Open innovation, syntax of the bank of the future
It has become the foundation of the bank of the future. Open innovation combines the future and the present by creating a platform bank that allows the distribution of the bank's products as well as services and offers from third-party players, start-ups, or newcomers. A transformation which Société Générale already initiated a few years ago with the setting up of API and the integration of new technologies via purchases or partnerships with fintechs.
By Laurent Goutard, Director of Retail Banking France Société Générale
Whether a fad, a sign of the times, or the effect generated by the media buzz, companies, and even more so banks, are duty-bound to implement open innovation even without realising it. Yet, being an "open innovator" is a most complex exercise and one that cannot be improvised because it is based on the solid foundations of a group strategy. It is an essential requirement for companies because open innovation now participates in the foundations that build new ways of working and the economic models of the future. In short, implementing an open innovation strategy is no longer optional but has become a necessity.
It is a necessity firstly on a systemic level because companies of all sizes, and even the State, intervene in an ecosystem in which the notion of protection has disappeared, now replaced by the notion of speed, which has become a decisive element. Indeed, brands have grown hugely but this has led to them becoming extremely fragile. Whereas before, they simply had to exist and communicate in order to be loved, now it is only possible to maintain a brand at a very high level by continually proving its quality. This is a very high level exercise in a world devoid of any positive preconceptions and governed by a demand for constant proof of excellence between the brand and the consumer.
Although it is essential in this new distribution of roles to seduce and remain at the top, open innovation implies a much more dynamic element. This new organisation of ecosystems offers many opportunities, the main one for a bank such as us being the chance to distribute our banking services through other players and other channels. In exchange, we integrate these third parties' services, generally start-ups or fintechs, into our own banking services.
Platformisation, at the heart of the bank's transformation
These two faces of innovation are centred around what, today, is referred to as the "platformisation" of banks, which now lies at the heart of our transformation. All banks are working on the subject, and, in particular, Société Générale. Although this platformisation is already the main factor behind the development of GAFA and other BATX, our aim is not to beat them at their own game. Simply, the analysis we have conducted into this new market distribution has led us to adopt the same positions as these major web distributors. This platform concept opens up new horizons for us, such as supplying consumers with the services of established players along with more innovative offers. This strategy is based on a logic of common interest which involves combining our strengths and our assets with those of niche players that do not have direct access to the market but which may offer the final consumer a truly innovative and original service.
In order to assemble these new economic models, the IT tools found in application programming interfaces, or API, are essential. They have been our work focus for about ten years already. By allowing third-party players to connect to our platform, they offer us development which is modular and perfectly secure that is in keeping with the development of the collaborative economy. Although they have many assets, their triple computing, contractual and economic aspects places APIs at the heart of the development strategy of the bank of the future.
Teams qualified to select startups
Of course, we understand that, in this unusual context, the strategy is something that is constantly being re-created and adapted according to new collaborations. But don't think for one minute this new ground is unstable and hazardous! On the contrary, it is supported by tools that we are constantly improving. This is the key to success. In the first instance, excellent knowledge of the ecosystem is required, including its new working methods, and, above all, its economic models. This refined expertise allows us to cover this environment completely with teams that are open and always eager to work with people from the world outside of banking, whether in distribution or integration. Open innovation is not a simple technological dialectic. It is a human dialectic.
Thus, we have formed teams devoted to this selection that include experts from the worlds of risk capital and start-ups. In charge of disseminating this spirit of innovation and its mechanisms within the bank, they have a cross-cutting vision of the group but are also focused on the actual professions. For example, our Start-up Radar team intervenes at a group level and at an international level but, at the same time, we have also built teams within the professions. This adaptation to the spirit of innovation is taking root at the very heart of our bank. Our product managers have learned how to understand start-ups and how to negotiate with them. Next, these staff members must be able to specifically analyse start-ups or fintechs because the aim is very clearly to develop commercial partnerships and work together. This process is selective. Naturally. Several players are able to offer similar solutions and, without one or the other being better or worse, some are better adapted to our needs. This analysis also focuses on dismantling any buzz created by sudden or exaggerated enthusiasm about new technologies. Blockchain is a sort of example of this: although these technologies are of great importance and may even be decisive for certain services, they are not necessarily adapted to other uses in which more traditional technologies are effective and easier to implement.
The dangerous balance between selectivity and openness
We have proven ourselves in this field. For example, Société Générale was the first to take a gamble on account aggregation even going so far as to buy Fiduceo, a start-up that was developing this technology. In the same way, we recently acquired Lumo, a crowdfunding website which, within an economic model of structured financing, corresponds to the core market of retail banking as much as it does to financing and key clients. This ability to spot how new and innovative concepts could be transformed if we built them with genuinely strong economic models has become one of our main areas of expertise.
This expertise is essential. These new economic models should, indeed, be permanent and resistant, even resilient, because they are designed to transform and even adapt our profession as bankers. To achieve this result, the most delicate exercise is to combine strict selectivity with the wide-ranging openness required by an open innovation strategy because it is impossible for us to know in advance the areas in which we will invest in the coming months. Therefore, the challenge is to succeed in identifying, criticising and selecting innovation elements which we ourselves has not even imagined. This combination, the result of a rational balance between great openness and extreme selectivity, is one of the secrets behind open innovation. There are many failures around the edges: too many restrictions or too much openness without any detailed analyses. This was the error that led to the explosion of the Internet bubble in the 2000s, when some invested in start-ups left right and centre without understanding neither the technology involved nor the economic model, despite other players enjoyed lasting success during and after this period.
Testing open innovation with customers
Today, at a group level, we have signed about 150 actual contracts with start-ups but these are not all linked directly to the customer offering because open innovation is not limited to this area but also concerns the field of human resources, training, and finance. For the private individuals market, for example, start-ups such as CashSentinel which supplies contracts to secure the purchase and sale of vehicles and boats, or companies such as Trusteer which secures banking transactions, offer their services on our platform. However, even the most innovative service is nothing if it remains intangible. It must always be tangible in terms of the needs and even the life of the customer. That is why we involve our customers in this vast open innovation strategy via social media. Through our Lab app, we offer those who wish the opportunity to test product and service prototypes using their real bank details. No need to specify that these prototypes are just as finalised and secure as products that are already standardised. The idea is not to target super innovators, but to listen to what our customers want to tell us in the context of their daily lives. This approach is part of a much wider move to completely remove interfaces with chatbots. Consequently, social media is only an intermediate phase for accessing this new trend which also allows the bank to achieve much greater openness.
All these open innovation strategies set up new rationales of use designed to allow customers to maintain a much closer relationship with their bank that reflects their way of life. We cannot simply be content with the technology alone, regardless of how great it is, if it is removed from uses that are adapted to our customers' daily lives. This new vision helps to build collaborative bridges between customers and their bank. I believe that the emergence of this new relationship is the true revolution of the bank of the future.