Page 1 of 8
Archives of Business Research – Vol. 9, No. 4
Publication Date: April 25, 2021
DOI:10.14738/abr.94.9968. Stamoulis, D. S. (2021). A 3D Involvement Comprehension Model for the Digital Innovation Fostering Initiatives of the Financial
Services Industry. Archives of Business Research, 9(4). 83-90.
Services for Science and Education – United Kingdom
A 3D Involvement Comprehension Model for the Digital
Innovation Fostering Initiatives of the Financial Services Industry
Dimitrios S. Stamoulis
Department of Digital Industry Technologies, School of Science
National and Kapodistrian University of Athens, Greece
ABSTRACT
The financial services industry word-wide is active not only in financing the
innovation, but also in creating opportunities for digital innovation take-up that
will ultimately lead to economic growth and entrepreneurial success. By analyzing
the activities of the four major financial institutions in Greece in the area of
innovation support activities, a 3D model is constructed that clearly demonstrates
the strategic area that is shaped for initiatives that foster innovation in the financial
services industry sector. This model is also useful as a strategic positioning tool as
well as a comprehension model for those actors that would like to enter into this
area and gain an understanding of the projects and activities already run by the
actors in this field.
Keywords: innovation; financial services; comprehension model; positioning tool
INTRODUCTION
The financial services sector plays an important role in fostering economic growth and fueling
entrepreneurship. Apart from the traditional banking services providing credit, venture capital
and project finance, financial institutions and financial institutions in general have
demonstrated over the last decade a significant mobilization towards fostering the innovation,
at two levels: one has to do with innovation consumed internally for their own organizational
and organic growth purposes, i.e. to achieve their strategic goals, and the other is more of a
corporate social responsibility type of actions, where innovation is not only focused to those
activities that are related to core financial services activities, but aims at fostering and diffusing
digital innovation into society. Of course, the combination of the two approaches is usually the
kind of strategy most often pursued for obvious reasons. After all, digital innovation that may
be developed by new, innovative ideas lies within the interests of the financial institutions that
are constantly researching for new digital products and new types of digital customer
experiences.
The roots of the banking appetite to organize and finance innovation can be traced using the
PEST (political, economic, social and technological) analysis model. From the economic and
social points of view, financial institutions have been trying to accelerate innovation both to
create success stories that they will eventually provide credit and payments for, as well as to
contribute to economic growth and the reduction of unemployment, in line with their attitude
towards being socially responsible as well as generators of new capital flows. From the
technological point of view, the proliferation of Application Programming Interfaces (APIs) and
Page 2 of 8
84
Archives of Business Research (ABR) Vol. 9, Issue 4, April-2021
Services for Science and Education – United Kingdom
the interconnection of organizations over the internet in web-like digital ecosystems, have
boosted the financial industry sector to participate into virtual supply chains as new as block- chain type of international fund transfers and trade finance applications, turning them into
much more extrovert organizations, both in mentality, as well as in their information systems’
strategy orientation and operationalization. Finally, from a political point of view, compliance
obligations coming from e.g. the 2nd Payment Systems Directive which dictates the opening of
access to bank accounts and payment services to 3rd parties, the so called payment service
providers, has created a new generation a software companies, the fintechs, which unavoidably
cooperate with financial institutions, while financial institutions are obliged to offer
connectivity capabilities for account information and payments services provision. The
cooperation between financial institutions and fintechs has created a new wave of knowledge
transfer between the banking sector and other sectors of the economy, collectively known as
open banking. However, financial institutions have been moving beyond the passive role of
being open banking providers. They have been using this opportunity to call for new ideas that
can exploit the opportunities of open banking as well as other technological capabilities of
web2.0 (collaborative platforms) and web3.0 (social media enablement) to increase economic
activity and support entrepreneurship. Such opening to 3rd parties, in conjunction with the
increasing digital literacy of their clients and the internal pressure to get digitally transformed
are setting the scene for financial institutions to actively contribute to the innovation
management for the societies they operate in.
