It's more or less obligatory to begin any discussion on the subject of innovation with the famous comment of the great if very peculiar American industrialist Henry Ford: ‘If I'd asked my customers what they wanted, they'd have asked for a faster horse’.

Like many well-known and often-quoted quips, his words express an important truth – in this case, that you can't expect your customers to possess the imagination and insight to do your innovating for you – but at the same time, they express two untruths as well.

The first and lesser untruth is that on closer examination, it seems Ford never actually said this – at least, no evidence has emerged to prove that he did.

The more important untruth, though, is that while experience suggests that he was half-right, it also shows that in the end he was half-wrong. If asked back in the early days, his customers would have indeed said they wanted a faster horse. Consider the consequences of his autocratic approach in the first two decades of the twentieth century, when the Ford Motor Company succeeded on a truly staggering scale and built a vast industrial empire at a speed that even today's most successful tech giants would envy, and you'd think he was right not to bother too much with what his customers might say. But fast forward 20 years and look at the near-collapse of the company in the century's third decade, and you'd find Ford's customers would have been a good deal more demanding. During the 1920s, Ford's biggest rival, General Motors, correctly perceived that Ford had left big and important consumer needs unmet – a desire for new and different models, in a range of nice bright colours (at the time, Ford's other most famous comment, that you could have a Model T in ‘any colour so long as it's black’, sounded less like admirable single-mindedness and more like stubborn intransigence). And General Motors scored in another way too, recognising long before Ford that there's much more to selling cars than selling cars: millions of potential motorists needed financing help before they could take to the road. By meeting this need, General Motors was able not only to outsell Ford two to one by 1925, but also to build the foundations of a financial services empire that continues to this day.

To sum up, Ford was right that you can't expect customers to envisage the unenvisaged – if all they've known is a horse and cart, the Model T sits in a space beyond most people's imaginations. But 20 years later, when the motor car had become entirely familiar, good insight into your customers' wants or needs could unquestionably have helped Ford to develop something better. In the jargon of today's innovators, you could say that Ford was right as far as disruptive innovation is concerned, but wrong when it comes to incremental innovation.

Actually, it's useful to consider these two much-used words from the innovators' vocabulary in more detail. It seems to us that they can each have two meanings – both of which happen to apply in Henry Ford's case, but one of which we find more interesting than the other.

When innovators speak of ‘incremental’ and ‘disruptive’ innovation, they're using the words principally to define the extent of the commercial success available to them. Uber, the app-based minicab company, is often described as a disruptive innovation because it has disrupted its competitive environment and become hugely valuable in an astonishingly short time. (If it has also simultaneously reduced the value of its competitors, ideally by a similar amount or more, then it could be said to have achieved peak disruption.)

To a customer-oriented marketer, this definition doesn't come naturally. We tend to think about innovation principally in terms of the effect on our customers' experience. To us, Uber is an example of an incremental innovation: there have always been minicabs, but now you can book them on an app instead of your phone, and watch on your phone's screen as they come to pick you up. (Of course, if they do succeed in introducing driverless cars we would regard that as pretty disruptive.)

To us, disruptive innovations are ones that clearly disrupt consumers' patterns of behaviour, and change the way they lead their lives. Low-cost airlines, notably EasyJet and Ryanair, were disruptive innovations because they changed the way we thought about short-haul travel: the combination of low fares and easy booking brought the weekend in Barcelona, or the stag do in Tallinn, or the football match in Munich within easy reach. The same is true of eBay, which changed the way that many people led their lives in at least two important respects. On the one hand, it's said that the recent explosion in self-storage facilities around the country has been largely driven by the large number of people now running small trading businesses on the side on eBay: alongside the day job, they're now buying and selling a small stock of vintage pinball machines, or trays of Polish jam. And on the other hand, of course, eBay has made it completely easy to find and buy unique items that you could previously have spent a lifetime pursuing. You want a signed photograph of Stanley Matthews scoring the winning goal in the 1953 cup final? Or an obscure gasket for a long-discontinued Norton motorbike? They're no more than a minute away.

On this definition, there are quite a few borderline cases. Some innovations are incremental for some, but disruptive for others. Airbnb, for example, is arguably incremental for travellers, who have always been able to choose from hotels and B&Bs, but disruptive for property-owners who now have a genuinely new and accessible way to monetise the value of their homes. And from a user experience point of view, are app-based takeaway delivery services like Just Eat and Deliveroo incremental, on the grounds that you could always get takeaways delivered, or disruptive, on the grounds that you can choose from so many more restaurants?

