Three Flavors of Payments Innovation
Let’s talk innovation! But first, what do we really mean when we say “innovation” anyway? As we all know, innovation can take many forms, but in my view, there are three main varieties – and these are evident in the world of payments and financial services.
Correctly identifying the variety – or flavor – of innovation you seek is extremely important. Each requires a different path to achieve success (for more information, I suggest you consult The Innovator’s Dilemma).
1. Net New Innovation
Net new is exactly what it sounds like: we are creating something that is not in existence today. This is the type of innovation that most people imagine when they hear the ‘innovation’ buzzword. In our context, it could be a new payment type, brand new payment rails, a new technology, etc. This type of innovation typically requires new business processes, new business models, and new systems. We are seeing this across the payments ecosystem today in hot-spots such as Blockchain Proof of Concepts (PoCs), Neo-Bank offerings, and some closed-loop payment networks. The path to success in this innovation channel is the highest risk, highest reward – and the hardest to overcome in terms of objections relating to existing business.
2. Incremental Innovation
This is the least fashionable type of innovation, making fewer headlines, but it’s the quickest path to success! Incremental innovation looks at the existing and finds the improvements that add value; whether that’s faster throughput or lower-cost hardware footprints. Existing business processes and models work well with this type of innovation, as they likely don’t need to change or the changes needed are incremental as well. This type of innovation is low risk, but accompanied by the lower returns you would expect from a safe bet; your market is limited to the same market you started with, or potentially one click right and left of your initial position.
3. (R)Evolutionary Innovation
This is the most difficult to achieve – it’s the innovation that sits between our two prior definitions. To create something that truly falls into this category, you have to know how to bridge from today to tomorrow.
To achieve the necessary scalability, and reach the widest possible population, you can’t create a net new environment in a closed off or siloed manner. You must leverage the existing as your launch pad to create what will become the new normal. Uber is a great example of a (r)evolutionary innovation: It didn’t create ride hailing, but it leveraged a technology to fundamentally change the experience of taking a taxi. This type of innovation requires some level of organizational mentality shift as well as risk-taking, but the potential rewards are amongst the highest.
In my opinion, the business world-at-large struggles with innovation because for many it’s not something that’s easily repeatable from a case study. It takes so many forms that a ‘one-size-fits-all’ approach is impossible. But neglecting to foster innovation with structure also sets organizations up for failure. It’s a careful balance of conceptualization and rationalization.
Mark Ranta will join top payments executives at the Leadership Loft at Money20/20 USA, for a session titled: “Return of the Planet of the APIs: The New Payments Ecosystem,” 4:00 – 4:40pm on Tuesday, October 23. In this session, experts will discuss how traditional boundaries that once defined the payments landscape have been removed with APIs.
Meet ACI at Money 20/20 at Veronese 2502, October 21-24. For more information, visit ACI at Money 20/20.
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