In such a scene, financial institutions have been successfully organizing hackathons, internal
and external innovation competitions, incubators for start-ups, accelerators and testbeds for
new ideas, to name but a few of their activities related to innovation management. When
discussing financial sector’s innovation initiatives, most researchers focus on internal
innovation such as product, process or service innovation, as shown in a literature review study
[13] and other studies [2], [9] etc.
This study tries to identify how financial institutions are creating an innovation culture in
society, how they support value capturing and implementation of innovation and how they
manage the interactions and interrelationships of innovative knowledge exchanges between
them and the rest of the society in a crowd-sourcing manner [12], using their technological
skills, since it has been argued that “information systems is not just an enabler but rather can
be a shaper that optimizes open innovation in general and crowdsourcing in particular.” [7] For
example, they create sandbox environments that simulate financial institutions’ information
systems environments to provide a testbed for fintech’s applications while central banks
organize innovation hubs1.
Given the technological complexity of innovation these days, significant financing is needed for
a new idea to reach the market and become a proper commercial product. As shown by a study
in China, the relationship between short-term loans and innovation ability in high-tech firms is
insignificant [14]. On the other hand, long-term loans for new ideas that may never materialize,
possess a very high risk for financial institutions. Therefore, new approaches to financing
innovation are needed, such as those referred to above. Moreover, to be socially fair and create
1 See this report: FinTech: Regulatory sandboxes and innovation hubs. Available online at: BoS Report on Sandboxes
and innovation hubs.docx (europa.eu)
Page 3 of 8
85
Stamoulis, D. S. (2021). A 3D Involvement Comprehension Model for the Digital Innovation Fostering Initiatives of the Financial Services Industry.
Archives of Business Research, 9(4). 83-90.
URL: http://dx.doi.org/10.14738/abr.94.9968
equal opportunities for participation to economic growth, financial institutions have opted for
inclusive innovation [10] type of activities, in order to improve the probability of discovering
more talent and broadening the scope of innovative ideas.
This study has collected information from the main financial industry actors in Greece which
invest time, money and energy into initiatives that support third party innovation, analyzed the
similarities and differences among them, and arrived at a taxonomy and, ultimately, a model of
comprehension for the strategic space of innovation support and growth. This 3D model allows
actors of the financial services industry actors to position themselves appropriately into the
field of innovation support and growth.
INITIATIVES OF THE FINANCIAL INDUSTRY IN GREECE TO BOOST INNOVATION
The financial industry is well positioned in selecting good ideas that can be transformed into
real business plans and ultimately success business stories, because these skills lay in the core
of its reason of existence. Business and corporate banking departments usually finance existing
SMEs or corporates. Venture capital companies, either as subsidiaries of major financial
services groups, or as independent companies of the financial services sector, finance new
ideas, mainly in the digital technologies area.
Apart from offering a simulation environment for fintechs to develop and test new innovative
applications using banking application programming interfaces (APIs), financial institutions
also organize and finance innovation support initiatives and issue calls for proposals for
interested parties in the digital economy area. Let’s see how some banks in Greece are
managing some of their innovation support projects.
Alpha Bank has organized a fin-tech oriented hackathon, where selected groups of innovators
had a three day opportunity to meet mentors, exchange ideas and develop solutions using
sandbox and other tools, compete for the three first award winning positions, through a final
pitching event. The winners received monetary prizes and support from the Bank to continue
their efforts. Alpha Bank has been annually organizing an internal innovative ideas competition
(called i3 = inspire, innovate, implement) where employees of the Group submit their ideas,
receive mentoring from other colleagues in the Bank and finally present their ideas to a Board
of internal and external experts. This is an attempt to create an innovation culture within the
Bank and boost inspiration and involvement among its personnel. Seems that this initiative is
gaining popularity among staff, as more and more participants are engaged every year.