Anyway, returning briefly to Henry, the Model T was disruptive in both senses. In a competitive environment sense, it wiped out huge swathes of the industry that provided and served horse-drawn transport. And in a customer experience sense, it put millions behind the wheel for the very first time and created the potential for a whole new kind (and degree) of mobility.

One last point about disruptive innovation, in either or both senses of the word. If, like Ford, you approach it with a focus on what is technologically possible and a determination to give rein to your own personal obsessions, rather than any actual insight into what customers actually want and need, you may still succeed – but your success will owe a very great deal to luck. Ford passionately believed that the Model T was precisely the radical new means of transport that America (and the rest of the world) was waiting for, and that assembly line mass production was the only way to build enough of them. In hindsight it seems obvious that he was right, but at the time it would have been easy to believe he was hopelessly wrong. (Ford himself had two previous car companies fail.) In those early days, a whole bunch of tricky problems including the cars' horrible unreliability, the almost-total lack of workshops and petrol stations and deep official suspicion of this alarming and dangerous new machine could have rapidly driven him out of business.¹

In fact, we'd argue that the importance of luck in successful innovation is often overlooked. Consider two other examples, both to do with the initial success of giant American business empires. Forrest Mars, founder of the confectionery and food empire that bears his name, was a food scientist with a passionate belief that the cocoa bean was a big part of the solution to the nutritional problems of America during the Great Depression of the late 1920s and 1930s. He may or may not have been right from a nutritional perspective, but in any event Americans couldn't get enough of the combination of ‘milk, sugar, glucose and thick, thick chocolate’ that went into the product he designed to prove his point, and to which he gave his name.

Three decades or so later, two brothers named McDonald, who loved hamburgers but hated that the local burger joints in their part of the Midwest were dirty and unhygienic, opened their own spotlessly clean restaurant: nothing might have come of it, were it not for the fact that an entrepreneur called Ray Kroc bought the brothers' business and expanded it somewhat.² The moral of both these stories: if your business career is driven by personal obsession, it helps if it's an obsession that hundreds of millions of people share.

All this may seem a rather over-detailed response to a comment that Henry Ford didn't actually make. But the fact is that lessons from past and indeed present innovations in other fields are always worth learning in financial services, because on the whole we've found it so hard to figure out how it's done.

This chapter is about innovation that's pointed directly at our customers, and pays off in the nature of the products, services and experiences we're able to offer them. Of course there's much more to innovation in a business context than this. It's possible to innovate in every aspect of a business's activities – in its financial management, in its HR strategy, in its premises and facilities, in its in-house catering arrangements. Indirectly, it's possible that all of these can have an effect on the customer experience. An innovative new phone system can make a call centre run more efficiently, and providing better information on call-centre screens will mean that customers get a more personal and responsive service. But this chapter isn't about innovation that impacts the customer indirectly – it's about innovation in the propositions we offer them.

If it's true to say that our track record in this isn't brilliant, it's also true to say that neither is anyone else's. Successful innovation is hard. It's difficult to come up with the ideas, and usually even more difficult to implement them. In the world of fast-moving consumer goods, it's commonly said that 90% of all new products fail (although this figure is probably about as reliable as Henry Ford's quote, and about as difficult to substantiate). And although there are some characteristics – we'll look at them later – that make financial services a fruitful field for innovation, there are others that make it a less-than-fertile one. These include:

