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Why Financial Institutions Should Embrace Corporate Innovation


corporate innovation, fintech, innovation

In today's fast-paced world driven by technology, with the recent focus on AI, financial institutions face mounting pressure to innovate to stay relevant. As fintech disruptors and big tech firms enter the financial services arena, traditional banks and other players need to reinvent themselves to survive and thrive. Embracing corporate innovation is no longer an option, but a necessity.


What is Corporate Innovation?


Corporate innovation refers to the initiatives, processes, and models that large, established companies employ to create new products, services, or business models. It goes beyond research and development to encompass collaboration with startups, accelerators, university partnerships, and other avenues to introduce breakthrough innovations.


From 2013 to 2022, corporate investments in startups have surged, increasing from 980 in 2013 to 5,321 in 2022, as reported by GCV Analytics. This highlights the growing appetite for corporate innovation.


Fintech Growth in MENA


Fintech, or Financial Technology, in the MENA region, is booming. Investor backing for MENA Fintechs has grown by around 36% annually from 2017 to 2022 (McKinsey, 2023). The region's positive economic outlook and consistently strong performance of its financial services sector provide optimal conditions for continued fintech growth.


Fintech solutions in MENA now span the entire financial services value chain from payments to lending, insurance, investments, and more. Local startups have attracted investment from leading global firms, while international fintechs like Stripe and Binance have entered the region. Banks are also launching digital-only offerings like Liv by ENBD and partnering with fintechs.


With strong fundamentals, MENA’s Fintech revenue could almost triple from $1.5 billion in 2022 to $3.5-4.5 billion by 2025 (McKinsey, 2023). The potential is immense, and embracing innovation is key for players to remain competitive.


Types of Corporate Innovation


There are several approaches financial institutions can take to embed innovation into their strategy:


  1. Closed Innovation: Financial institutions should dedicate innovation teams focused on identifying opportunities and then developing new ideas and technologies through internal R&D teams and employee initiatives.

  2. Internal Innovation Challenges: Internal Innovation challenges housed within a financial institution will drive ideation within the teams and collaboration within different departments. Participants in the internal innovation challenges are usually employees.

  3. Investment and Acquisitions: Direct investment or acquisitions of promising startups to gain access to new technologies, and talent and diversify the portfolio.

  4. Accelerators and Incubators: Partnering with innovation platforms that are specialized accelerators and incubators to source startups from targeted verticals and put them through intensive programs to get to product-market fit faster.

  5. Hackathons: Events that bring together various stakeholders like startups, developers, designers, and entrepreneurs to collaborate intensively on solving specific challenges within financial institutions.


Why Financial Institutions Should Embrace Innovation


Dr. Jassim Haji, president of the international group of Artificial Intelligence in Bahrain, stressed the importance of implementing AI when it comes to finance and accounting to better detect patterns with exponentially higher probabilities and apply AI in all processes. Artificial intelligence can be integrated into most financial institutions’ services like fraud detection, financial analysis, compliance and risk management, algorithm trading, investment and portfolio management, and many more. “AI can support with the enrichment of optimization strategies, which are greatly needed as the turmoil around the world reaches epidemic proportions.” (Haji, 2023)


While each institution must tailor innovation initiatives to their strategy, here are some compelling reasons to make it a priority:


  1. Fintech growth cannot be ignored: The Fintech sector is one of the fastest growing, with global investment in Fintechs reaching $210 billion in 2021 (McKinsey, 2022). Financial institutions cannot afford to ignore this anymore. Corporate innovation programs can help institutions capitalize on Fintech growth instead of being replaced by it.

  2. Pressure to digitally transform: Today’s consumers, especially millennials and Gen Z, expect seamless digital experiences and COVID-19 further accelerated the digital adoption. Banks need to digitally transform to remain relevant, and collaborating with Fintechs through accelerators or hackathons can help plug digital gaps more seamlessly.

  3. Low-cost innovation: Building innovative solutions in-house can be resource-intensive. Corporate innovation provides relatively low cost by experimenting with emerging technologies like blockchain or tapping into new capabilities by acquiring Fintech startups. Otherwise, accelerator programs and startup partnerships enable institutions to dabble in innovation without massive investments.

  4. Fight irrelevance: In a rapidly evolving landscape, financial institutions face declining customer loyalty, especially with the latter’s lack of adapting to customer-centric approaches. In order to deliver new value propositions and exceptional experiences that differentiate institutions from competitors, they need to focus more on what the trends are to attract new and low-end customers. Without continuous disruptive innovation, irrelevance looms.

  5. New revenue streams: By stimulating entrepreneurship and idea creation, corporate innovation delivers potential new growth engines. Accelerator programs could uncover the next big business model that generates significant revenues. Partnerships with Fintechs can also tap new customer segments and geographies.

  6. Attract top talent: Millennials have been drawn to innovative companies disrupting industries since 2016, according to a McKinsey study. When financial institutions demonstrate forward thinking and agility, young talent would be more attracted to join that ecosystem.

  7. Regulatory Pressures: Tighter regulations are coming, covering more participants and risks. By proactively partnering with Fintechs, banks can participate in shaping regulations and developing compliant solutions ahead of competitors.

Boosting Innovation with Rainmaking


Rainmaking's mission it to drive innovation and foster growth in the region by empowering governments and corporates to identify, create and scale innovative solutions and be a core driver in supporting the startup ecosystem through tailored programs and initiatives.


Working with Rainmaking can further boost financial institutions' corporate innovation efforts. Rainmaking's consulting programs help identify and prioritize where to innovate based on an organization's strengths and industry dynamics. Its' objective is to fuels growth and collaboration among governments, corporations and startups, empowering them to tackle their distinct challenges and capitalize on opportunities.


For more details contact: mena.work@rainmaking.io


Final Thoughts


The banking industry faces growing challenges on multiple fronts—increased competition, more demanding consumers, talent shortages, margin pressures, and regulatory changes; therefore, corporate innovation must be part of any financial institution’s strategy to overcome these headwinds and find new avenues for growth.


Institutions that fail to make innovation integral put their long-term relevance and competitiveness at risk. The potential benefits range from an innovation culture and new capabilities to differentiated value propositions, revenue streams, talent acquisition, and regulatory readiness.


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