By offering a solution, one takes responsibility for the results. The responsibility is even higher when it comes to innovation touching the everyday lives of a large number of people – from online to real-life experiences. In the time when every day brings something more exciting than the day before, only responsibly released innovative solutions have a chance for long-term success and positive impact across the industries.
The importance of the concept of responsible innovation is dictated by the rapid growth of the startup community and technological advancements introduced to the market. In the US alone, there are reported to be over 20,000 FinTech startups which are responsible for creating 500,000 jobs. Moreover, recent estimations suggest that more than $50 billion have been invested globally since 2010 to fund new FinTech ventures. Q1 2016 proved positive trends in the growth of the industry with more than $5 billion investments in financial technology ventures.
However, modern markets are highly competitive and there are traps and pitfalls for startups at every corner. In fact, some estimations from the beginning of 2015 suggest that 90% of startups fail. More specifically, the data from the beginning of 2016 describes the grim reality where almost 50% of new businesses, independent of the industry, don’t make it to four years of existence.
The principles of responsible innovation
Sharing its perspective on the responsible innovating in the federal banking system, the Office of the Controller of the Currency (OCC), recently published a paper outlining the guiding principles of responsible innovation including:
- Support for responsible innovation
- Development of the internal culture that’s receptive to responsible innovation
- Leverage of the agency experience and expertise
- Encouragement of responsible innovation that provides fair access to financial services and fair treatment of consumers
- Safety of the operations through effective risk management
- Encouragement of the banks of all sizes to integrate responsible innovation into their strategic planning
- Promotion of the ongoing dialogue through formal outreach
- Collaboration with regulators
Financial inclusion as organic result and long-term benefit of responsible innovation
One of the most important principles of responsible innovation is fair access to financial services and the fair treatment of consumers. Unfortunately, there are ventures with an upper hand due to the nature of their target customer groups with the lack of available options in the market (like payday lending). Moreover, there are markets where consumers are at a higher risk of abuse due to the lack of development of financial systems.
While traditional players in the banking system often fail to provide fair access to all customer groups, financial technology startups that have entered the game in recent years have been quite successful in expanding the access to serve the needs of those with little to no options. As OCC states, “Current innovations in the financial industry hold great promise for increasing financial inclusion of underserved consumers, who represent more than 68 million people and spend more than $78 billion annually.”
Underserved groups of the global population have a greater chance for access to the development and improvement of particular segments, like mobile banking.
While it is widely believed that traditional forms of providing financial services, such as physical branches, are being pushed out of business by mobile technology and online banking services, there is another side of the story to it. OCC suggests that “brick-and-mortar branches are a stabilizing force in low-income neighborhoods, and innovative technology should not be seen as a substitute for a physical presence in those communities.”
Working as a balanced system, online and physical banking should be a united force in providing financial services to unbanked, underbanked, and low- to moderate-income consumers. The products cited as a major force in achieving that goal are:
- Online and mobile banking, saving, budgeting, and financial management tools
- Small dollar, unsecured consumer loans and small business loans
- Credit consolidation or refinancing of consumer or student loans
- Use of behavioral models to improve automated underwriting models that could expand the pool of eligible consumers
- Improved payment services.
There are other areas of development beyond fair access to accessible loans for various groups of population, such as affordable housing and community or economic development. In addition, responsible innovation can foster fair access to small business and community investment that improves services and provides community redevelopment resources.