1. First and undoubtedly foremost, the widespread lack of consumer engagement in the whole market. As this book observes at regular intervals, all consumer markets segment and generalisations are always dangerous. But while there are segments of highly engaged consumers eager to act as early adopters of new products and services, there aren't very many of them. Beyond this small group, building any kind of awareness of innovations, let alone attracting customers to them, is hard work.
2. Linked to this, but separate, is customers' low level of understanding of the concepts on which many new products and services are based. We argue passionately elsewhere that financial services marketers must recognise and accept consumers' low levels of understanding, and not waste time and energy whinging about how much easier things would be if only consumers understood more. We don't want to lapse into this bad habit ourselves. But it doesn't help.
3. The fact is, most consumers use a relatively small number and arguably narrow range of financial services, and make fairly infrequent new purchases in most sectors. This means it's hard to add a new item to the list. There's nothing unique about this: most people own only one car, one mobile phone and one cooker, for example, although at least they tend to replace the first two reasonably often. But by comparison with, say, groceries, where the average family's main weekly shop includes over 60 items, financial services innovators are fighting for a place on a very much shorter list.
4. Especially in bigger and longer-established financial services companies, most innovators are trying to do their thing in a fairly hostile corporate climate. (In a way this is one of the central themes of this book.) It wouldn't be right to say that most big, long-established financial services companies maintain a strong culture of innovation. In fact, it would be diametrically wrong. In most, especially in highly risk-aware times like these, the strong cultural tendency when confronted with new ideas is to analyse and articulate what's wrong with them, why they'll never work and why even if they did, it still wouldn't be appropriate to do them here.
5. Despite strenuous efforts, we still have to say that the regulator is part of the problem, not part of the solution. The FCA has tried quite hard and for some time to become more innovation-friendly, and it may seem a little churlish not to give it more credit for its so-called ‘sandbox’ initiative, part of its overall ‘Project Innovate’ intended to provide ‘a safe space in which businesses can test innovative products, services, business models and delivery mechanisms without immediately incurring all the normal regulatory consequences of pilot activities’. The fact remains, though, that fear of the regulator is so all-pervasive across the industry these days that even after enjoying a fun time in the sandbox, innovators find regulatory constraints – or perhaps more accurately colleagues' perceptions of regulatory constraints – nibbling away at their ideas from all angles.

One way or another, these issues combine to make innovation hard to originate, and arguably even harder to test and implement.

The question of testing and implementation is particularly important, and should be explored further. If there's one cluster of ideas about good practice in the field of innovation that more or less everyone involved would accept, it's the cluster that includes the principles of ‘start small’, ‘test and learn’ and ‘fail fast’. What this means is that those aiming to introduce innovations shouldn't waste too much time on perfecting them, or too much money on big splashy national launch campaigns. Instead – especially if the products and services in question are digital, which most are – they should get beta versions out into the market as early as possible, learn from initial customer experience, respond as necessary (whether with refinement, expansion or even abandonment of the whole stupid idea) and move on.

There may be sectors of the consumer economy well suited to this kind of incremental grains-of-rice-on-a-chessboard approach, but on the whole financial services isn't one of them. To be fair, it isn't one of the worst-suited either: that title probably rests with the automotive industry, where it simply isn't possible to build a few hundred of your new family hatchback, push them out to a couple of friendly dealers and see how your market reacts to them.

But the main problem in financial services, especially those intended for relatively mainstream, disengaged consumers, is the effort and expense required to build any kind of awareness of, and engagement with, what you have to offer. Take a potentially large and significant new market sector like peer-to-peer lending. It's existed for several years, there are dozens of firms involved in it, and among a small number of financial services hobbyists its profile is high. But in the mainstream market, what kind of profile does it have?

A few business models lend themselves better than others to the start-small, test-and-learn, fast-fail approach. The previous business of one of your authors, Metro Bank, has a branch-based model that requires branch staff to take the lead in developing a customer base in their own local catchment area. This clearly lends itself well to piloting on a branch-by-branch basis, and indeed Metro Bank has expanded in precisely this way over the period since launch.

But the potential of other innovative models, especially those that require customers to seek out a new proposition amidst all the noise, distraction and vastness of the Internet, will never be known until one or more significant players, with properly developed propositions, takes the risk involved in stumping up a three-year, multi-million-pound promotional budget, and gives it a proper go. Is there, for example, a significant D2C market for a simple, accessible, low-cost life assurance proposition? Several low-key innovators have tested the waters. One of them, a brand called Beagle Street, owned by BGL, the group behind comparethemarket.com, has been piloting, testing and learning for at least three years at the time of writing – but the jury is still out on whether the proposition works or not.

Meanwhile, in the area of so-called robo advice, Nutmeg (actually a digital discretionary fund manager) has been testing and learning for at least as long, and in fact spending a moderate amount of money on a number of rather miscellaneous advertising approaches focused on the London Underground. Nutmeg has been cagey about its business performance, which is usually a bad sign, but some figures released in 2016 indicated that everything is going well except for a stratospherically high cost of customer acquisition. (This of course is a rather significant ‘except for’.)