Moreover, Alpha Bank organizes an annual international innovation competition called
“Finquest” (www.finquest.gr) that offers bootcamp and workshops, mentoring by internal and
external experts, the pitching event and a 5 week acceleration program. In their words:
“FinQuest by Alpha Bank, the international open-innovation competition, [...] aims to enable
innovative proposals and make the Fintech community part of the industry’s transformation.”2
And the quest is customer experience. “To achieve high level of customer service, new
technological solutions are necessary in order to provide fresh offerings such as: new forms of
engagement, new features thanks to emerging technologies, different UX build on data-driven
insights. At the same time, technology is the means upon which we must meet needs in a human
centric way and bring real added value to the customer. In this Quest, you’re challenged to use
2 Competition | FinQuest
Page 4 of 8
86
Archives of Business Research (ABR) Vol. 9, Issue 4, April-2021
Services for Science and Education – United Kingdom
your digital super powers and submit your proposal for a new digital banking experience!”3The
competitors can by start-ups or established companies in their early steps of product
development or market entrance.
Eurobank has created “the egg – enter-go-grow” incubator for start-ups. Established in 2013,
“the egg” aims at helping young people stay in Greece and cultivate their entrepreneurial skills
before making a bold start on their own. Eurobank has invested more than 12 million years
over the previous years by picking ideas and projects from various sectors such as tourism,
energy, fintechs, logistics etc. In this incubator, more than 730 young women and men have
been hosted there and 100 companies have grown up, some of which are now active
internationally. Thirty five of them have attracted 10 million euros in corporate lending to
finance their growth. The egg offers the “start-up” platform that seeks for new ideas and
nurtures them via education, mentoring and consulting. Next to the “start-up” is the so called
“scale-up” platform which aims to be an integrated acceleration framework for new companies
that need to speed-up in producing new offering and prepare for entering the market and also
work deeper on their business plan in order to receive higher levels of funding. Finally, the
Equity Crowd Funding is a new model for funding start-ups and new accelerating companies to
reach a maturity level which is good enough for going to the market and become a proper
competitor.
National Banking of Greece supports innovation through the NBG Business Seeds program.
Having organized four “bootcamp” events in four different cities in Greece, NBG aimed at
identifying and supporting new ideas at their birth. So far, 6 million euros have spent which
resulted in 13 companies whose share capital includes the NBG business seeds and 90 winner
companies that have received a total of 441.000 euros. Of the 112 proposals received, 54 have
to do with e-business, 36 with the environment and technology and 22 with civilization and
technology. The statistics of this initiative count 15 cooperators, 30 institutions, 35 speakers,
109 mentors, 9 funds and 14 follow-up meetings. Giving start-uppers a chance to move forward,
the National Bank has opted for offering free of charge or at very low rates some of their
banking products lending, collections and card payment service.
Moreover, Piraeus Bank has developed a list of Innovation Eligibility Criteria for providing
finance to existing Small and Medium Sized and Midcap Enterprises4.
INNOVATION INITIATIVES FOR THE HUMAN CAPITAL FACTOR
Greece records a high percentage of university degree holders among its youth, however youth
unemployment remains at almost 30% levels. Linking education to professional skills that are
need in society and particularly in the digital economy of the 21st century is a necessary
prerequisite for preparing properly people for becoming useful to the economy and ultimately
contributing to innovation. After all, human brain is the only fuel of innovation. It is for these
reasons that Pireaus Bank has launched successfully the “Project Future” initiative. In a nine
month period, university degree holders are offered the opportunity to get on the job training
and face real life problems that need to be solved using the academic knowledge they have
gained in their university studies. Having successfully run for more than a year, “project future”
3 The Quest | FinQuest
4 /el/sitecore/media library/gr/companies-and-professionals/files/eligibility-innovfin-en
Page 5 of 8
87
Stamoulis, D. S. (2021). A 3D Involvement Comprehension Model for the Digital Innovation Fostering Initiatives of the Financial Services Industry.
Archives of Business Research, 9(4). 83-90.
