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Finance Innovation: “Not Every Problem Can Be Resolved With An App”

by Fintech News Singapore June 30, 2016

An interesting conversation between Fintech News Singapore Founder – Christian König – and Daniel Liebau – Founder of Innovation Research & Advisory firm – Lightbulb Capital. Daniel shared his views on Finance Innovation and gave some great examples. He also explains “show-horse” and “work-horse” Innovation and mentioned his favorite Fintech innovation company.

Daniel Liebau

Daniel, please define what Innovation is to you and share an example that you have come across in Asia Pacific recently?

I like the definition “creation of new value”. It’s simple and covers two key aspects:

– It has to be something new
– It has to create value. (Value comes not only in dollars but also in other benefits for mankind, i.e. social Innovations such as Kiva.)

In comparison: An invention is something new that does not create value and a traditional business may create value but is nothing new.

A recent example of an Innovation in Finance in the Asia Pacific region comes from Raj & team at Smartkarma. Smartkarma removes the agency problem in equities broking by unbundling cost for research from trade execution. In this context the Smartkarma team has built tools for independent equity researchers to dig deep into conglomerate structures and therefore create value for buy-side investment managers who in turn can use the researcher’s insights to make smarter investment decisions.

Can FinTech Startups help to kick off Innovation in big companies?

It will really depend what jurisdiction you are in. In the UK the FCA is happy for challenger banks to aim at building up their market share, at the cost of incumbent companies.

In Singapore, one of the leading FinTech hubs in the world, the regulator MAS is pushing hard for FinTech companies to act as enablers for established financial services companies. Incumbent banks effectively become main clients of FinTech firms.

Either way, through a wake-up call to archaic industry players or by providing readymade, human centered, solutions that address a client’s problem:

FinTech firms can push large corporations in the right direction and kickstart (Open) Innovation efforts.

 In your view, what are the main challenges for the Financial Services industry in Hong Kong & Singapore to “do” Innovation?

After speaking to so many different parts of both ecosystems I believe that the following challenges are the most prominent ones:

There are no quick fixes for the issues in either jurisdiction. But we would like to speak to anyone who is interested in working on creative proposals to tackle these issues.

What are low hanging fruit to get started with Innovation for established companies if they haven’t yet?

– Get a small team to focus on building exploratory capacity and experimentation skills, perhaps following a Design Thinking approach (please also check out our recent report on this topic)
– Once one understands the major problem statements pick 2 or 3 and engage in Open Innovation and involve Universities, Researchers, Startups and other external partners to work on those problem statements at unprecedented speed.
– Only after some initial success we recommend to develop a framework of Innovation capability measurement that look at both, the Innovation inputs and contribution to financial performance of the firm.

On a side-note: We all have to remember that not every problem can be resolved with an App – Finance is like a toolkit to solve problems (risk transfer) for people. I would like to see and work on more Innovations in Finance that are more Fin than rather than Tech.

There has been a lot of talk about “show-horse” vs. “work-horse” type Innovation – what’s your take on those?

Short answer to this is that both types (whether we like it or not) are important to the success:

– Show-horse Innovation – a marketing tool to manage (innovative) perception of a firm to clients, peers and the general public

– Work-horse Innovation – just getting on with creating new value in the most pragmatic way. Outcomes are products & services or new business models… and sometimes and app.

Personally I tend to like the work-horse type more because it is actually easier to do.

How could one assess how effective Innovation efforts are?

Building on what we said before I believe it is very important to look at both, the inputs and the outputs of Innovation activities – most importantly are the outputs because all financial services firms I know are for profit. I am currently preparing my PhD research proposal to explore this area at the intersection of Innovation and Finance in more detail. At the same time we have already investigated one particular measure that can even be used in the context of equity portfolio management – please stay tuned as we get ready for our product launch.

Any other matters you wanted to share to wrap up?

I’d like to close this interview with a brief video message, courtesy of IBM.

It nicely wraps up a key belief I have – it’s all about execution! Thank you for your questions Christian, as usual a pleasure to meet up and see you soon again.

Daniel Liebau – Founder of Lightbulb Capital

Dan Liebau is the founder of Lightbulb Capital. Previously he was COO and on the board of HSBC Securities (Singapore) Pte Limited. Dan is a mentor for Innovation, Finance & Technology in a number of FinTech Accelerator programs. Dan has been invited by several Universities to hold seminars on Innovation in Financial Services.

He graduated from the Master of Science in Innovation program at Singapore Management University (SMU) in Singapore and holds a Master in Finance degree from IE business school in Madrid, Spain.