MADISON, Wis.—The Filene Research Institute has released a new white paper that offers insights into the role of innovation in the financial services industry.
The paper, "A Road Map for Worldwide Financial Services Innovation," breaks recent financial innovations into three categories:
- The good, which it defines as innovations that improved access and convenience for the end-users (typically consumers) with either a neutral or positive impact on the economy (such as ATMs, debit cards, mutual funds and credit scoring).
- The bad, which it defines as those that were poorly designed from the start (such as collateralized debt obligations and structured investment vehicles).
- The ugly, which it defines as innovations that provided greater access and convenience but were misused, resulting in a negative economic impact and contributing to the financial crisis (such as credit default swaps, ARMs and home-equity lines of credit).
The paper further describes how credit unions have used Filene's method for delivering financial innovation, and Filene’s focus is on developing and testing innovative solutions rather than on market commercialization.
“The process emphasizes that all innovations must be rooted in directly solving the needs of an end user,” Filene said in a statement. “The idea must be desirable to the ultimate user, or it will never succeed. A solution that doesn't properly address a human-centered problem is not truly an innovation.”