URL: http://dx.doi.org/10.14738/abr.94.9968
has achieved a significant success level: six out of ten men and women who completed this
program, are now employees at companies of their choice and some of them are start-uppers.
Piraeus Bank has focuses mainly on the local market mostly looks for, i.e. software
development, digital marketing and sales, data science & analytics, etc. At the two first calls, a
thousand and one hundred degree holders were chosen among the six thousand and five
hundred applicants and the numbers are growing.
A TAXONOMY OF INNOVATION SUPPORT INITIATIVES OF THE FINANCIAL SERVICES
INDUSTRY SECTOR
The organization and configuration of the innovative support activities of the financial services
sector can be analyzed along three axes, x, y, z.
- X: The maturity level of the entrepreneurial idea or process,
- Y: the technology-readiness level of their ideas or venture,
- Z: degree of the financial institution’s involvement into the entrepreneurial endeavor.
The first axis, X, consists of the following quanta: the idea, the formation of a team that works
on an idea, the incorporation of the team, the joint-venture of the idea makers with experts
and/or investors, the proper business functioning of a corporate institution. Lower levels of
maturity need facilities, physical assets, provision of consumables, leadership, guidance,
mentoring in order to grow up, usually offered by incubators and accelerators, depending on
their configuration. Higher levels require less of them and more of the direct financing type of
support and sometimes stock market entry (IPO) guidance and financial undertaking.
The second axis, Y, has to the do with the technology-readiness (TRL) level of the idea or
product of the innovators. TRL was initially devised by NASA and has been used ever since, in
many variations; but nowadays, it is has been shaped in the following format by the research
programs of the European Commission [6]:
- TRL 1 – basic principles observed
- TRL 2 – technology concept formulated
- TRL 3 – experimental proof of concept
- TRL 4 – technology validated in lab
- TRL 5 – technology validated in relevant environment (industrially relevant environment
in the case of key enabling technologies)
- TRL 6 – technology demonstrated in relevant environment (industrially relevant
environment in the case of key enabling technologies)
- TRL 7 – system prototype demonstration in operational environment
- TRL 8 – system complete and qualified
- TRL 9 – actual system proven in operational environment (competitive manufacturing in
the case of key enabling technologies; or in space)
So, each innovation support initiative, let it be a hackathon, a competition, an incubation, an
accelerator etc. has to clearly define the TRL or TRLs it would like to address, in order to receive
appropriate proposals. It is obvious that the lower TR levels attract risk capital, such as seed
finance, business angels, venture capital type of investments, whereas the higher levels attract
proper corporate lending, project finance other types of long-term investments.
Page 6 of 8
88
Archives of Business Research (ABR) Vol. 9, Issue 4, April-2021
Services for Science and Education – United Kingdom
The third axis, Z, has to do with how much involvement the financial services industry is
determined to make into the entrepreneurial endeavor of the initiative they support. Financial
institutions’ stance may range from being basic service providers (offer training, insights, space
etc.) and organizers (hackathon, competitions, etc.) to lenders, to Board members and/or
shareholders. They could also be platform providers, if they choose to facilitate “the creation of
knowledge, products and services by online communities of companies and consumers” – the
so called open innovation [1] initiatives.
POSITIONING OF ACTORS ON THE 3D MODEL SPACE
Regarding the type of investment needed to support innovation growth according to this 3D
model, the closer to the low end of the axes requires a mix of facilities, services, leadership and
mentoring skills, whereas the closer to the high end of the axes requires more capital funding.
From a risk management perspective, the investment uncertainty is lower at the higher ends of
the axes, but the capital invested is usually higher as opposed to the lower ends of the axes.
Thus, the overall risk is somewhat the same (areas at the lower ends of axes mean less capital
investment amounts but higher uncertainty, whereas areas at the higher ends of the axes mean
higher capital investment amounts but less uncertainty); it depends on the total investments
amount whether is it more appropriate from a risk management perspective to invest more on
the lower or the higher ends of the axes.
