People at the heart of technological innovation
Blockchain, FinTech, Regtech, Suptech… these terms describe the most commonly used innovations and new technologies in the financial sector. The recent acceleration of progress in the digital field and the necessity for users to gain technological agility make this a priority issue, particularly in the banking industry. Making these issues part of a strategy and a long-term vision is key.
The OECD’s Oslo Manual explains that innovation refers to a product, process, or service that provides a company with new knowledge, a change involving a high degree of novelty, or a substantial improvement potentially leading to a breakthrough. Companies have always needed to innovate. The recent acceleration of progress in the digital field and the necessity for users to gain technological agility make this a priority issue, particularly in the banking industry. Human behaviour must evolve to adapt to this new paradigm, where technology is now an integral part of everyday life.
‘Innovation’ comes from the Latin word innovare, which means to ‘renew’. Novare, from the root novus, means ‘change’ or ‘new’, and the prefix ‘in-’ indicates inward movement. Hence the important concept of acceptance of change.
An example of this is the success of smartphones, which have a penetration rate of nearly 80% in France and 35% worldwide1. This success relies on sophisticated mobile applications that use artificial intelligence (AI) solutions to make them easier to adopt for as many people as possible. Another example is major e-commerce sites, which analyse each of our clicks to recommend the best purchase at the best time. These use machine learning solutions to constantly improve their purchase suggestions. A final example is the self-driving vehicle, examples of which have appeared in the United States, and more recently in Luxembourg, on a trial basis. These vehicles are also symbolic of this trend.
The development of new technologies is a global phenomenon that affects every business sector and every one of us. We encounter them daily without always being aware of them.
The best way to predict the future is to invent it
So what about finance?
The financial sector is one of the sectors most affected by new technologies. At the end of 2018, Societe Generale Securities Services, the Societe Generale group’s business unit dedicated to securities services, conducted a survey of 100 European clients, namely traditional and alternative asset managers and institutional investors, called ‘Taking the Long View’2, to find out how they view tomorrow’s challenges in their business areas. 84% of them put digital and new technologies at the top of their list of priority issues. Making these issues part of a strategy and a long-term vision is key for success. In response to the question ‘Why innovate?’, a majority of respondents said that it is important to innovate in order to be more effective, especially in sectors where continuous improvement has reached its limits. Blockchain, AI, and RPA (Robotic Process Automation) are mentioned because of the promise they hold in this field. Operational efficiency is a challenge, as an increasingly industrial model is required to ensure companies’ survival in the current environment of shrinking margins. The survey also reveals that operational efficiency – achieved through the use of new technologies – remains the priority for 32% of respondents. Cost cutting, which is one motivation for innovation, has a natural and mathematical limit, however, unlike development, which can be expanded far more widely.
The creation of value in banks’ relationships with their ever more connected and tech-savvy customers is crucial to be able to move away from a traditional, hyper-competitive approach. Banks are trying to reach this ‘blue ocean3‘, described by researchers W. Chan Kim and Renée Mauborgne as the ability to capture new demand by creating a strategic space untouched by competition. The use of blockchain, AI and Big Data can help to boost activity in a mature market with limited growth prospects. With all the data that banks process on daily basis, they are therefore able to create new business models.
The regulatory inflation that has been around for the past decade has also driven the financial industry to look for tools that use new technologies so that they can meet their obligations effectively, particularly in the areas of risk control and management.
Is the implementation of new technologies a dream or a nightmare?
Introducing new technologies allows organisations to experiment with new, more efficient, and less costly project management methods. A first phase known as Proof of Concept (POC) aims to test the advisability of a product idea or a service in an environment that is not linked to the information system. If this first phase is successful, a second phase of developing a minimum viable product (MVP) begins. These two phases do not necessarily require significant financial investments and are often handled by innovation laboratories created by financial institutions to trial these technologies.
The release of the product or service, which is the final stage in a successful innovation process, requires its implementation within the information system. This stage is complex due to the constraints associated with any link to the information system, and especially cybersecurity issues.
The release phase can be complex even if an MVP is successful. This complexity may hinder the development of new technologies. Blockchain is one of the technologies most commonly tested by banks, for example, but its implementation takes time, particularly because of the regulatory uncertainty surrounding it. According to PWC’s 2018 global survey of the development of blockchain and its potential4, this is one of the main obstacles to its adoption.
There are therefore many obstacles to introducing new technologies, which are different for each company depending on their maturity and history. A significant financial investment may be needed, but this is not the only factor determining success.
Do people limit or accelerate transformation?
The human factor and resistance to change are considerations that should not be overlooked as limitations on either technology itself or its implementation within an organisation.
The integration of new technologies within organisations is not just an IT project. It involves a more global transformation of business models, sometimes requiring the establishing of a new ecosystem and therefore flexibility in its protagonists and a change in the corporate culture.
If a lack of leadership, culture, and digital skills persists it hampers the success of the digital transformation. While the complexity of current environments is indeed real, what about people’s understanding of new technologies such as AI and blockchain within companies? Despite investments and initiatives, organisations still do not feel that they are well enough supported or equipped to introduce such a transformation. The shift in a company’s culture towards innovation should be driven by senior management teams, who will support the creation of an environment conducive to entrepreneurship, decision-making, collaboration, and the right to make mistakes.
To summarise, it is essential for organisations to have innovation strategies and the ability to transform themselves in the face of increased competition. The human factor is vital because it is at the heart of the process. As US professor and business management consultant Peter Drucker points out:
At Societe Generale, the future is fundamentally people-centred in all its aspects. The banking group firmly believes this and launched a message of confidence and optimism with its new brand signature last November. This demonstrates its ambitions for sustainable growth for the benefit of its customers, the economy, and society, declaring that ‘the future is you.’
 Source: Statista, 2019 forecasts  Available at www.securities-services.societegenerale.com  Blue-Ocean-Strategy; W. Chan Kim, Renée Mauborgne, researchers at the European Institute of Business Administration  PwC study: ‘Global Blockchain Survey 2018’, September 2018