Innovation in the Japanese Financial Services Industry, Part 1: Two Gaps

On June 5, nearly 120 individuals from Japan's financial sector and the financial technology sector gathered to participate in our Innovation & Insight Day Tokyo 2014. This is the first of a two-part recap providing an event overview and recounting event highlights.

The first keynote address compared the May 2014 Japan Financial Industry Innovation Survey with a similar global Celent survey conducted last October. This comparison pointed to two existing gaps.

Gap Number One: A Leadership Gap

1. Perception of the importance of innovation

"The next few years innovation will be extremely important. Customer expectations are changing very rapidly and it is crucial to act so as not to fall behind." The ratio of respondents who agreed with this statement was similar in Japan and globally as shown below.

• Global: 79%, Japan: 81%

---Conclusion: There can be no doubting the importance of innovation.

2. Leadership and innovation initiatives

"Our firm has an individual in charge of innovation (a chief innovation officer)."

• Global: 11%, Japan: 7%

"We have an organization in charge of innovation (center of excellence)."

• Global: 27%, Japan: 7%

"Innovation-related leadership relies on proponents at the CEO level."

• Global: 62%, Japan: 85%

---Conclusion: There was a clear lack of leadership among top management when it comes to innovation initiatives.

3. Three significant impediments

Global: 1) Daily work operation routines, 2) Internal habits and practices, 3) Inadequate support system.

Japan: 1) Internal habits and practices, 2) Lack of senior management support, 3) Daily work operation routines.

---Conclusion: Both globally and in Japan, in contrast to the high levels of awareness of the importance of innovation, at financial institutions there was a distinct lack of leadership.

Gap Number Two: Gap Between Financial Institutions and Vendors

The Japan survey asked both financial institutions and financial solution vendors about innovation-related initiatives. Responses indicated another gap here between financial institutions and these vendors.

1. Years promoting innovation

There was no significant difference between financial institutions and vendors, with both recording similar figures:

• Three years or less: 54%, Five years or more: 30%

---Conclusion: Financial institutions seem to interpret the fact that technology-supplying vendors possess approximately the same level of experience as themselves as meaning that innovative initiatives cannot benefit from sufficient experience.

2. Organizational and structural

"A chief innovation officer has been appointed"

• Vendors: 24%, Financial institutions: 7%

“Have established a center of excellence”

• Vendors: 14%, Financial institutions: 7%

"CEO-level proponents of innovation are relied upon for leadership"

• Vendors: 67%, Financial institutions: 85%

---Conclusion: With a slightly lower degree of reliance on upper level management for innovation leadership, vendors are slightly superior.

3. Departments that lead innovation

Financial institutions:

• Business departments lead: 30%, IT departments lead: 11%

Vendor innovation proposals:

• Directed to business departments: 14%, Directed to IT departments: 17%

Undertaking initiatives in both business and IT areas:

• Financial institutions: 59%, Vendors: 69%

---Conclusion: There is a visible gap between financial institution innovation IT initiatives and vendor business sector initiatives.

4. Digital financial services initiatives

There was also a visible gap when it came to the priority level of digital financial services (innovative financial services that harness digital technology) as advocated by Celent.

• Financial institution priority areas: Process improvements, transaction feature enhancements, product and service customization

• Vendor initiative areas: Three sectors were overwhelmingly dominant: big data, mobile two-way communication, omnichannel

---Conclusion: Survey results indicated a general tendency for financial institutions to be more conservative and vendor proposals to be more aggressive.

What exactly is this gap and what does it signify? This gap is between the proposals of vendors that feature the newest or hottest technology and the initiatives of financial institutions, which have yet to recognize the advantages of or are still evaluating such technology or technological initiatives. At the very least, currently it is easy to see that, unfortunately, vendors and financial institutions are not yet on the same page when in comes to what they are looking for in initiatives. Moreover, it could be that even if new technology is applied incrementally (to drive improvement) it could also prove to be a driver of disruptive innovation.

In addition to responses that can be numerically tabulated and analyzed, the survey also allowed participants to articulate freely their own invaluable opinions. A more detailed analysis of this survey and examination of innovation in the financial industry in Japan will be available in the upcoming Celent report "Innovation in the Japanese Financial Services Industry: The Gap between Management and Initiatives." Please be on the lookout for it.

Fig. 1 Comparison with Other Industries: Global / Japan Comparison

Compared with other industries, financial services firms (e.g., banks, insurers, asset managers) innovate...

Source: Celent Innovation Survey 2013/2014