If an actor into this innovation support field would like to assess how it compares to others, one
has to assess who is covering which areas on this 3D space, based on the scope and the criteria
defining the innovation support initiatives of these actors. For example, one player may cover
the lower end of the axes, another the medium area, another the higher end of the axes, another
my cover combinations of then, etc. Therefore, this 3D innovation comprehension model can be
used as a positioning tool for the financial industry services actors into the innovation support
initiatives’ arena and help them decide how to mobilize and advance their involvement in the
innovation forces that are emerging or nascent into an local economy.
Finally, the types of financing offered by each particular financial services industry actor
determines the kind of innovation activities that it is willing to support. As explained in [4]:
• Seed finance is provided to research, assess and develop an initial concept before a
business has reached the start-up phase
• Start-up financing is provided to companies for product development and initial
marketing. Companies may be in the process of being set up or may have been in
business for a short time, but have not sold their product commercially
• Later-stage financing is provided for the expansion of an operating company, which may
or may not be breaking even or trading profitably. Later-stage venture tends to finance
companies already backed by venture capital firms
According to [5], the other three stages of financing are:
• Expansion: Financing provided for the growth and expansion of a company which is
breaking even or trading profitably. Capital may be used to finance increased production
capacity, market or product development, and/or to provide additional working capital.
Page 7 of 8
89
Stamoulis, D. S. (2021). A 3D Involvement Comprehension Model for the Digital Innovation Fostering Initiatives of the Financial Services Industry.
Archives of Business Research, 9(4). 83-90.
URL: http://dx.doi.org/10.14738/abr.94.9968
• Replacement Capital (Secondary Financing/Purchase): Purchase of existing shares in a
company from another private equity investment organisation or from another
shareholder or shareholders.
• Special purpose for a mature, privately held company, including leveraged buyouts or
the venture purchase of quoted shares.
Some other authors [11] also mention other types, such as Bridge Financing: Financing made
available to a company in the period of transition from being privately owned to being publicly
quoted.
So, the type of innovation support activities that a financial services player chooses to
implement, depends to some extent on which of these financial products this player may offer.
The types of available financing is not considered to be part of the 3D model as a forth
independent axis, because venture maturity and TRL actually determine which financial tools
are appropriate for each particular (x,y,z) innovation support initiative; therefore, the types of
financing choices is not an independent variable to the other three variables/axes of the model.
Implicitly, however, ability to offer some or all of these type of financial products may lead a
financial services industry player towards specific positioning on the areas shaped by the 3D
model.
CONCLUSION
The financial services industry is using many different approaches in their attempt to help
potential innovators capture value from innovative ideas. It is in the immediate as well as long- term interest of the financial services industry to see economic growth, so supporting
innovation is one of the key actions toward this direction, let along its corporate social
responsibility dimension and the subsequent indirect increase for demand of their financial
products and services. Therefore, it is crucial for them to engage into projects of various types
that support innovation and reassess their positioning into this early competition arena.
However, it is not easy to comprehend where an organization of the financial services industry
stands in the innovation support field and what kind of involvement it could advance to, unless
a clear model is provided to this end. This is exactly the contribution of this paper.
By analyzing the attributes of the many innovation bolstering initiatives taken by the major
Financial institutions in Greece, this paper introduces a 3-D involvement comprehension model
for innovation initiatives, involving the maturity degree of the entrepreneurial form, the TRL
and the type of involvement the financial institution actor chooses for the innovation support
initiatives. The instruments for financing these innovation initiatives are not recognized as an
independent axis to the model, but as a derived one. The proposed model also serves as a
strategic positioning tool, to help financial services’ organizations assess the scope their
activities and level of engagement.
