Banks are great at managing risks but extremely poor at innovation.
So it’s no surprise this week when Fast Company announced their Top 50 of the World’s Most Innovative Companies with only one financial services firm making the cut. Even in their list of THE WORLD’S TOP 10 MOST INNOVATIVE COMPANIES IN FINANCE only one financial institution made the list at #7 – American Express.
The last major innovation in banking was the ATM in the 1970’s. Today there’s innovation happening within financial services, but it’s not being driven by the Banks.
At the top of the Fast Company list for the second year in row is, Square, a new entrant innovating the payments space. Square is the creation of Jack Dorsey, the founder of Twitter. Dorsey had been questioned continuously on how Twitter would make money. He argued that the role of twitter is to create traffic, to engage, and “I’ll make money from my next venture”.
The inspiration for Square occurred to Jack Dorsey in 2009 while visiting a friend who was unable to complete a $2,000 sale of his glass faucets and fittings because he could not accept credit cards. He explained this problem to Dorsey who built a working prototype of Square within nine months.
Square is just, so simple:
- A simple name = “Square” refers to the Square card readers.
- A simple proposition = Turns your smartphone into a payment terminal.
- So simple to become a customer – Enter name, email, and phone number. Device arrives in the post 2 days later. Simply plug it in to receive payments.
- With simple pricing – Card readers and the app are free. Only pay 2.75% per swipe.
The impact of Square isn’t just on the payments, with the launch of their m-wallet the vision of square is to own and simplify the entire customer experience. Square offers small business owners their bookkeeping and accounting solution from the moment they input the device into their smartphone.
In August 2012, Starbucks announced it would start using Square to process transactions with customers who pay via debit or credit card. They also reportedly invested $25 million in Square Inc., with Starbucks CEO Howard Shultz becoming a board member of the company. The company’s valuation in September 2012 was US$3.25 Billion…Now I think Jack’s now laughing all the way to the bank
AMEX the lone innovator – striving to be relevant by re-inventing themselves.
American Express deserves being the only financial institution on the list @ #7. If it was up to me, they’d be higher up the list. AMEX is one of the few large organisations thriving in the new world of digital and social media. AMEX is investing heavily in understanding the space, their customers and continuously learning and evolving their propositions and business models. By integrating the information streams and social graphs of Foursquare, Twitter, Facebook they now harness these insights of what their customers want and match them with appropriate merchant offers thus creating value for the entire ecosystem – a Win-Win-Win situation with a win for their cardholders, a win for their merchants, and ultimately a win for American Express
The Point of Impact is now
Today, Banks face more competition and higher pressures on margins. There is a natural lifecycle to financial services. As markets open up, Banks prosper by offering basic products to eager customers. As competition enters Banks are forced to compete for local business, by providing better products, better pricing and new cheaper forms of distribution to increase convenience delivered at lower costs. In those markets where margins are toughest, Banks must innovate to be relevant, differentiated and create new business models to survive.
Check out Fast Company’s list of THE WORLD’S TOP 10 MOST INNOVATIVE COMPANIES IN FINANCE.