Innovation, Design Thinking, Digital, Disruption, Agile, Transformation - these are new buzz words that have been used interchangeably by many, and everyone using them means them in different ways. The other fashion trends for the last few years have been innovation hubs, tech incubators, accelerators etc. and a lot of banks, governments, and consortium of sorts have invested in them heavily, assuming they'll change the world and solve all their problems. Actually, they're right - as long as there's a method to the madness. A lot of them have begun to realize that just putting something together quickly without putting in the right thought process doesn't really give you the expected outcome. Today if you type "innovation hub” into Google, you'll get tens of millions of results in less than a second; 5 years ago this figure would have been significantly smaller. The Fintech space also now has multiple investments worth multiple 10s of billions of dollars...there are way too many reports boasting about different numbers - bottom line, there are some massive investments that are worth noting.

During my recent travels for speaking engagements, meeting various startups, visiting a few accelerators and Innovation Hubs/Labs I gathered a lot of valuable insights about the reasons why they were all investing in these “labs”. Here’s a couple of them:

• Rapid prototyping
• Changing the culture of the organization
• Idea Incubator
• Identifying startups to invest in
• Embed Design Thinking
• Customer Engagement
• Be known as an innovative and future thinking entity (PR)
• Controlled environment for experimentation
• Building 'value' for customers

I am sure you can come up with your individual reason for investing in the “labs”. Given all the investments that are driven by a pure intent (I’ll give the benefit of doubt to all), what are the opportunities? How can one maximize customer outcomes at scale? In my view, it goes back to the basics - “Plan your work and work your plan!” To have a plan you need vision, strategy, and core customer objectives. Some banks have become pretty good at proactively identifying which technologies are good to experiment with and have been pretty current with the times. Most of them are great at following the industry buzz and creating their own as a result. The challenge is that very few, as a result, have been able to be effective in delivering true customer value at scale.

The other big opportunity is regulation that requires harmonization, not just within a region, but cross-region so there is positive change happening at a pace to make the best of the new Fintech business models. At present this is, unfortunately, being done for competitive reasons rather than a desire to keep up with a regulatory best practices to protect consumers. But given how quickly Fintech is evolving, there will be inevitable problems and bad apples, which risk painting the industry poorly, and making some regulators withdraw or tighten a previously more open attitude to Fintech innovation as their experience deepens. Fintech leaders with real, solid industry experience should be thinking proactively about how we as a global community could help develop knowledge of and promote the implementation of safety nets in each jurisdiction.

From a government's point of view, we are in a strange place globally! On the one hand, there is a massive proliferation of technology and ideas being tested, created and deployed with consumers and businesses - however, arguably most national legal codes have completely failed to keep up (think of the requirement of wet signatures on contracts - for customers with a basic relationship with banks, wet signatures are only used if someone writes a cheque. Having said that, many customers don't use a checkbook anymore, but the same requirement applies to everyone) and as a result, it is stifling innovation across a broad range of sectors including finance. Some of the new upcoming “Digital” only banks have created an improved process that cater to the changing customer behavior but it is extremely hard to make such small changes in large banks.

So what else should the government focus on? My view is that reforming existing laws to reflect the digital world would help the finance industry, as well as many others. The FCA (and other equivalents non-UK regulatory bodies) has taken a good approach with its sandbox and I'd argue there needs to be more of these types of hubs. Hong Kong, Singapore, Australia, Canada, and a few others are also doing a lot in this space. Blockchain tech is also very relevant for governments, both in helping to regulate its use but also to feed in the requirements and standards. It could also help create common global standards that are largely absent from many industries and countries. Without standards there are way too many bespoke implementations that will not talk to each other.

It is also very important to have a well-defined success criterion when you embark on the “labs” journey. Without clear success criteria, not only will the outcome continue to surprise you, it’ll continue to grow in its need for more funds and the moment things get tough, the “lab” will be the first to be a candidate to shut down. In addition to clear success criteria, it's extremely important to have a strategy for creating an ecosystem that’ll fuel the right customer 'value'. There is also a need to try and minimize the duplication of activity. During my visits across many of the hubs (Dubai, Australia, UK, USA, and a few others) it was evident that a lot of them are solving similar (if not the exact same) problems and building digital solutions for them. The good news is that each of these labs recognized the “right” problem but unfortunately, each of them invested independently of each other to solve for it without cross country collaboration.

While people will define success based on who’s the sponsor - bank, government, telco, etc - the biggest thing is being clear about what 'value' you are adding to the ecosystem. Is it growing entrepreneurs by matching them to mentors or investors or bringing innovation into the organization? It’s not just “build it and they will come” - its more about creating the right compelling 'experience that will generate pull from the consumers.

Irrespective of who has set up the hub, the other common non-negotiable element would be open collaboration from a diverse set of stakeholders, principally the sponsor, governments, VCs, financial institutions, technology partners, regulators, and corporates. Ultimately a hub starts to form because there is relatively easy access to companies/institutions that would traditionally be very hard to access. Furthermore, facilities in regards to the workspace are important as is creating a 'buzz', typically through events, hackathons, etc.; it should feel welcoming, useful and educational for fin-techs, and for others, the hub should be recognized as a center for experimentation and R&D. The challenge is to make it functional as opposed to just a shiny looking open space with people floating around in casuals around the coffee machines!        

The hub has to have sufficient buy-in from the sponsor. If a team within the sponsor's organization is doing this without broad internal engagement it will be hard to take the rest of the organization on the journey once it has been established. Do not expect immediate results; it's very unlikely that you will get it the right first time so prepare to have sufficient flexibility to pivot and find its place within the macro and micro-ecosystems. Remember, there will be many people telling you that this is a big mistake and you are wasting money. Also, hubs that have a focus on industry or purpose tend to get better results: if the focus is just innovation for the sake of having a bunch of colleagues badged as “the cool kids”, be prepared for a lot of things to go wrong! If, however, it is centered around a specific purpose or tech, you can then start to become a center of excellence for certain disciplines and easily engender a sense of shared beliefs and goals.

It is hard enough to instill a culture of transparency and open collaboration across a large organization: one needs to account for how they will ensure this “lab” will be part of the larger ecosystem rather than an isolated setup that is great for PR, creating a buzz...but when it comes to integrating, colleagues don’t contribute towards its success.