The seismic shifts in technology, consumer behaviors, competition, regulation and the global economy have created an exciting new paradigm for financial institutions. This has been compounded by the emergence of FinTech challengers entering the market, eating away at traditional business models for banks, insurers and fund managers.
We are seeing the impact of this disruption play out across the global financial services industry and the real economy it exists to serve. In the UK, as an example, a new pilot telematics program is testing the market’s readiness for usage-based car insurance.
In the past, many financial institutions regarded innovation as an internal pursuit. These models required heavy investments in resources and time – neither of which can be spared today as leaders and staff compete for conflicting priorities to meet customers’ growing digital demands, stakeholders’ evolving expectations and global governments’ call for greater financial inclusion.
“I don’t think any organization can innovate at the pace our current environment demands by relying on internal ideas,” says Jeremy Anderson, Global Chair of Financial Services for KPMG. “Innovation that will truly advance an organization – that is, improve its customer focus, lower costs and increase agility – requires tapping into external experts and technologies.”
We are seeing more financial institutions engage in external partnerships with academic institutions, technology experts, government agencies, industry innovators (e.g., FinTech), high value consultants, researchers and customers, as well as each other. Through these partnerships, financial institutions are creating an ecosystem that brings the expertise, experience, technology and facilities they need to leapfrog ideas, products, business models and, in a number of cases, talent.
By pursuing external ideation, financial institutions also benefit from the unique, customer-focused perspectives their collaborators offer. This will enable companies to leverage research and data to understand evolving customer demands – both corporate customers and consumers – and the impact of mega trends.
External ideation also affords opportunities to understand how corporate customers and others within the industry are innovating change to their business models to capture market opportunity and increase operational efficiencies.
It begins with understanding key objectives of the partnership and careful consideration of the individual factors and the desired outcomes of the relationship. These factors have led to a variety of options, such as formalized collaborations, supply arrangements, joint ventures as well as outright acquisitions.
To support this ecosystem, financial institutions will need to put in place governance, capabilities and culture that encourage the fast-paced, ongoing cycle of experimentation and “safe failure” needed to hone breakthrough innovations.
There are plenty of factors to consider in developing an innovation ecosystem that will support long-term growth for your organization. To help you get started, we have developed the Innovation Ecosystem series. Over the next few months, we will explore third-party collaborators that financial institutions should consider for their innovation network. The series will review the benefits these institutions could offer your organization and how to successfully partner with them.