Finding the right mix: Innovation in financial services with Société Générale 02 November 2021
Yves Blavet, Open Banking Director at the Societe Generale Group Innovation Department, discusses how the French leader emphasizes innovation to open itself up to new ideas and partners in our digitally-driven world.
This interview series was conceived by the Efma Future Innovation Community team to speak with those on the inside who are driving innovation agendas at leading financial institutions.
The role of innovator inside financial institutions is not an easy one. Many factors need to be taken into account, from regulation to internal legacies, competitive forces, new technology developments, and evolving consumer demand. It is a long list. How do they arrive at the right answers? How do they know what to prioritize in a changing landscape? Where is the industry headed in coming years?
In these interviews, innovation leaders share their views on these important questions. Their experiences are valuable as there is no silver bullet or crystal ball when it comes to innovation. And while everyone must chart their own path, we are not alone. We can leverage learnings and experiences from those around the globe who are working on the same problems. This series will provide the type of insight that community members will no doubt find valuable in their own innovation quest.
The role of innovator in banking is not an easy one - how do you personally approach the challenge? And how does your institution think about innovation with all of the existing challenges, threats, and legacies in the industry?
The banking sector is faced with a number of challenges: faster digitalization of client interactions due to the health crisis, competition with fintechs fostered by deregulation, and climate change. Our environment is tough with strong capital requirements, thin interest rate margins, and pressure on costs. In such a context, innovation is key, not only to invent solutions, create new offers, or enhance customer experience, but also to transform banks in depth and make them more efficient.
To really bring value to their organization, innovation teams should choose a limited number of focus areas and define Objectives and Key Results (OKRs) with their sponsors. The Group Innovation team at Societe Generale has several such focus areas: open innovation and partnerships; scouting and investment in fintechs (through our SG Ventures fund); digital transformation strategy and monitoring; data and artificial intelligence, and open banking & platforms. As you can see, our areas of focus are consistent with an increasingly digital and technological world, where banks open themselves to partners.
As financial institutions build their digital agenda, it is imperative they find the right mix between fintech cooperation, innovations labs, open programs, and internal processes. How do you approach this in your institution? And how do you see this evolving in the coming years - will we see more innovation plugged into banks from the outside or innovation built from the inside?
Technology and deregulation have paved the way for a profusion of innovative start-ups, first in payments, and then in virtually all areas. Fintechs have the ability to raise a lot of capital, attract talented people and, free from the burden of regulation and legacy systems, develop amazing new offers. Even if banks made the strange decision to build everything internally, they would not be able to keep up the pace, because they operate in a much more constrained environment than fintechs. Cooperation with fintechs is therefore vital and can take different forms, from mere commercial partnerships to acquisitions.
We also live in a world of platforms (operating on dual or multisided markets). To some extent, Big Tech firms become competitors, providing payments and credit to their clients. New entrants also assemble financial and non-financial services to create compelling client-centric offers (e.g. Shopify for e-merchants).
To operate in this world of platforms, banks must adapt to sell their products to an enlarged client base through platforms in a Banking-as-a-Service mode. They should also adopt a more client-centric approach, especially on the market of SMEs. Addressing that market properly implies enlarging the scope of services offered through partnerships with fintechs. This is sometimes referred to as 'Banking-as-a-Platform'.
There is a clear trend of Fintech start-ups becoming the new digital tech providers for banks, replacing current tech suppliers. Do you see the same trend in your institution? How do you think IT departments need to evolve to accommodate this?
I am not sure that fintechs are actually replacing tech suppliers. Societe Generale is obviously partnering with major tech companies for cloud technologies, while sticking to stringent policies to avoid storing sensitive data in the public cloud. More than pure tech, fintechs tend to offer specialized financial services based on state-of-the-art technology (real time, scalable, modular) with best-of-breed customer experience (In that sense, they may replace some software vendors). Fintechs compete with banks but may also want to partner with banks to benefit from their distribution potential.
Banks can also rely on fintechs for technology. There are a few new generation core banking system providers who might in the future replace in-house legacy core systems. Although impressive, they are still in their infancy and are not yet adapted to dealing with the core operations of major retail banking networks. Incumbent banks are very interested indeed, but at this stage, they will only test such technologies on new businesses or side businesses, where they can afford to experiment with limited risk.
Testing and piloting is one thing, bringing innovative solutions to market is far more complex. What is your experience and opinion based on how your institution delivers solutions? In your opinion, how can financial institutions succeed in bringing real innovation to the core business?
Yes indeed, testing and piloting within the innovation teams without strong support from at least one business is bound to lead nowhere. It does not mean that innovation should only pilot what the business requests. Innovation must make disruptive proposals, again and again, until the business is on board and takes responsibility for the new projects.
The alternate solution is to build new businesses from scratch and allow them to compete (to some extent) with the traditional business. Some major banks have successfully adopted that approach when they realized they were lagging behind. This is where partnering with – or acquiring – fintechs may prove adequate.
A mix of both options is probably a reasonable trade-off.
In what areas do you think we will see the fastest innovation applied to mainstream services? Retail? Commercial? SME? Private Banking? And why?
Again, I think that the strongest disruption will come from client-centric platforms. In my opinion, the SME market is rather homogeneous (in terms of needs) compared to the very diverse consumer market. It is therefore much easier to build client-centric platforms with an enlarged value proposition (not only banking, but a comprehensive suite of management software) for SMEs than for consumers. SMEs still pay for banking services, while consumers tend to expect them virtually for free. And frankly, banks may have under-invested for many years in the quality of their service to SMEs. Customer experience can be easily improved. So, this is definitely where the fierce battle will happen.
In private banking, I think that trust in the client relationship manager remains key. There is room to extend digitally the distribution or private banking products to a wider audience. But I would not expect existing private banking clients to shift massively to digital offers. I may be wrong. I do not have a crystal ball!
Join Yves Blavet and his peers in charge of innovation at financial institutions. Contact Dorota at firstname.lastname@example.org to join the Efma Future Innovation community.