Just this week a company called Square issued a press release touting a new innovation. The company is known for the Square Reader, a free adapter for mobile devices that allows individuals and small businesses to accept credit cards. Open the box, plug it in, and immediately become a real merchant of the digital age. So what about this new innovation? As they stated in their October 16 release, they now offer a service that “enables peer-to-peer payments directly to and from customers’ debit cards.” The vehicle? E-mail.
While PayPal has offered a “pay by email” concept for some time, the Square model not only leverages the simplicity of e-mail, but it also makes use of existing account relationships. In fact, Square makes this point in their release, highlighting the fact that they believe in “creating solutions for individuals and businesses that work with the tools they already have in their pocket.” As I see it, they desire to add value to whatever is in the wallets of consumers rather than replace what is in those wallets.
In thinking about Square’s release and their service perspective, I see two interesting ideas that touch on innovation: problem solving and extending value.
With regard to problem solving, it is worth referencing the iPhone’s creation as an example. While there are many sometimes conflicting stories on the how and why of the iPhone’s creation, one common theme seems persistent. Phones of the time were so difficult to use, with menu upon menu of options that were confusing to navigate, that they generally frustrated consumers. At the same time, consumers wanted more features. While the creation of the iPhone was no simple feat, the path to its creation was laid by the simple problem of poorly designed and frustrating user experiences with existing mobile phones. The fact that the iPhone solved a particular problem for the average phone user was a substantial contributor to its success.
Square similarly sees a problem, but with payments. As consumers rely less on cash (I almost never have any in my wallet) and checks (we may have a box somewhere), they run into a problem: how do you pay someone for the little things? Within the financial community, a typical response would be to point to existing solutions as the answer. Find an ATM! Use bill pay! But these “solutions” are in the same category as those earlier phone companies saying, “read the instruction manual.” Yes, they are solutions, but the solutions fail to conveniently solve the problem.
Now with regard to the idea of extending value, we can also use the iPhone to explain the concept. As you may remember, the original iPhone, launched in 2007, did not have an app store. The store came a year later with access provided via an update to the phone operating system. Whereas phones prior to the iPhone tended to drive new features and updates to market through the launch of new devices, Apple took a different path. They sought to extend the value of the phones they had already sold. For many consumers, this new update process, which offered extended functionality for “free,” made it seem like they had received new phones. Extending the value of the device kept a healthy number of consumers enthralled with the device they had, and created a fair amount of loyalty to the Apple brand that continues to exist today.
Again, Square is operating in similar fashion. It is easier to entice consumers to add a feature to their existing tools than it is to replace those tools entirely. Anyone within the financial community who has ever tried to move a consumer’s primary financial relationship knows this to be true. Consumers don’t change their banking habits very easily, so Square offers value without the need to change any habit other than to avoid ATMs and bill pay systems (see above).
The lesson here for credit unions is that for traditional financial institutions, innovation doesn’t mean tearing down existing infrastructure, doing things waaay different than in past years, and starting each day with the charge to staff to “innovate something!” Rather, innovation is:
- Looking at the problems consumers have using the financial products already in place, and trying to solve those problems as quickly and efficiently as possible, and;
- Seeking ways to add value to the existing products and services already in place and in use by members.
Believe it or not, this simple perspective on driving “innovation” is actually leading to interesting development projects at a number of credit unions. For example, a Florida credit union has self-developed an iPad app for efficiently signing up new student members. They didn’t reinvent the wheel; rather, they sought to improve what was already working to remove pain points in the account opening process specifically experienced by students.
Yet another example is a California credit union with a membership spread across the country. They are actively planning a new virtual branch that is as responsive to consumers as member service representatives would be to the same member in a physical branch setting. They are doing this because the inconvenient location of credit union-owned branches is a problem, and because many of these same members actually prefer an online experience.
In both of these situations, and with Square above, innovation doesn’t mean groundbreaking change announced with fanfare and fireworks. It is simply targeted improvement for the benefit of actual users. Credit unions would be wise to take note.