Innovation is the translation of ideas into products or services that can make the world a better place, such as artificial intelligence and quantum computing. It must not only provide value to society and change the old ways of doing things for the better, but must also be economically scalable, in order to be replicated and implemented worldwide. This is accomplished through more-effective products, processes, services, technologies, or business models that are readily available to markets, governments and society. The term “innovation” can be defined as something original and more effective and, as a consequence, new, that “breaks into” the market or society. It is related to, but not the same as, invention. Innovation is often manifested via the engineering process.
Throughout human history, several important innovations have dramatically steered the direction of civilization. However, in the past century innovation has accelerated, as the internal combustion engine (ICE), the transistor, the Internet and the smartphone completely put mankind on an exponential innovation curve. Futurist Ray Kurzweil suggests that the progress of the entire 20th century would have been achieved in only 20 years at the rate of advancement in the year 2000—in other words, by 2000, the rate of progress was five times faster than the average rate of progress during the 20th century.
Innovation in fintech has the potential to shrink the role and relevance of today’s banks, and simultaneously help them create better, faster, cheaper services that make them an even more essential part of everyday life for institutions and individuals.
To make the impact positive, banks are acknowledging that they need to shake themselves out of institutional complacency and recognize that merely navigating waves of regulation and waiting for interest rates to rise won’t protect them from obsolescence. Embracing openness and collaboration, and making smart investments is a good place to start. But they will only know they are winning in digital when bank valuations start to factor in the future value of proven innovation, in addition to protecting the core franchise.