But the big question remains unanswered: are the difficulties these businesses are experiencing in recruiting customers a consequence of their inefficient, sub-optimal, test-and-learn communications strategies? Or are they a consequence of the fact that consumers can't be persuaded to show an interest in what they have to offer? Until the testing and learning answers this question, no-one is much further forward.³

If all of this says that it's hard to innovate in financial services, there are of course plenty of considerations pointing in the opposite direction. Here are a few:

1. The extraordinary power of digital. Digital has the power to change every kind of business, but it can transform financial services even more completely than most. While manufacturers of physical goods and providers of physical services can use digital as much as they like but still have to make products, or run airlines, hotels or dry cleaners, or whatever it is that they do, most financial services providers are able to leave the physical world and migrate into the digital world altogether. Needless to say, in this way they can utterly transform the nature of their businesses – and the experience of their customers. And, usually, dramatically reduce their costs.
2. Never-ending change in the market environment. You can go all round the quadrants of the PEST analysis (recently expanded by some pundits to become a PESTLE analysis with the addition of Legislative and Environmental) and find changes calling urgently for innovation in all of them. Many of the most important opportunities for innovation are in the Legal segment in the form of new regulation, legislation and/or fiscal policy: changes in recent years around the regulatory and fiscal framework in the field of pensions could keep innovators fully occupied for many years.
3. Again it's all relative, but without underestimating the difficulties it's easier, quicker and cheaper to innovate in financial services than in many fields. Again, in the consumer economy, the automotive industry probably stands at one end of a spectrum: researching, conceiving, building and launching a new car cannot be anything other than difficult, time-consuming and expensive (and, therefore, extremely risky, with failure proving extremely expensive). The same is true in other very different industries and for a wide range of different reasons, including IT, aerospace and pharmaceuticals.
4. Similarly, the competitive barriers to entry are generally low. There are some exceptions here – the barriers would be high if you chose to challenge MasterCard and VISA in the card payments sector (although we have seen interesting new entrants like Square) – but in most sectors the sheer number of existing players tells you that the barriers to entry are low. There are well over 1,000 asset management firms in the UK, for example: that being so, it can't be impossible to become the 1,001st. Even in banking, where it was believed for many years that huge economies of scale delivered enormous advantages to the existing big players and militated against young and small firms, changing economics (and again the advent of digital) have changed the rules of the game. At the time of writing, at least a score of startup challengers are working their way through the authorisation and launch process, in the belief that they can be profitable with very small market shares.
5. Consumers may be more or less inert, but they're not particularly loyal. Inertia represents a big challenge to innovators, whether they have something disruptively different to offer or simply an incremental improvement. But few consumers feel strong loyalties to existing providers and are at least open to the possibility of new relationships, new products or new providers. This is, of course, a consequence of the big point that really is the theme of this book: most existing financial services businesses aren't very good at marketing, and so are much less closely connected to their customers than they could or should be. Marketing is an area where innovators can and should aim to outperform.

Overall, when we net out the strengths and weaknesses of retail financial services as an arena for innovation, we think that the picture is generally positive and attractive, but with one large cloud in an otherwise mainly blue sky. That cloud – as we hope is clear from the above – is the widespread difficulty and cost in recruiting customers to innovative new propositions.

For innovators – and particularly for innovators in small, startup businesses with limited resources – this will tend to emerge as the last and toughest obstacle. Time and time again, in our marketing services careers, we've seen entrepreneurs set about tackling the long and daunting list of challenges involved in getting their venture off the ground. Time and time again, we've seen them (hopefully we've also often helped them) deal with these challenges, one by one, until the dashboard is showing almost all green lights and the proposition is ready for launch …

… and then, time and time again, about three months later we've found ourselves taking part in an anxious discussion round the boardroom table. On closer examination it seems there is in fact still one red light, and that's the one item on the agenda: how on earth are we going to recruit the number of customers we need, at anything like a cost we can afford?⁴

Here again, as so often in this book, there are exceptions. There are three situations in which innovators can build significant customer bases relatively quickly and at low (or at least acceptable) cost. These are:

