the customer insights need to be leveraged for better product development, new cross-sell and revenue opportunities and reduced risk.
   
• M&A/Alliances – Despite many predictions around increased M&A activity in the past that have not come to fruition, the environment today is prime for consolidation due desires for geographic expansion, product enhancement and cost reduction. The immediate issue is that organizations need to strategically evaluate whether they are a buyer, a seller, or neither, while also examining the possibility of developing alliances where strategic fit warrants.
   
• Technology – At a time when costs are being cut, the appetite for investment in technology is usually tainted by the memories of previous IT upgrades that never met expectations. Nonetheless, the ability to effectively support the integration of new delivery channels and a customer-centric view leaves most banks no choice but to upgrade aging infrastructure. "The promise of harnessing technology advances can help banks streamline operations to reduce operating costs, connect future and existing customers across a multitude of new and emerging channels, tap new revenue streams, enhance customer loyalty, and build better defenses against cybercrime and denial-of-service attacks," says KPMG. In the end, ignoring or putting off the inevitable is a risky strategy, especially with the risk of noncompliance, losing market share or not being able to support an ever more important mobile strategy.
   
• Cybersecurity – The increasing scope, frequency, and sophistication of cyberattacks on banks means institutions need to be better prepared to address a risk with implications that both enormous and unknown. With the public's trust in banks finally recovering from the impact of the financial crisis, this trust can be shattered if life savings (or even access to funds) are at risk. In addition, there are some who believe that we are at the tipping point in the acceptance of mobile banking (and mobile payments) without greater ID protection and mobile security in place. 2014 will be a year when most of these issues need to be addressed (if not sooner).
   
• Capital & Compliance – Banks will continue to need to prepare for stress testing, while also monitoring various capital adequacy and liquidity requirements and associated staffing and compliance costs. For many banks, the issue of capital adequacy may be secondary to the ongoing costs and internal 'friction' that is associated with the added staffing associated with meeting regulations
   
• Accounting for Credit Losses – Banks will need to understand revisions to accounting for credit losses on financial assets and other rules. These changes could not only have a significant impact on an institution's reported earnings, but also on its capital ratios due to the need to carry larger loan loss reserves.

While the list of issues may not be new to any banker who has been in the business more than 6 months or more than 20 years, the risk of not proactively addressing these issues has never been greater. So, if you are in the midst of planning for 2014, make sure your team is just not listing these in a SWOT analysis without building strategies to address the risks and opportunities. If you are 'done' with the formal strategic planning process, it may make sense to review the strategies and tactics planned for 2014 to make sure some version of 'status quo' is not your plan.

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