Is innovation dead in banking?
I’ve spent the last several days reviewing the second quarter earnings reports from the nation’s leading banks. I’m delving into these transcripts for one reason: to spot the innovation endeavors.
The sad truth is innovation is not as alive as it should be. There are precious few innovation projects that banks are touting these days, particularly among the money center banks. Certainly, among the major banks, the talk during the recent 2Q earnings calls was more of circumstantial challenges, such as the turmoil within the Chief Investment Office at JP Morgan Chase.
Consider American Express, which reported largely positive earnings last week. The company’s net income hit $1.3 billion, 1% higher than the same quarter in 2011. The net income increase came on the heels of 9% growth in cardmember spending, although Amex has enjoyed double-digit growth rates in card spending in recent quarters. On an earnings-per-share basis, Amex earned $0.05 per share more than analysts had expected. So there was some good news there, but the company was reluctant to discuss any of its innovation endeavors, including Serve, its mobile payments venture.
Daniel T. Henry, Amex’s CFO, was asked specifically for an update on Serve, on which Amex has invested hundreds of millions of dollars to date. Here’s what he said:
… [L]ast year was the year we wanted to sign agreements with other businesses that would put Serve in the path of their customers. This year, it’s all about getting customers onto the network, and that’s what we’re focused on. So that’s our focus now. In terms of Serve, we are seeing some successful uses of Serve. Certainly by putting our reloadable products on Serve, if we didn’t have that platform, our ability to issue the product would have been hampered. We have also entered into agreements in China with Lianlian, where the basis of that is that Lianlian is going to use the Serve platform as part of their mobile pop-up process. So we are seeing spots we’re able to use it. I don’t think we’re at the point yet where we would release financial information, but we continue to make progress against the objectives that we have set for ourselves.
That is what is called avoiding the question. But at least it came up. During earnings calls with Citi and Wells Fargo, for example, there was zero discussion of new initiatives.
Why is this the case? My sense is investors are preoccupied with the challenges of the moment and are looking for indicators of performance no further out than quarter’s end. And that’s unfortunate. With this near-sighted view, it is hard to generate much internal momentum at banks for innovation endeavors. Frankly, we think that is a mistake, one that should be a concern to everyone in financial services today. The future is innovation. We should know that by now.