1. When there's a good opportunity to cross-sell to an existing customer base, either the innovator firm's own customers or the customers of a partner. (A ‘good’ opportunity is one where good data is available, allowing for tight targeting on a segment or segments of customers well-matched to the new product or service.)
2. When the innovation has a strong proposition that is intended for a target market consisting of highly engaged, hobbyist consumers. As discussed elsewhere in this book, there is a segment of exceptionally engaged financial services consumers in the UK, probably numbering somewhere either side of 1.5 million individuals and made up largely of relatively upmarket middle-aged men, who have generally acted as the early adopters of new and innovative propositions. These people are relatively easy to reach with marketing communications – being interested in personal finance, they seek out opportunities to find out about it – and they are willing to try new propositions. Unfortunately, as well as being relatively few in number, they are also much more promiscuous than average and so hard to retain, and much more price-conscious than average. And also, the expression early adopters is rather misleading, in that it suggests that sooner or later a whole lot of later adopters will follow their lead: however, very often they don't, and the ‘early adopters’ would be better described as ‘only adopters’. But still, if these people make up your target market, the good news is that they're much easier, and cheaper, than average to recruit.
3. Very occasionally, neither of the above applies, but the innovator has an exceptionally strong, clear and attractive customer acquisition proposition, and a business plan that can afford to include a significant budget for communicating it. We're reluctant to mention this possibility, because most innovators, being optimists at heart, will immediately assume it applies to them: in fact, it hardly ever does. But very rare examples – the most recent being the free-credit-score company Clearscore, which claims a customer base of 3 million within a year of launch – mean that it would be wrong to dismiss it entirely.⁵

But in truth, for everyone else in the direct-to-consumer sector – even those with genuinely strong and innovative ideas – the challenge of acquiring enough customers, at low enough cost, and then going on to develop profitable relationships with them, is somewhere between difficult and impossible.

In some ways, it's a little easier in the intermediated sector. At least most advisers, like those hobbyist consumers, are reasonably willing to engage with firms who have a new story to tell. But, that said, most are also set in their ways and reluctant to add new propositions to their repertoire. They are often particularly cautious when confronted with big, challenging, disruptive innovations, especially when taking them on board involves any implicit criticism of what they've been doing previously. By way of example, a few years ago one of your authors was involved in branding, marketing and communications planning for an innovative startup launching an entirely new product for the pre-retirement market through the IFA channel. The management team was strong, well-known and experienced; by startup standards the first-year budget wasn't at all bad; and prelaunch research indicated a strong appetite for the product among both advisers and their clients. A year later, when the company threw in the towel, it had made a total of seven sales. Winding itself up, it did the decent thing with the last of its budget, refunding the premiums to its seven customers.

This may seem like an inappropriately downbeat anecdote for a chapter about innovation. But from our particular perspective, with so much experience of customer acquisition activity, we're sure that one of the most valuable things we can do is to get across one simple message: acquiring the customers you need will almost always be harder, slower and more expensive than you think.

So, apart from lowering your target, increasing your budget and giving yourself more time, what else can you do to increase your chances of innovation success?

We'd like to put forward a four-point formula, which we think applies equally to (significant) incremental innovation as well as to the disruptive kind. But don't get too excited. The bad news is that the four points are all completely obvious, and all require judgement calls that are very easy to get wrong.

The four boxes you need to tick are all about the likely response of your target market. We're with Henry Ford in that we think the initial responsibility for developing that innovative hypothesis rests with you, and that you can't ask your target market to do your innovating for you. But once you have a hypothesis and indeed a target market, then you should certainly challenge it by asking these four questions:

1. Does this innovation offer the target market a clear and obvious benefit?
2. Can people in the target market immediately see how it can improve their lives?
3. Is the innovation quick and easy to get hold of, and does it seem to offer good value?
4. Do the perceived benefits outweigh the perceived risk?

Let's explore these four questions a little further:

1. Clear and obvious benefit. Of the four, this is the most important – and also the easiest to misjudge. Given their low level of engagement and their reluctance to think about financial services too hard, most consumers look for a single, simple, immediate and obvious message about what a particular financial service can do for them. Current accounts are for managing day-to-day expenditure. Pensions are for living on when you retire. Life assurance provides money for your family if you die. Mortgages allow you to buy a home. People know why they need these products. To succeed with an innovative idea, you need to be able to express the central benefit equally clearly and irrefutably.
2. Improving people's lives. It's no good offering a clear benefit or being quick and easy to buy (question 3) if consumers simply can't see how the product or service will make their lives better.

