Innovation and Fintech

The model developed in the previous chapter is consistent with the report produced by EY. The customer-centric approach, the focus on technologies and on digital channels, and the enlargement and empowerment of the customer base are primary elements to consider in fintech initiatives (see Table 4.2).

Digital Transformation and Fintech

One important question is when it makes sense for a traditional organization to embrace the fintech wave.

Some believe that a digital transformation is simply a matter of using digital technologies to sell and service clients more effectively, more efficiently, and in a more customized way.

Table 4.1 Innovation classification


Example of innovation

Product innovation


Process innovation

Big Data Analytics, etc.

Organizational innovation


Business model

Tech organizations


Table 4.2 Innovation in financial services (adapted from Lopez et al. 2015)

Traditional model

Digital innovations

Why are they innovative?

The main objectives of technology are employee productivity, compliance, and integration of disparate and legacy ICT systems.

Well-designed platforms, focused on simplicity, speed, and intuitive workflows through digital and mobile channels

Technology aims to improve the customer experience with financial advices for the investors.

Traditional marketing and advertising through brochures, company websites, and direct mail campaigns

Compelling editorial content and financial education distributed openly online with a focus on human connection; provision of constant feedback on the customer's financial health

Focusing on the human connection and financial education in plain language through digital/mobile channels improves investor awareness. It also brings greater confidence, trust, and engagement.

Fees on assets under management typically above 100 basis points, difficult to understand, and with low visibility for investors

Average fees between 25 and 50 basis points; provision of free tools to analyze fees across accounts while offering cost-savings options

Leveraging low-cost exchange-traded funds (ETFs) and share/bond indexing enables portfolio diversification at lower prices with a transparent fee structure.

There are also other interpretations of what digital transformation is:

  • • A new application of digital initiatives, such as marketing
  • • A matter of using technology to drive business process innovation
  • • Nothing less than to be the Uber of taxi or the Airbnb of hoteling, and more

The real problem is not so much a definition of what digital transformation is, but what should be the strategy in face of this challenge/ opportunity and how do we align an organization behind the digital transformation vision? A definition affects strategy and the level of its conversation, so it matters. What executives often do not know is how to bring about the changes that will help their organizations to be profitable, sustainable, and competitive in an era of disruptive change.

The reality is that most companies are reluctant to disrupt their own industries. Their concern is often because they fear cannibalizing their customer base or eroding their own margins. Hence, many executives prefer to make minor changes to their business with digital technologies rather than to innovate their business models in a fundamental manner. Many scholars such as Clayton Christensen (2013) suggest that a new business, outside of the current business, is often the best way to have the better of two worlds. It means an organization can become more customer-centric by using data and technology well in its current business, while experimenting with more disruptive solutions enabled by technology.

The recommendation is that executives should start by discussing their business’ 4 Cs—context, customers, challenges and costs, and competitors—so that they can have a clear view of how digital transformation, technologies, and customer behavior can affect their organizations in the years to come. This exercise is about clarifying language so the organizations can build a digital strategy based on a shared understanding of their challenges and desired outcomes.

However, according to the study done by Forrester Research, the positive results of these investments are not clear: 73% of executives believe that a company has a digital strategy, but only 21% believe that it is the right strategy and only 15% believe that they have the skills and capabilities to execute it.1

It is important to analyze the digital transformation in order to assure that it is more successful. In this respect, it might be interesting to refer to the sentence of Rudyard Kipling mentioned in Chap. 3 of this book[1] [2]: five Ws, and one H. It is important to answer these questions, each starting with an interrogative word, for considering complete the analysis of a problem. In the case of digital transformation, this would mean to answer the following questions:

  • • Why digital transforms the organization?
  • • For whom to do the transformation?
  • • What is the product it should aim to provide?
  • • Where can it take place?
  • • When can it take place?
  • • How to implement a digital transformation?

The broad questions executives should be asking are then:

  • • Why: The reason to do a digital transformation is to improve the business from an effectiveness, efficiency, and economic point of view. The real nature of the digital transformation of an established industry is not always obvious. Think, for example, about Uber, which may have a drastic impact beyond the taxi industry in the years to come. By making personal transport an affordable service commodity, it could eat away at the edges of the car and auto insurance industries.
  • • What are the best companies across the spectrum of digital enablement? What can executives learn from them about the future of the industry and the business? Organizations must understand how customers behave rather than simply looking at direct competitors. Remaining relevant is not simply a matter of creating an app or smartening up their website. It is essential to find ways to use customer data to create more meaningful and relevant customer experiences at every contact, physical or virtual.
  • • Who: Digital transformation requires a change in how institutions understand and engage with customers with the aid of digital tools and channels. This is an imperative and no longer up for debate. Unless this is done, nothing else is possible. This approach has the advantage of being realistic and manageable to implement.
  • • Where should the organization change to defend and extend market share, grow profits, and ensure relevance as digital technology evolves in the years to come?
  • • When should the organization invest in financial technologies? The simple answer “always” is in contrast with the realities of the possibilities of any financial institutions. By looking closely at competitors and the technology landscape, executives need to intercept low signals on how emerging technologies and disruptive rivals could attack their market shares. They need to create, deploy, and manage the strategies necessary to protect their market share and possibly identify ways to expand into new service/market domains using the digital transformation.
  • • How exactly is digital technology changing the way the organization’s customers behave and the way that existing, emerging, and potential competitors do business?

The next step is how to implement the new strategy. The answer is not the same for every business. Some businesses will have visionary leadership, agile processes, innovative cultures, open workforces with digital skills, and modern technology platforms, so they are able to embrace digital transformation more wholeheartedly.

In dealing with this digital innovation, it is important to refer to a model of innovation (Nicoletti 2016). Organizations should approach digital innovation in a holistic way. To approach this challenge, it is possible to refer to the combination of the Chandler model of connecting strategy and structure (1962) and the Leavitt Diamond model (1965), by considering the four connected variables:

  • • Structure (organization)
  • • Processes
  • • Technology
  • • Persons

An example of this approach applied to a digital strategy is shown in Fig. 4.1.

Conservative leadership, legacy technology, regulation, siloed processes, and non-receptive workforces may affect many organizations. Organizations will need to look at their assets—data, customers, resources, and channels—and find ways to put them to work in a digital world. In some cases, they might need to launch new products, or accept new business models or innovation groups to fast-track their digital programs.

On the other side, for the digital transformation, it is important to look at the 3 Ps (Nicoletti 2014a):

• Products: The definition of services to be offered to the customers of the organization is really essentially.

A model for an integrated innovation strategy (Nicoletti 2016)

Fig. 4.1 A model for an integrated innovation strategy (Nicoletti 2016)

  • • Processes: The introduction of new products needs to consider also the changes in the processes. The two goes together in an innovation.
  • • People: Finally yet importantly, people must deploy and deliver the innovation. Executives should devote to them a very strong consideration and help individuate and foster the talents.

So ultimately, underpinning the organization’s ability to perform a digital transformation lies in its ability to define a vision, define a plan, organize, and make it real.

  • [1] Forrester Research 2015. The State Of Digital Business 2014, [online] Available at: /Infographic_1v4.pdf, Accessed 27 July 2016.
  • [2] Kipling R. (2013), Just So Stories, CreateSpace Independent Publishing Platform.
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