UL Innovation Seminars 2016 | Top 20 Insights
October 26, 2016 - Last month we hosted our 6th annual series of Innovation Seminars in Santa Clara, Shanghai, Singapore, Sao Paulo, and Leiden. Here are the Top 20 of most interesting insights that we took note of.
UL’s Innovation Seminars enables key industry players to have an explorative debate about the current cutting edge innovations in the world. Themed "Closed vs Open Banking", the seminar provided valuable insights into the future of transaction technology. Global experts shared their vision on how banks can renew their infrastructure, cooperate with FinTechs, and learn how to move at Silicon Valley speeds, while meeting the strict requirements demanded by regulators. Find out about our Top 20 Insights gathered throughout all of the Innovation Seminars.
1. The pace of change in the industry
Several speakers commented on the high pace of change in the industry, to the point that the pace of change is so high that there is not a single company out there (be it big, small, international, domestic etc.) that has the capability to deal with this on its own! Any company with the mindset of ‘dealing with digital transformation by ourselves’ will fail. Instead seek cooperation with the outside world, for example through clever re-use of code/ digital assets by using or exposing API’s, or by actively pursuing a strategy of Open innovation.
The digital transformation of our business is also referred to as the 4th industrial revolution (after steam, electricity, and computers – automation). Where the first 3 industrial revolutions had linear characteristics (i.e. economic output rises with the progression of time), the 4th industrial revolution is said to be exponential!
2. Competitive advantages
One of the speakers built on Jack Welch’s famous quote: “If you don’t have a competitive advantage, don’t compete”. In the digital age, many companies seem to want to copy their competitors. Instead of wasting time and effort in bringing yourself up to par with what the competition is doing, an alternative approach is to rather collaborate and to build your own services on your own strengths. This is where the power of APIs comes into play. A company like Uber for example chose not to develop their own mapping service, but rather to plug into what the Google Maps API has to offer. In our own industry, it took the banks a while to realize, that building home-grown mobile payment solutions takes far more resources than having a card in Apple Pay – Samsung Pay.
3. Strategic Control Points
One speaker from Yale’s Business University describes the challenges of today's rapidly changing marketplace and explains how strategic control points and vertical incentive alignment can help companies achieve a competitive edge. Firms that scored high on both items had 70% increased market evaluation, believe it or not! On his view, banks will not completely open their infrastructure, as this is their strategic control point. With open banking APIs, the power of the ecosystem will be greater for banks that are quick to invest and adopt innovation. Last but most important, if you can't find points of strategic controls or profit pools in a certain idea or initiative, run away from it!
4. The growth of APIs
Statistics are always interesting to look at. One speaker of Discover mentioned that the number of API’s publicly available through the internet is growing with a CAGR of 149%! That’s like a giant box of Lego with new bricks every day! Last year, one speaker commented “Innovation is a tool for an entrepreneur to reach his / her ambition”. Adding this all up, everyone with an internet connection can be an entrepreneur. In the banking industry, this is sometimes dubbed as ‘build your own bank’.
5. The merchant – consumer relationship
The same Discover speaker predicted that technology will ‘bend the payments value chain’. Today, the payments industry is a linear series of relationship, with consumer and merchant at either end (consumer <> issuing bank <> payment network <> acquiring bank <> merchant). Mobile technology will continue to bring consumers closer to merchants and may therefore disintermediate (parts of) the value chain…
6. China growth
Again some interesting statistics in China – we heard that last year the number of newly issued payment cards in China grew with as much as 90%! Fantastic opportunities for commerce in general, and the payments industry in particular.
During the seminars, we heard several speakers refer back to the founder of Netscape (Marc Andreessen): “Software is eating the world. Every company will become a software company”. Think of it, this prediction was years ago and has very much become a reality!
8. The payments experience
This is something that we have been advocating for years now: “it’s not about the payment, it is about the payment experience”. We heard the same message back loud-and-clear from at least five of the speakers at the Innovation Seminars. Paying in itself is not fun, so why to focus on availing more payment products? Uber was mentioned several times as an example of where it is all about the service, not about the payment!
9. Internet of Things, and the Internet of Value
During the Shanghai seminar we got two interesting perspectives on the internet. First of all, the Internet of Things (IoT) is really nothing more than an internet of API-enabled devices. Simple, and a provocative thought :). One other speaker elaborated on blockchain, and that with blockchain ‘information becomes value’ which in turn creates the Internet of Value (IoV).