   Passing this test doesn't always require a digital proposition. It's interesting to compare two new brands, launched within a year or two of each other and both initially offering a limited product range focused on savings and mortgages. The innovation in co-author Anthony Thomson's Atom Bank is focused on digital: it's the first bank in Europe to exist as an app. That makes it very different, but so far at least its products are basically conventional. A year or two earlier, Lucian was involved in the launch of the Family Building Society, where the innovation points in a completely different direction: digitally it's pretty basic, but here the big idea is to focus exclusively on ‘intergenerational’ product solutions – mortgages for offspring needing help from their parents, products to help older people leave money to their families with less Inheritance Tax to pay, savings plans for parents and grandparents meeting the cost of school fees and so on.

   Both of your authors would like to think that these two propositions will pass the ‘improving people's lives’ test – but among very different people and for very different reasons.

3. Quick, easy and good value. This is all about perception, and often consumers' perceptions can be very different from the industry's. What seems quick, and easy and, particularly, good value to us can seem just the opposite to our customers. For example, in recent years we've a small crop of online personal finance aggregation sites with business models requiring modest monthly fees. In the great scheme of things, to the senior team at the firm behind the product, £5 or £10 a month doesn't seem a lot of money. To a young or indeed not so young consumer who never pays anything at all for any of the online and mobile services they use all the time, including news, music, games and social media, it seems out of the question. If I pay nothing at all for the whole world of Facebook, Spotify, the BBC and YouTube, why would I pay £10 a month for some not-very-interesting graphs?
4. Exposing customers to risk. This isn't just about investment risk. Risk has many different flavours. There's the risk of losing all your money. There's the risk of losing some of your money, as a result of overcharging, or underperformance, or hidden catches. There's the risk of being on the receiving end of intrusive overselling. There's the risk of not understanding, and being made to look (or feel) a fool. There's the risk of discovering that you never really needed whatever it was you thought you did. The sense that any of these – and no doubt more than a few others – might apply is enough to decide not to proceed.⁶ A strong brand helps to reduce some of these perceptions of risk.

Finally in this section, it's important to emphasise that these four questions relate only to the ability to recruit a customer base, not to the success of the innovation overall. Building a customer base is, of course, a necessary but in itself insufficient part of commercial success: retaining customers and developing profitable relationships with them matter at least as much.

Or, sometimes, not. We recognise that some innovators are working to a more or less hidden agenda that doesn't actually require commercial success at all. A significant proportion of those startup robo-advisers, for example, will be delighted if, having demonstrated any kind of evidence of effective functionality, they're on the receiving end of a bid from an established player keen to acquire their process and their expertise. Such established players, faced with a buy-or-build decision and choosing the ‘buy’ option, tend to take the view that the startup's failure to recruit customers doesn't much matter since they'll be able to provide access to several million customers of their own. Looking at examples like LV's acquisition of the startup robo adviser Wealth Wizards, or Aviva's acquisition of Wealthify, it'll be interesting to see how successfully the services of the latter can be cross-sold to the customers of the former.

Against this background, how do innovators find a focus for their innovations? Well, there's certainly plenty for them to read: few aspects of retail financial services have attracted more attention from authors of one sort or another⁷ than the question of how to innovate.

What's more, there's something about the landscape of innovation – perhaps its big, rather shapeless, agoraphobic emptiness – that encourages authors to try to classify or codify it with lists and categorisations breaking it up into definable, manageable chunks. An excellent and comprehensive publication on this subject, the World Economic Forum's document The Future of Financial Services, published in June 2015, does exactly this. First it argues that the entire financial services market can be subdivided into six ‘core functions’ (payments, market provisioning, investment management, insurance, deposits and lending and capital raising) and then goes on to define 11 mega-trends that, it claims, are putting pressure on traditional players and acting as the main drivers of innovation. These mega-trends are:

1. New market platforms
2. Smarter, faster machines
3. Cashless world
4. Emerging payment rails
5. Insurance disaggregation
6. Connected insurance
7. Alternative lending
8. Shifting customer preferences
9. Crowdfunding
10. Process externalisation
11. Empowered investors

It's a good list, in a good document that acts as the best overall roadmap for financial services innovation we've seen. But still, it's a matter of some concern that only two or three of these trends are actually to do with consumers, while as many as six or seven are to do with technology.

