Mar 23, 2006

Why are payment brands not among the world's top innovative companies?


Why is there not a single bank or payment brand on this list?

Edgar, Dunn director Pascal Burg stopped by our office in Aix last week and presented their survey on innovation in the payments industry. An abridged version of the study is available on the EFMA website.

The report starts by pointing out that not one bank is on Business Week’s 2005 Top 20 Innovative Companies in the World. The authors ask, “Where on the notable ranks of the world’s top innovative companies are the major payment brands of the world’s leading financial institutions or payments organizations? Does their conspicuous absence mean that, as a category, the payments industry is not innovating? Whether one agrees with Business-Week’s picks for innovation or not, the fact remains, not one major payment industry brand name made the list.”

The authors found that financial institutions are reluctant to invest in new payment technologies. Following the internet bust, many financial institutions have disbanded incubators and tend to be less aggressive in investing in unproven technologies. Also, a large number of financial institutions are allocating the vast majority of their investments to initiatives that are required for regulatory or payment scheme compliance (e.g., EMV).

These factors are not structural. They reflect specific conditions facing banks at this time. I would add another factor, this one structural, which could be even more important than the others. Most banks are unable to create substantial payment innovations because they don't have a holistic grasp of the end-to-end payment function. They innovate within silos, so the innovations are rarely deep. See my prior post, "Creating competitive advantage through a holistic approach to payment" for more on this.

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