How to think about innovation

Editorial Board Member, Daniel Huszár, Head of Sales, Efcom, speaks about the developments of digitization related to trade finance applications and offers guidelines on how to implement solutions to the changing customer demands.

Digitization is the fourth industrial revolution. The first industrial revolution was about mechanizing production with water and steam. The second used electricity to produce goods on a large scale and the third automated production processes with Information Technology. Since the middle of the last century a number of technological innovations, such as the Smartphone, have led to an increasing convergence between the analogue world and the digital realm.

The FinTech approach

For trade finance, digitization is closely associated with FinTechs. These alternative finance providers have a strong focus on providing services to customers, which are driven by interaction with software - to offer the customer a direct channel to use their services. They gathered US$17.4 billion of global venture investment in 2016 according to data provided by PitchBook.  Additionally, the growth rate of 11% compared to funding in 2015 shows that it should be worthwhile to investigate the reason of this success.

FinTech companies are often framed as risk offenders to traditional banks. First, there might be the danger of losing customers to these providers. Second, they could raise the expectations what an ideal customer experience should be.

I want to invite you to see FinTech as an approach that anyone can use. Not a company that is a threat to your business model, but a way of thinking when providing financial services.

The customer's demands in a digital landscape are the main focus in this approach:

1.  Quick and direct access to information through software (e.g. app or web-portal)

2. Interaction within the boundaries of the financial service (e.g. cherry-picking invoices which are to be financed)

As a result of these growing demands, human interaction during daily business is limited to a minimum. This gives the customer the option to access information quickly, such as a real-time dashboard displaying funds. Additionally, by interacting with the software, customers feel in control and are able to communicate their requests at any time (e.g. requesting a limit).

From the perspective of the financial service provider this is also an advantage, since limiting human interaction saves valuable hours of manual work. This development can be viewed as a form of outsourcing work from the financial provider to the customer, which can be paradoxically advantageous to all participants.  

But how to build a platform that brings value to your customer - possibly even including cutting-edge technologies, such as blockchain or artificial intelligence?

How to implement innovation

It is a common scenario: a new technology emerges. It is all over the press, it is talked about in conferences and you hear about the competition trying to implement it. You suspect that it could have a powerful effect on the trade, but it is hard to imagine a specific business case yet. So the decision for a project is postponed - and with good reasons. Understanding how it works is difficult.

First, the technical implications are often beyond what can be understood in laymen’s terms. Sometimes even experts have a hard time positioning new technology. Second, defining an application case for new technology is much harder than solving an existing challenge, (e.g. automating a manual process), because the application cases might not fit in the established product portfolio. Third, there aren't infinite resources within handling daily business, not every company has a research and development department dedicated solely to find innovative ideas. But past experience shows that ignoring the challenges of digitization is not the solution.

An agile approach, similar to how FinTechs operate, can be helpful here. Every one of them operates on the premise that either a new technology will create opportunities to do more (easier) business, or that there is a fundamental gap in financial services that they can fill.

There is an awful lot of tech written about FinTechs, when the human component is actually much more interesting. The founder of a successful FinTech company has to have elaborate knowledge of the business landscape he enters, as well as the technological expertise to use the right tools for the job. People don't come up with good ideas out of the blue.

These ideas are a product of hundreds of failed ones. Finding ideas worth pursuing is a result of constant engagement with the subject, which can only be sustained when there is passion and curiosity for (technological) trends. A person with this skill set is someone you need for your business when aiming to innovate.

Typically employed in product development or as CTO, but by no means restricted to it. You can regard it is an intermediary position between business and tech departments. There is no need to be able to develop the application, but to evaluate recent developments and to give the first impulse in a discussion.  

Innovation is a process

People imagine that progress in technology research is linear. But this is not the case, because there are too many factors influencing what we would perceive as progress. The market, availability of technological advancements and the implementation are all factors that constantly change the reality of what is possible and what is not. As a result, the best chance we have to adapt is to use an iterative process, which means to constantly re-examine how to build a product and how to sell it - throughout the whole process.

In conclusion, here are some points to consider within the innovation process:

  • Work with a small team. A big team, in contrast, can easily fall into the groupthink trap, where maintaining the status quo seems like a good option due to perceived peer pressure. A small team with expertise in business in technology works better if we are striving to create something new.
  • Have regular meetings to discuss recent technological and business developments.
  • Be open but critical about new ventures. If an idea passes the group evaluation, do a test project. Don't try and build the next blockchain platform that the whole world has to sign up for. The initial idea has to be useful from the start, without the network effect of a much bigger scale. Don't kill the idea because there is no immediate gain.
  • Start small and experiment. This will help you to stay agile, because the landscape is changing fast and additionally this will give your team practice in working with the technology - which can lead to even better ideas.