In a similar vein, an example was given on how blockchain can also store rules (e.g. the conditions under which a transaction is valid). The speaker commented “…in Blockchain code is the law, and therefore Programmers will become Lawyers”. New career, anyone?
11. Customers come first
As one speaker in Singapore commented: “Customers don’t care about your solution, they care about their problems”. Very true, and let’s approach the market not based on our own capabilities, but rather from market needs that we can satisfy!
12. Customer segmentation
The speaker from CBA commented that “Banks can only serve 1, at best 2, customer segments very well.” And he continued by adding “For banks to serve customer segments 3, 4, and 5 also very well we must collaborate with other industry stakeholders”. This in turn brings us back to the previous point that companies are encouraged to actively seek collaboration.
13. Branding exercise
We had several speakers from payment networks on stage, and they all more or less acknowledged that the brand perception of payment networks is changing quite rapidly. A consumer may feel: “I just paid with Apple Pay” as opposed to: “I just paid with Visa”. The consensus seems to be that payment networks will focus more on co-creation going forward, i.e. enabling other service providers to provide integrated payment experiences.
14. Born in the Cloud!
In Sao Paulo, one of the speakers introduced us to a whole new breed of companies: the “born-in-the-cloud” companies such as Netflix and Amazon. These are companies that grew up delivering services from within the cloud, and have the advantage of not having legacy systems, delivery channels, or infrastructure to slow them down. In the Netherlands we had one speaker from Amazon on stage, and he in turn introduced us to the term ‘two-pizza team’. A team of developers should be small enough to feed from two pizzas in order to retain agility and accountability for the code they are developing.
15. The human factor
Henrique (Innovations Manager, UL Transaction Security, Leiden) presented a fascinating story about machine learning and artificial intelligence. What does this have to do with API’s? For years, us as humans have been communicating with technology through the ‘API of the machines’ such as mouse, keyboard, code etc. The tide is turning, and machines are slowly allowing us to communicate with them through the ‘human API’ such as speech and text. Look at chatbots for instance as a channel for service providers to connect with their customers.
Some of you may remember Eelco van Wijk as a speaker from PayPal during one of our first innovation seminars five years ago. Back then, he predicted “Social, Local, Mobile” to be the three buzzwords for success. This year, one of our speakers mentioned “Social, Mobile, Analytics, Cloud” (SMAC) as trends in the industry. So we traded ‘Local’ for ‘Analytics and Cloud’. My take back then on the word ‘local’ was simple: be where your customers expect you to be. Fast forward to 2016, Cloud is indeed where you can expect your customers to be, and Analytics is a way to make service delivery even more relevant. We can’t wait to hear what the speakers next year will have to add!
In Leiden this year we also learned that “API’s can be beautiful”, and that it is no longer about Ux (User Experience) but equally important is Dx (Developer Experience). Developers are much more likely to work with your API’s if these are easy to implement.
In the FinTechs perspective, banks and other traditional players associate “open” with insecure, hackable, and something difficult to do. For them, “open” means collaborative, an opportunity for integration. In their view, banks should lower the burden for organizations to work with FinTechs (of course…). If it’s too difficult, start-ups won’t be engaged or collaborate. They feel that the payment industry has stagnated into commodity. It's all about "basis points".
19. Bank as a platform
Why are banks going digital? In the perspective of a large bank in Brazil, it's not because of the threat of start-ups. Banks have deep pockets and are prepared to face new entrants. The real driver is the customer, who are increasingly demanding digital services. The real risk is not coming from start-ups, but from incumbent players who already act as a platform (in another industry), and decide to go into the banking space. Start-ups should rather be seen as “customers” and partners, instead of a threat. That’s why it is extremely important to maintain strong relationships with the developer community, when implementing an Open API strategy.
20. Gall’s law
..and last but not least, one speaker reminded us of the importance of Gall’s Law: “…all complex systems that work evolved from simpler systems that worked. If you want to build a complex system that works, build a simpler system first, and then improve it over time.” Gall continues: “Complex systems designed from scratch will never work in the real world, since they haven’t been subject to environmental selection forces while being designed.” In my view, the 2016 flavor of this is the democratization of services. Mobile technology gives consumers access to so many different options – services, that the ‘selection forces’ as described above is the degree to which consumers experience your service to be convenient. Important lessons learned therefore, is to always listen to the needs of your clients!
We really enjoyed all the insightful presentations and discussions. We look back at a successful round of Innovation Seminars and would like to share an impression of it with you in the video below. Thank you to everyone who joined us!