Frameworks that “enables firms to continuously adjust their operations in order to optimize
digital innovation efforts” [8] can be found in the research literature so as to internally reassess
their position against properties of digital innovation processes, but a model for positioning
against activities for innovation support and growth, such as the one proposed, has not yet been
proposed to the best of our knowledge; such a model can be particularly useful in charting the
map for innovation enablement activities. Further taxonomies could be also devised as next
Page 8 of 8
90
Archives of Business Research (ABR) Vol. 9, Issue 4, April-2021
Services for Science and Education – United Kingdom
steps into this research, which will revel new areas of positing of the financial services industry
actors into the digital innovation competition field.
References
Bughin, J., Chui, M. and Johnson, B., The next step in open innovation. The McKinsey Quarterly, 2008, online
magazine.
Consoli, D. Systems of Innovation and Industry Evolution: The Case of Retail Banking in the UK, Industry and
Innovation, 2008, 15:6, 579-600, DOI: 10.1080/13662710802550893
Directive 2015/2366/EU of the European Parliament and of the Council of 25 November 2015 on payment
services in the internal market, amending Directives 2002/65/EC, 2009/110/EC and 2013/36/EU and
Regulation (EU) No 1093/2010, and repealing Directive 2007/64/EC. Available here:
https://ec.europa.eu/info/law/payment-services-psd-2-directive-eu-2015-2366_en
Engberg, E., Tingvall, P.G. & Halvarsson, D., Direct and indirect effects of private- and government-sponsored
venture capital. Empirical Economics, 2021, 60, 701–735. https://doi.org/10.1007/s00181-019-01770-w
Heukamp, F. H., Liechtenstein, H. V., & Walkeling, N., Do Business Angels Alter the Risk-Return Equation in Early
Stage Investments? : Business Angels as Seen by Venture Capitalists in the German Speaking Countries. 2007. The
Journal of Private Equity, 10(3), 67-86.
HORIZON 2020 – WORK PROGRAMME 2014-2015 General Annexes (Extract from Part 19 - Commission Decision
C(2014)4995). Annex G. Technology readiness levels (TRL) Available online at this address:
https://ec.europa.eu/research/participants/data/ref/h2020/wp/2014_2015/annexes/h2020-wp1415-annex- g-trl_en.pdf
Majchrzak, A., and Malhotra, A., Towards an information systems perspective and research agenda on
crowdsourcing for innovation, The Journal of Strategic Information Systems. 2013, Volume 22, Issue 4, 2013, pp.
257-268, ISSN 0963-8687, https://doi.org/10.1016/j.jsis.2013.07.004.
(http://www.sciencedirect.com/science/article/pii/S0963868713000528)
Nylén, D. & Holmström, J., Digital innovation strategy: A framework for diagnosing and improving digital product
and service innovation. Business Horizons. 21014, 58. 10.1016/j.bushor.2014.09.001.
Obeng, A. Y., & Boachie, E., The impact of IT-technological innovation on the productivity of a bank’s
employee. 2018. Cogent Business & Management, 5(1), 1470449.
Papaioannou, T., How inclusive can innovation and development be in the twenty-first century?, Innovation and
Development, 2014, 4:2, 187-202, DOI: 10.1080/2157930X.2014.921355
Sazonov, S. P., Ezangina, I. A., Makarova, E. A., Gorshkova, N. V., & Vaysbeyn, K. D., Alternative sources of business
development: Mezzanine financing. Scientific papers of the University of Pardubice. Series D, Faculty of Economics
and Administration. 37/2016.
Simula, H. and Ahola, T. A network perspective on idea and innovation crowdsourcing in industrial firms, Industrial
Marketing Management, 2014, Volume 43, Issue 3, 2014, Pages 400-408, ISSN 0019-8501,
https://doi.org/10.1016/j.indmarman.2013.12.008.
Tipu, S.A.A., Academic publications on innovation management in financial institutions (1998–2008): A research
note, Innovation, 2011, 13:2, 236-260, DOI: 10.5172/impp.2011.13.2.236
Zhu, Y. Financial institutions’ Governance and Innovation: Evidence from the Listed Firms in China, Emerging
Markets Finance and Trade, 2019, 55:11, 2409-2424, DOI: 10.1080/1540496X.2018.1483229