In the globalizing world, finance industry also has gone under deep changes over the last few years. These deep changes are in the different dimensions of the industry. Innovation has many definitions based on the type of industry in which innovation is being introduced and based on the type of change that the innovation is going to introduce within the industry or department. In general innovation for an organization or industry can be classified into four dimensions that are: innovation in product, process innovation, innovation in organization administration, and innovation in the marketing strategy of the organization (Bowen, Fresard, & Taillard, 2017). These four dimensions of innovation within an industry define the process of innovation in brief. Within the finance industry or banking industry changes or innovations introduced in the last few years are introduced even after the process of technological innovation as well as globalization (Scarpellini, Valero-Gil & Portillo-Tarragona, 2016). These changes have led the banking industry beyond the ordinary function of intermediation and have taken the industry towards more advanced financial services. This advancement of financial services within the banking industry was needed to fulfill the increasing demands of banking customers. For economic or financial industry, as per most fundamental sense, there are only two ways to get increased outputs of the economy, one is by increasing the input numbers which are undergoing the productive process and the second one is innovation. This innovation states for the cleverness of the organization to think of new ideas to increase the output from the same number of productive inputs. The financial industry has shown innovation in all the four dimensions defined for innovation in an organization. In the product, innovation banking industry has introduced so many new products like Phygital Distribution by Idea bank of Poland, DBS Sparks mini-series by DBS bank of Singapore, and Augmented Agriculture Banking App by Deniz Bank of Turkey. These innovative products are the winner of specific awards into their respective categories. Along with such innovative product by the banking industry around the world are possible with the help of technical innovation (Cornaggia, Mao, Tian, & Wolfe, 2015). Along with the product innovations industry has introduced service innovations also by enhancing their services with the help of technology. Technology innovations have made the banking services more effective and easy for customers. In the last few years, the financial industry has seen the dramatic changes in its customer service with the introduction of online banking and mobile banking. These innovations have taken the industry to the new highest of providing services (Wu, & Chiu, 2015).
When we look in the past of financial industry there was no place for such innovations in-fact at the time it was like impossible to think about such changes in the industry. But all these changes are possible due to the technological advancements and their strategic implementation in the industry. For centuries thinkers and economists have tried to find an acceptable answer for the term of innovation in the finance industry (Gong, & Janssen, 2015). In order to answer this basic question of innovation in banking or financial industry, Neoclassical economics claims that scientifically it is not possible to control the movement of market price while reaching the equilibrium price. It states that all we can do is, examine this movement nothing else. However, some of the classical economists thought that this question is only boring or an obvious question. They stated that tracing the movement of equilibrium price is so easy that any economist or finance student can do it. From this level of thinking to the real implementation of changes, the industries has covered a long distance and completely change its whole infrastructure. This change in the industry not only in one dimension, but it is also a change of multiple dimensions like product development, service innovation, management innovation and innovation in the marketing of the industrial products.
If we look at the change from another prospect these changes can be classified as the result of some specific motives of the industry like motive of mechanization or cost competition in the firms, and a result of the impact of technological innovation and knowledge workers in the organization. The mechanization or cost competition is about innovating different ways to cut the cost of financial services to enhance the profitability of an organization. In the global world, increasing profit can easily be achieved with the simple trick of cutting the cost. This makes the organization more efficient or productive in terms of making business with high profitability. This innovation of mechanization in banking industry defines the banking industry as not only a purveyor of money but also as manufacturer or creator of the money in its economy. This mechanization in the banking industry was possible only due to the advancements or innovation in technology. This technical innovation and the worldwide revolution in the field of information and communication technology has emerged a dynamic source of productivity in almost every industry including the finance industry. Also, the relation of IT and finance is symbiotic. This factor of introducing advanced IT in the banking sector can help an organization to cut the effective cost and increase the volume. This implementation of technology in the finance industry to mechanize the whole process and cut the effective cost has made the financial industry moved towards a complete paradigm shift. In the banking or finance industry information technology has untapped potential to innovate more efficient mechanism for the organization structure as well as its information system. Today, the current scenario shows that strengthening of IT in the banking industry can enhance the asset-liability management of the industry with way more effectiveness. In the last few years, the banking industry has extended its reach of core banking solutions in different directions to facilitate the mobile banking (Lee, & Hidayat, 2018).
