The Innovation Dilemma in the Financial Industry: French Domestic Credit Institutions

Abstract

Purpose

This chapter addresses the issue of value creation in the retail banking sector, focusing on France. The author shows that since the 2007 financial crisis, banking organizations have used a disruptive innovative approach to regain the trust of retail banking customers. This innovative hybrid design is not only driven by efficiency and fully dematerialized solutions, but also considers human, social, and territorial development aspects.

Methodology/approach

This chapter is based on an EU statistical analysis (2009–2013) of two strategies used by French, Italian, and German national banks to manage the 2007 financial crisis: closing retail bank branches and lay-offs. Interestingly, in France, bank units and employee numbers fell the least. A complementary qualitative analysis of the principal banking innovations promoted by R&D directors helps to explain the main features of the French strategy to cope with the mistrust of clients and employees.

Findings

Though low-cost models are promoted as major innovations today (“banking is necessary, bankers are not”), and result in massive offshoring and restructuring levels to face new global competitors such as Google, Amazon, and PCCW-HKT, the French retail banking sector, previously state regulated but progressively deregulated, has adopted an original strategy to regain trust and loyalty. Rather than adopting these low-cost models strictly, with full dematerialization, it focuses on balanced innovation – such as the “neighbourhood bank format,” which improves knowledge of the expectations and needs of local clients and environments. These solutions are not only global or local, but a mix of both dimensions.

Research implications

Global industries like finance are embedded in both territorial and historical relationships and governance. This means that they can only be observed from this dual perspective, which is a dilemma that characterizes today’s economy. Innovation decisions and design particularly illustrate the banking sector’s embeddedness, with the dichotomy between fully digitalized options and fully territorialized services. Therefore, innovation is neither a “Champion” or leadership question, nor a mere ICT option. It is a hybrid combination to restore trust and relations.

Practical/social implications

The implications of such a balanced approach to innovation are highly important in terms of offshoring, lay-offs, and outsourcing practices, which are adopted as essential, and taken for granted by owners and CEOs in global value chains such as finance.The given data and analysis give concrete means to integrate local cultural and institutional habits, so that innovation make sense to stakeholders.

Originality/value

This chapter suggests a critical approach to innovation strategies and trends in the finance sector.

Citation

de Rozario, P. (2016), "The Innovation Dilemma in the Financial Industry: French Domestic Credit Institutions", Finance and Economy for Society: Integrating Sustainability (Critical Studies on Corporate Responsibility, Governance and Sustainability, Vol. 11), Emerald Group Publishing Limited, Leeds, pp. 161-177. https://doi.org/10.1108/S2043-905920160000011008