Innovations in the Financial Services Sector. A Stocktaking

• Consistently high and growing number of innovators

• Low number of services canceled

• Acquisitions usually undertaken by new players

• Significant amount of reorientation and refinement of the product portfolio

• Broad wave of innovation with a high level of diversity

Today there is consensus about the fact that the finance industry is experiencing a wave of innovation. However, there are doubts as to whether this is a temporary development or one that will change the market in the long-term.

While it is not proof of the durability of this change, the permanence of the innovators does serve as a suitable indicator of it: The number of innovators that continue to exist on the market compared to how many have given up their concept and canceled their services.

The COREinstitute recently conducted a study on the innovators in this field while updating the Database Bank Attackers. An expectedly diverse picture is the result. Of the innovators included in this study, only 1% have completely canceled their services. An equally small number of innovative concepts, amounting to only 2%, was acquired by other players. These acquisitions were usually conducted by companies that also number among the innovators. It is striking that the goal of the buyers in this context does not lie in displacing competitors, but rather in using their purchases to expand their own product portfolios.

By way of contrast, 8% of the new companies have changed their business focus, either by reorienting and expanding their products and services within the same segment, or by further developing and refining already existing products.

The study does not provide any information about the growth of these companies. This snapshot does, however, deliver an indication of the uninterrupted and massive innovation occurring on the market. A further sign of this is the fact that the database had to be expanded to include a large number of new businesses.

Figure: Comparison of innovators regarding segments in 2012 and 2013

As the figure shows, all banking segments are experiencing the entry of new businesses. The segment of Payment Transactions continues to be the target of the majority of companies, while far fewer concepts are being introduced in the segments of Personal Finance Management (PFM), Lending Operations and Asset Management. A comparison of the various segments in terms of the increase in the number of companies leads to the following striking observations:

• With an increase of 20% in terms of new businesses, the Payment Transactions and PFM segments seem to be maintaining their attractiveness for innovators.

• The Lending Operations segment, with an increase in new businesses of 36%, is growing in significance.

• The Asset Management segment, with an increase in new businesses of 12%, is the slowest growing segment; the breakthrough here has not yet occurred.

Taken together, these results confirm the theory that the innovative developments in the financial services market are not exhausted in the creation of large, individual players, but rather that these developments are part of a broad wave of innovation characterized by a high level of diversity.