Capco Institute Blog

What does it mean to be innovative? As with many words in the English language, innovation has a Latin origin: It was eloquently borrowed from innovare, which means to renew or change. While credit is often given to Gabriel Tarde for introducing concepts like imitation and innovation, I think innovation should be credited to Everett Rogers. Rogers designed the diffusion of innovations theory and started the notion of being an early adopter. He also defined innovation as “an idea, practice, or object that is perceived as new by an individual or other unit of adoption” (A Guide to Knowledge Translation Theory, Rogers, 1983).

Diffusion, as Rogers described, is a means by which innovation is dispersed along an ecosystem of adopters: innovators (2.5 percent), early adopters (13.5 percent), early majority (34 percent), late majority (34 percent) and laggards (16 percent), based on the Bell curve. Many banks fall in the right half of the curve. Rarely do I meet a bank executive who is passionate about being first to market. However, that is likely to change as the financial services industry accesses technology and borrows advancements from other industries.

Last year, I took part in an innovation study with a large North American Bank and its digital agency. It was then that I realized that there are three components to innovation: the concept is either new to the company, new to the industry or new to the world. I quickly determined that within two of those layers (new to industry and new to world) are opportunities for patentable innovation. Rarely do organizations have an opportunity to file patents on new processes or products, but when they do, the investment into differentiation is clear.

For example, let’s say that you developed the concept of a mobile phone with a physical QWERTY keyboard (e.g., BlackBerry), you filed a patent and were granted exclusivity. The next year, I design a mobile phone and an intelligent keyboard (e.g., iPhone). While still a phone, it differs from your development. That differentiation (physical versus intelligent) allows me to file a patent on my device – while allowing you to keep the patent on yours. Therefore, both of our ideas could be protected from infringement. A great real-world example is Intuit’s patent on “personal online banking with integrated online statement and checkbook user interface.” Google has a list of referenced patents filed with the U.S. Patent Office that reference enhancements to the original one granted in 1999: http://www.google.com/patents/US5903881. So not only is Intuit protected, but so are the other firms and institutions that were granted patents on their redesigned or refreshed approach.

In April, Bank of America was granted exclusivity on two patents filed in 2008; both deal with secure online financial transactions being delivered over secure voice and text chat through a gaming console. Yes, for all you gamers out there, Bank of America thinks your interactions are important enough that it wants you to bank comfortably from your gaming chair and Xbox 360. I was less impressed by the subject of the patent than with the fact that the bank identified an opportunity and believed in it enough that it wanted protection for the intellectual property.

While the financial services industry isn’t the hotbed of innovation, many contenders are investing in and talking about the process on a regular basis. Capital One was one of the first to talk about its Innovation Lab that launched last year with the help of Mark Jamison. Mark’s name may not ring a bell, but RedBox was his idea. RedBox actually started in Washington, D.C. as a grocery store vending machine that sold diapers, bread, milk and movies. However, the only thing profitable was short-term movie rentals, so Mark cut the fat and now RedBox has more than 33,000 kiosks across the U.S. As the Entrepreneur in Residence at Capital One, he oversees all the latest and greatest technology coming out of the labs in DC and San Francisco.

Then there’s Walmart. If you’ve been in San Francisco or Palo Alto lately, you’ve seen billboards advertising WalmartLabs. Executives quickly realized that it’s hard to recruit technology visionaries in Bentonville, Arkansas, so they moved west. Outside of their acquisition of Kosmix, they’ve kept news of their plans to irregular updates through Twitter, their Blogspot page and on their branded site WalmartLabs.com. It’s clear that mobile is No. 1 on their innovation list and it’s been rumored that they are looking at a RedLaser/Amex-like solution for their in-store shoppers.

FinTech has an innovation lab run by Accenture, with participation from Amex, Bank of America, JP Morgan, Capital One, Citi and State Street. It holds an annual summit where selected start-ups pitch their ideas and fund their development through the firms represented. Similarly, Finovate (e.g., Jim Bruene and Netbanker.com) hosts start-ups and innovators in the financial services industry at its annual conferences – giving presenters seven minutes to highlight and demo their products and services. It continues to grow each year and is a critical channel in evangelizing innovation. Banks like TD, Barclays, Citi, Wells Fargo and others are investing in resources to manage the modernization for their client touch points.

We have finally reached a point where innovation is part of the financial services culture.

In his book, “Where Good Ideas Come From: The Natural History of Innovation,” Steven Johnson concluded that with today's tools and environment, radical innovation is extraordinarily accessible to those who know how to cultivate it.

Let’s cultivate it.

How would you cultivate innovation in financial services? Join the discussion.