Growing Maturity of Innovations in the Market for Financial Services – Part I

• Finovate in London and in San Francisco with different focus areas

• Different indicators for the maturity level

• Diffusion vs integration paradigm

• Developments toward B2B and special market segments

At the Finovate event held in San Francisco in mid-May this year, both well-known and new companies presented their products and services within the field of financial services. Compared with the previous Finovate in London in February, a different focus was noticeable among the concepts presented. Pure coincidence? A simple matter of different trends in the North American vs the European market? Or was it truly a sign of a widespread tendency? These questions prompted the following series of smaller studies to test the theory of a growing maturity level within innovative developments in the market for financial services. The first part of the study deals with the methodological-theoretical foundation of the concept of the maturity level. The second part will discuss whether and to what extent the innovations are truly leading to a growth in the maturity level of developments.

A prominent indicator for the maturity level of innovative developments is the market penetration or diffusion of individual products. Statements made on such a product-related basis, however, become less conclusive the less they focus on the individual product and the more they focus on the changes in the market in general. The only way to combat this issue methodologically is to study a large number of products. As only very few innovative products are able to assert themselves on the market in the long-term, this assessment of the maturity level will primarily remain product-focused. The corresponding statements regarding market changes can only be made by assuming that one of the products will disruptively change the entire market.

The well-known example of Apple illustrates this point: Everyone knew that button-free “telephones” with touchscreen displays would catch on in the market – after Apple had taken over the leadership position in the smartphone segment. Practically on the sidelines, the app concept was introduced as a business model that, with its programmatic opening of software architecture, smoothed the way for individual services and functions to access the mass market, whereby low prices for consumers were made possible by high economies of scale for producers.

The market for innovative financial services can also be judged according to this indicator. The following list names individual products and services whose exponential growth was determined using this form of assessment:

• In the field of mobile payment, there is the already well-known Square, whose functions by now are also being implemented by large companies with their own product lines (PayPal Here, NCR Silver), while other start-ups want to clone its functions in order to access other regions and markets (SupUp, payleven)

• In the lending operations segment, there is Kickstarter, whose crowd-funding platform is already being copied by several other players (Startnext, Seedmatch, Innovestment, Funding Circle, Crowdcube, Bergfürst)

• In the field of personal finance management, Mint is available in several North American markets, and was recently purchased by an established player (Intuit)

This overview of the market penetration of individual products contains further criteria of the product paradigm: the extent to which specific offers and functions are cloned, the extent to which they can be transferred to other markets, and the extent to which they are bought up by established players. As all of these criteria are fulfilled by individual products and services, we can indeed state that there is an increasing level of maturity among innovative developments.

Above and beyond these points, however, specific phenomena can be observed among innovative developments that are not illustrated in this paradigm and that cannot be easily described within it. This includes, in particular, the extent to which non-disruptive but equally innovative concepts interact with already existing, classic concepts, and the extent to which these are then synthesized into new models.

The indicator we have chosen aims to reveal less obvious development tendencies occurring in the background. As a result, it allows the formulation of more up to date and significant analyses regarding the ramifications of developments and the changes of the existing market structures. However, this requires that market participants fulfill specific requirements. On the one hand, innovative products must be capable of being integrated into existing processes. This requires a non-revolutionary attitude and the engagement with the models that are already present in the market. On the other hand, established processes must prove to be capable of being dismantled as well as open and agile in order to allow integration with new products. For the actors behind these models, the challenge is just as great. Within the framework of innovation management, they must open their own models for innovations and engage with the potential of new offers.

In general, this integration or adaption paradigm enables us to look at market developments in a new way: moving away from individual products toward questions of integrating these products. Do innovative products and services focus more on addressing established actors? Are these players demonstrating openness toward new concepts? Are the new concepts being integrated into existing offers? Are linkages between old and new models increasing? Are there interactions and collaborations between start-ups and big players?

As a result, we can determine an increasing differentiation among innovative developments that reflects the growing maturity level of the developments. This differentiation affects, on the one hand, the integration and synthesizing of products, meaning that innovative products see themselves more as B2B solutions for individual steps in a process. On the other hand, the differentiation also affects the market, in terms of products offering solutions for very specific problems or addressing specialized market segments. In some cases, these products create the corresponding market segment themselves.

In the next part, we will examine related questions regarding specific products and services in the financial services market.

David J. Teece, Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy, in: Research Policy 15 (1986), S. 285-305.

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Clayton M. Christensen/Michael Overdorf, Meeting the Challenge of Disruptive Change, in: Harvard Business Review 78 (2000), S. 66-76.

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James Simmie/Juliet Carpenter et al., History Matters. Path dependence and innovation in British city-regions, 2008.

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