On the other hand finance and economic industry operating as the banking sector in an economy has introduced the innovation through the impact of creative ideas and knowledge of workers in the organization. Also, the industry has introduced the innovation in the work design and human resource to make a maximum use of knowledge workers to make new innovative changes in the existing structure of the banking system. This innovation has been recognized as financialization of the industry. This innovation in the form of financialization has the central idea of making more profit by producing more products and service, but in the banking industry increasing the profit of these products and services depends on the financial activity. This financial activity has been improved with the help of knowledge workers within the industry or organization. Such innovations in the industry have made the industry to reach new heights in its field of making money in an effective manner (Bruton, Khavul, Siegel, &Wright, 2015).
All these changes are for the betterment of the industry and considered as preparation for the future opportunities or development in the same sector. Finance industry being the most essential pillar of an economy has the right to be innovative in every possible way through any kind of changes. Still, the innovation and change in the industry have made it suitable for the future challenges (Pellandini-Simányi, Hammer, & Vargha, 2015). Also, these changes have made the industry capable of achieving its objective very effectively by the use of its own system. No doubt information technology is the key game changer in this industry and will always be for the industry as the industry is all about the information and communication. Innovation in IT will make the financial activities more efficient and effective for the industry (Palley, 2016).
In the banking sector innovation in the relationship of financial and non-financial sectors, Krippner (2011) provides two different estimates: one is based on the profit ration and other is on cash flow. These estimates of measures provide evidence that the financialization process is under the way of innovation and that is started in the 1980s. This innovative process can be seen as growing dominance for the financial sector and as the growing importance of different financial activities in non-financial sectors. This shows the social innovation side on innovation in the financial sector.
This discussion made on the innovation in applied finance in the finance sector of an economy concludes that the changes made into the structure of applied finance within the industry have made the industry more efficient. Also, the industry with these innovations has become capable of making its future growth more sustainable and effective in the future. This also supports the future sustainability strategy of applied finance in every sector. This discussion made it easy to understand the motive of the banking industry to implement innovative change in its existing system and structure as well.
References
Bowen, D.E.I.I.I., Fresard, L. & Taillard, J.P., 2017. What’s your identification strategy? Innovation in corporate finance research. Management Science, 63(8), pp.2529–2548.
Bruton, G., Khavul, S., Siegel, D. &Wright, M., 2015. New financial alternatives in seeding entrepreneurship: Microfinance, crowd-funding, and peer?to?peer innovations. Entrepreneurship Theory and Practice, 39(1), pp.9-26.
Cornaggia, J., Mao, Y., Tian, X. &Wolfe, B., 2015. Does banking competition affect innovation?. Journal of financial economics, 115(1), pp.189-209.
Gong, Y. &Janssen, M., 2015. Demystifying the benefits and risks of Lean service innovation: a banking case study. Journal of Systems and Information Technology, 17(4), pp.364-380.
Krippner, Greta. 2011. Capitalizing on Crisis: The Political Origins of the Rise of Finance. Cambridge: Harvard University Press.
Lee, C.W. & Hidayat, N., 2018. The Impact of Absorptive Capacity on Service Innovation Performance: An Empirical Study on Banking in East Borneo Indonesia. Journal of Applied Finance & Banking, 8(5), pp.105-116.
Lee, N., Sameen, H. & Cowling, M., 2015. Access to finance for innovative SMEs since the financial crisis. Research policy, 44(2), pp.370-380.
Palley, T., 2016. Financialization: the economics of finance capital domination. Springer.
Peirce, H., 2014. Finance and Innovation. The American Interest, 10(1), pp.39–47.
Pellandini-Simányi, L., Hammer, F. & Vargha, Z., 2015. The Financialization of Everyday life or the Domestication of Finance? Cultural Studies, 29(5-6), pp.1–27.
Scarpellini, Valero-Gil & Portillo-Tarragona, 2016. The “economic–finance interface” for eco-innovation projects. International Journal of Project Management, 34(6), pp.1012–1025.
Wu, L. & Chiu, M.L., 2015. Organizational applications of IT innovation and firm’s competitive performance: A resource-based view and the innovation diffusion approach. Journal of Engineering and Technology Management, 35, pp.25-44.
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