FinTech Innovation Lab SDK.finance
The key to success for any company lies in how well they can prepare for the future.
The innovation challenge
The never-ending emergence of new technology is changing the way companies behave in the finance industry. New ideas, approaches, and advances are transforming the world at an unprecedented rate, and not all businesses that enter this hurricane of innovation survive.
Newcomers entering the market with new technology seriously threaten even the most established players. Uber is replacing traditional taxis. Tesla is becoming the new Toyota. Google is eating into the advertising revenue of broadcasting corporations. Amazon is overtaking the retail industry. Neo banks like Revolut are attracting and taking the younger generation away from traditional banks.
Existing products in banking are becoming obsolete faster than ever before because new technology is being developed at an accelerating pace. Keeping up requires frequent redesigns, product updates, and new features. Success and innovation require substantial preparation, highlighting the need for a strong research and development (R&D) department.
What’s an R&D department?
A dedicated R&D department is responsible for finding knowledge to create new products and strengthen existing ones with new features. This part of a company’s operations develops research into ideas, products, and services that are most aligned with a company’s strategy and business plan.
Whether it’s entering a new market or completely overhauling a product, an R&D department would conduct a detailed study to come up with reliable data to support the project. The research paves the way for product development, where a prototype is tested to ensure the new product meets project requirements.
Why invest in R&D?
A well-run R&D department generates insights and products that allow companies to perform in some way that their competitors cannot replicate. If R&D efforts focused on enhancing existing offerings lead to an improvement in business operations like cutting marginal costs, for example, then a firm gains a competitive advantage.
“I believe in innovation and that the way you get innovation is you fund research and you learn the basic facts.” – Bill Gates
Successful R&D initiatives let companies create better marketing strategies around new product lines or features that increase customer loyalty and market participation. Innovative approaches can increase market share by giving customers a new experience.
By researching, prototyping, and testing ideas prior to market release, an R&D department can separate weak ideas from genuinely innovative ones, without exposing a company to unnecessary risks. Although some projects require more time to research than others, generally, the upside potential of and R&D department justifies the investment.
How R&D leads to success
R&D is one of the main reasons behind the long-term success of startups and tech giants alike. The strategic decision to invest more in R&D than the competition yields higher rates of growth, better market penetration, and innovative products.
Atlassian, the company behind issue tracking software JIRA, reinvests around 36% of their sales revenue in R&D, and it is paying off. Unlike some Silicon Valley companies who rely on sales staff to sell their products, Atlassian has used R&D to deliver more value to their customers for every dollar they spend on their product.
As a result, the company has a loyal and growing audience that is happy to buy new products with one of the lowest customer acquisition costs among the competition.
R&D is highly beneficial not only to young companies but to established corporations as well. 3M, a company well known for its scotch tape and post-it notes, has used R&D to revive its business after years of sluggish growth, layoffs, and cost-cutting.
The then-new CEO, Sir George Buckley, renewed R&D efforts to spur innovation and grow revenues that came from products introduced in the last five years. The results speak for themselves: in 12 years, 3M’s stock more than tripled in value, and today, the company produces over 3 thousand patents annually.
How to set up your own R&D department in banking?
Like all strategies, any R&D initiative must start with a surprisingly complicated question: “How do we intend to win?” According to Gary Pisano, a professor at the Harvard Business School, the answer lies in understanding four strategic categories: architecture, processes, portfolio, and people.
- Architecture refers to how an R&D unit is structured organizationally and geographically. What will it focus on? Is it a centralized or an autonomous unit?
- Processes relate to how your R&D activities are managed formally and informally. Management systems, project governance, and task sequencing.
- Portfolio concerns the resource allocation and criteria used to sort, prioritize, and select projects as well as how much time will be dedicated to them.
- People are a crucial part of any R&D initiative. How are you going to attract the right talent? Do they share your vision? What mix of generalists vs. specialists will you rely on? What technical background do you require for your projects? Can you source the talent locally?
Building an R&D department from scratch is a colossal undertaking that requires high and long-term investment. Starting an R&D initiative in a fast-growing market, for example, may be a fruitless endeavor because while you are setting up shop, newcomers may rush ahead with new products. Revolut and N26 are perfect examples of how new technology can eat into the incumbents’ market share.
Often, the expertise you are looking for already exists and can be acquired externally. Even tech giants with nearly infinite resources choose to make dozens of acquisitions every year instead of doing in-house R&D. Buying companies and their R&D is usually less risky than generating your own insights because the work has already been done.
FinTech Innovation Lab
FinTech Innovation Lab is an R&D unit that focuses on developing comprehensive technologies that will transform the future of banking – API, artificial intelligence, machine learning, Internet of Things, M2M payments, fog and quantum computing, voice interfaces, natural language processing.
The corporate structure of the Innovation Lab
The preliminary size of the Innovation Lab is estimated to be 70 people. Four main divisions will handle the full cycle of product development – from research to operations.
- Technology & trends research
This product vision group studies current trends, scientific research, and best corporate practices. Using this knowledge, the group prepares a high-level vision of a potential product.
- Product design
This group is tasked with answering the question: “How do we implement the idea?” The result is a highly detailed product specification ready for implementation by engineers.
The biggest part of the Lab consists of 3 main teams of designers and engineers for back-end, front-end, and application development. The teams operate on strict time and budget guidelines to build products.
- Product transfer & support
The last team is responsible for an efficient product knowledge transfer to a bank and support during a product’s life cycle.
Would you like to learn more about Innovation Lab for the bank?
SDK.finance team can help you to establish an Innovation Lab.
Feel free to contact us and discuss your needs.