Consumers drive innovation.
That should be a no duh statement, but it is worth reiterating by first debunking three alternative explanations of what drives innovation:
– Big companies do not drive innovation. That one is easy. They used to drive innovation Before Internet, but people reaching adulthood today only read about Before Internet in history books or tales from their parents. Consumers adopt and then enterprises adopt. Mobile and social are the obvious examples.
– Capital does not drive innovation. Capital follows innovation and enables growth. Most innovation capital works like the A&R guys in the music industry, who spot bands with potential not by the music itself but by the reaction of the audience. If investors see consumer adoption they invest.
– Disruptive technology does not drive innovation. This last one is more controversial. The accepted wisdom is that disruptive technology such as Bitcoin/Blockchain, Mobile, Wearables, Internet of Things, Semantic Web (name your favorite disruptive technology) drives innovation. You only have to look at the last one on that list to see that it is not true. Semantic Web technology is disruptive. However nobody would pitch to investors as a Semantic Web venture – that would be the yawn of death. Entrepreneurs might use Semantic Web technology to meet a consumer need. Or entrepreneurs might use Bitcoin/Blockchain, Mobile, Wearables, Internet of Things to meet a consumer need – or not. The coming crash of Bitcoin ventures that do not meet a consumer need is the subject of another post. The point is that it starts with consumer need that is then enabled by disruptive technology and then by capital.
Consumer innovation drives everything. Entrepreneurs are like scientists running market experiments to see what works. Investors are looking over their shoulder to see what works.
There are two theories about where this consumer innovation will come from:
- The West. This has always been true in the past. Why was America the source of great ventures? Before Internet, because America had the most innovative big companies who would be the early adopters of new technology. That is why so many tech companies and entrepreneurs moved to America Before Internet (myself included). After Internet, when Internet adoption first took off in America it was America’s innovative consumers that drove innovation.
- The Rest. I believe we are now seeing a phase transition to “first the Rest, then the West” innovation (which I covered first in this post on PayTM in India). Two things drive the transition to first the Rest, then the West:
- Leapfrogging to mobile (i.e. you have to use mobile because fixed line voice and data is lousy). Within this is leapfrogging to mobile payment because credit card adoption is low and cash is problematic (few ATMs and greater chance of being robbed).
- An aspirational middle class. It is not GDP Per Capita that counts. If so, Qatar would lead in consumer and tech innovation. It is not the size that matters for initial adoption, although the size of the aspirational middle class in China and India obviously has investors salivating. It is simply enough people with some discretionary income with real needs that are not being met by traditional products and services.
Ed: don’t bury the lede.
Oh, yes, the point is that Poland has the soil for innovative consumers.
Fast facts on Poland:
- Poland is in Europe but not Euro. This seems to be a formula for success for UK, Switzerland, Nordics, so could work for Poland.
- Poland is #23 in global GDP rankings (between Sweden and Argentina). A market only has to be big enough to run a statistically significant market experiment. That is the Klarna story.
- Poland is #46 in GDP per capita on PPP. Polish people are richer than people in Bahamas, Hungary and Russia and poorer than people in Portugal, Greece and Seychelles. GDP per capita shows average and statistics will show you poverty and extreme wealth but you have to travel to a country to see the aspirational middle class. India is #125 in GDP per capita but PayTM is witness to the reality of a large, innovative aspirational middle class.
- Poland is growing. GDP growth is analogous to USA. That is not emerging market gazelle territory but nor is it anemic Eurozone growth.
Enough about the theory; let’s look at the consumer Fintech innovation is coming out of Poland.
Express Elixir (if you don’t speak Polish you will need Google Translate). This allows banks to offer real-time payments – this is the key – without transforming their core systems to real time. It only works within restricted hours, so a bank that can offer true 24×7 real-time has an advantage – but only an incremental one. This is the point about an aspirational middle class. They will accept a restriction – you can only make this payment during business hours – if it gives them a significant advantage. Like SWIFT, Express Elixir uses a standardized message format. Unlike SWIFT, it does not require correspondent banks as intermediaries (but you can access the SWIFT network via Express Elixir). Express Elixir is a platform used by many consumer-facing Fintech ventures.
Poland has a concentrated banking market with six Polish banks (BRE Bank, Bank Millennium, Bank Zachodni WBK and ING Bank Śląski) having about a 70% market share of Poland’s electronic banking market. They created a joint venture to make mobile payments a serious alternative to credit cards.
The innovation in Poland is why Citibank chose Warsaw as the first place in Europe to hold their Citi mobile challenge event.
These are the consumer banking innovators I am seeing coming out of Poland:
Ybanking Their site is good enough for me to be lazy and cut and paste. Their tag line is a beauty:
We are not a bank, we are customers
They go on to explain:
“Ybanking is a social network platform connecting customers and banks.
In Ybanking you are getting paid for using the same bank as your friends and relatives.
It is fully secure as is concerns regular FDIC-insured banks and regular banking products.
An average customer earns $62 every month, with no risks or additional costs, only for networking and using banks partnering with Ybanking.
Benefits have no maximum limit, they depend on product usage and customer’s network. Top 20% of hard users of banking services can earn even more than $250 per month.”
YBanking is tackling one of the most fundamental issues for any Consumer Bank (actually for any business) which is Customer Acquisition Cost (CAC).
Mbank This is a full stack, fully regulated, full service mobile first bank. This is not a User Experience skin on top of an old bank. mBank is a wholly new bank. That is a lot easier to say than to actually execute on. This is a 1% inspiration, 99% perspiration story. Click here for great debate between Brett King of Moven and Michael Panowicz of mBank. It seems clear that mBank is working in Poland; it is not clear if it can scale outside Poland.
Mobile ATM. Idea Bank puts ATMs in BMW i3 cars. In the West, this seems ridiculous; we have plenty of ATMs and cash is on its way out. In the Rest, where ATMs are few and far between and cash rules, this makes a ton of sense.
What I love about the consumer banking innovation coming out of Poland is that it does not work in theory, but it is clearly working in practice. Real innovation always surprises.