By Simon Hill, CEO and founder of innovation scale-up Wazoku, working with organisations globally to help capture and crowdsource ideas and innovation.

The need for innovation in Financial Services (FS) is well-documented. Banks and other service providers need to offer digital products and services in order to keep pace with changing customer expectations and requirements, especially in the face of more agile fintech providers.

FS firms also need to innovate for other reasons – navigating the realities of a post-pandemic world, managing geopolitical instability, meeting UN Sustainable Development Goals (SDGs) and conducting business more transparently and sustainably. However, not only are many FS firms not set up for such innovation, but a good deal of them are not even looking in the right place for it. To achieve innovation at scale in FS, it’s time to look beyond the organisational boundaries and get the input of a broader group of experts.

A growing need for innovation

The last few years have really upped the pace of innovation requirements in FS. Firstly, the way that the world does business has changed forever. Organisations need to be more transparent about what they do and how they do it. They increasingly need to make a more significant contribution to society than just delivering good financial results to shareholders.

This has been driven further by the United Nations (UN) and its 2030 Agenda for Sustainable Development. This included 17 different but interconnected SDGs, all designed to drive change in their respective areas, including sustainability, climate action and clean energy.

Some banks have made good progress on particular SDGs, while others are still finding the right path. Either way – the need for a more innovative approach has never been greater.

Similarly, the pandemic has turbo-charged the need for banks to offer a more innovative array of services. Digital and mobile banking have been in existence for a number of years now, with certain demographics conducting most of their banking via digital channels. But the various lockdowns across the world in 2020/21 meant that the need for digital services accelerated rapidly.

FS firms needed to quickly adapt to the reality of people being unable to do their banking in person. They pushed through many new digital services but still need to find ways of maintaining this innovation.  

Banking (in)agility

It’s no secret that many banks still operate with monolithic systems, not of all which are even connected effectively. Because of the size and scale of some FS organisations, it can be challenging to adopt innovative technologies in the same way that smaller firms can. Indeed, many challenger brands in FS are founded entirely on the progressive use of digital technologies.

Yet there are always pockets of innovation to be found even within the biggest and most traditional banks. By and large, c-suites in FS are aware of the need to adopt a more innovative approach to business and are gradually investing in the systems that make that more possible. But addressing the major challenges in FS will not be achieved by pockets of innovation. Any innovation must be sustainable and scalable to have a tangible impact. 

The importance of open innovation

It’s also true that banks are mostly looking within company boundaries for innovation. That’s not to say that employees and associates aren’t capable of innovative ideas – they very much are – but sometimes a problem or potential opportunity needs a different perspective. 

Sometimes the best person to help will be an employee, but at others it could be a partner, supplier, customer or an expert from the crowd. That’s why open innovation is becoming such a popular trend. Open innovation refers to the practice of seeking ideas from outside an organisation, effectively creating a long tail of innovation by accessing a global crowd of experts to solve various challenges.

It’s based on the idea that most of the smartest people in the world do not work for your organisation and that there are significant benefits to be had from including these people when looking for innovative approaches. It’s a practice that has been highly effective in the public sector, pharmaceuticals and NGOs, where open innovation has proven to be faster, more cost-effective and more successful at driving innovation. 

Deloitte research with pharma firms revealed that those which adopt a cooperative, open innovation framework are likely to spur product development, speed time to market, reduce costs, and increase competitiveness.  This is why open innovation is starting to gain traction in FS. It can help FS businesses connect with specialist knowledge of a particular technology or even tech providers they wouldn’t normally find, and does so quickly, effectively and without incurring significant costs.

Looking to the future

Given the scale of some of the challenges that banks are facing, looking to the future with any certainty and confidence requires a more innovative approach is imperative. By embracing open innovation and looking outside company boundaries for ideas and solutions, banks and other FS firms are far more likely to be able to deliver sustainable innovation at scale.