Looking across the range of successful market-facing innovations in retail financial services over a long period, we can see surprisingly few common strands. Some have been driven by technology, but some haven't; some are simple and easy to execute, but others are complex and multi-faceted; some are highly differentiated and hard to copy, but some have rapidly become generic; some address very specific needs among niche target groups, but others appeal to large, broad target audiences. But if there's one thing that the successes seem to share – and the failures don't – it's that they start with some kind of insight, or imaginative understanding, of something that customers might want to have, use or do.

In our own experience as consumers, we've been around for just about long enough to trace this pattern back to the coming of the first ATMs right at the end of the 1960s, liberating us from the need to queue in branches to withdraw cash. That was a technology story second, but a consumer insight story first, and plenty of others have taken the same path.

Sometimes, a consumer insight doesn't actually require any technology to provide the solution. Commerce Bank, the US-based predecessor of Anthony Thomson's Metro Bank, built a substantial business via a network of branches located in upmarket East Coast residential suburbs. Two of its USPs were that its branches were open at weekends, and that every customer was given the use of a safe deposit box. These two apparently disparate elements combined brilliantly to offer a powerful, insight-based benefit to women customers. Many would keep their jewellery in their safe deposit box, drop into the branch on Saturday afternoons to select the items they wanted to wear that night, and then go back on Sunday mornings to drop them off again. We can't say whether Commerce Bank also offered a discount on home contents insurance to customers who used the branch in this way, but if so that would make for an almost-perfect insight-based innovation.

On the other hand, innovations based on poor insight into consumers' needs – or, even worse, a failure to identify a clear consumer segment at all – will struggle to find customers. One of your authors was involved recently in a project to develop an online investment service for one of the UK's biggest financial services providers. The plan was fatally flawed by the intention to launch the same service across several of the group's brands, each positioned very differently and appealing to different target segments in the market. In seeking to create a one-size-fits-all service that would appeal to customers of all the group's brands, it inevitably appealed to none of them.

By chance, the same project highlighted another common theme of some unsuccessful innovation: products and services that could theoretically meet customers' needs and provide a real benefit, but which in practice simply ask too much of their ability to understand. In line with the regulator's requirements, this online investment service was built around a powerful tool enabling customers to choose investments that would be aligned with their appetite for risk – or rather, as it turned out, not enabling them to do so. The output from the tool took the form of a series of complicated graphs, showing projections of various rates of return over a 20-year period into the future. Consumers peered at it in a state of bemusement. Most decided that since they could make no sense of it, it would be better not to risk making an investment.

There is another trap in the process of insight-based innovation: identifying the insight, but declining to act on it. A good example is the provision of guarantees. In the abstract, uncertain and generally untrustworthy world of financial services, consumers love guarantees. They love all kinds of guarantees - guarantees that investments will achieve a certain level of performance; they love guarantees that bonuses, once allocated, can't be taken away; they love guarantees that payments, or anything else for that matter, will happen within a certain timeframe; they love guarantees that claims will be met, ideally in full.

The industry, on the other hand, doesn't like guarantees much. It dislikes them partly on its own account – they can be expensive to deliver, and of course on one painful occasion were responsible for virtually wiping out the large and previously highly successful pension provider Equitable Life. But actually, people in the industry dislike guarantees, at least as much if not more, on behalf of their customers. They take the view that guarantees cost money, and in one way or another the cost detracts from a product's performance; and in any case the consumer's anxiety about whatever it may be that isn't guaranteed is probably misplaced. So, on the whole, better not to offer one. Hopefully, this kind of arrogance will gradually fade as financial services becomes more genuinely customer-centric. Genuinely powerful and motivating insights that can drive successful innovation are quite rare in financial services, so declining to act on those that can be found is not wise.

Elsewhere, on the whole, we still think there's a long way to go in terms of the potential for game-changing, disruptive innovations resulting from the combination of consumer insight and digital technology. At the time of writing (although we suspect, not for much longer), it's still difficult to find many innovative, digitally based success stories that have genuinely brought about new consumer behaviours. The one big exception is price comparison sites, which have quickly become UK consumers' preferred way to buy insurance (although not yet to anything like the same extent in other sectors, like loans, mortgages, cards or savings).

It's interesting to submit these to our four-point success test from a few pages back. When customers use them to buy motor insurance, do they tick all four boxes?

1. Does this innovation offer the target market a clear and obvious benefit?

   Yes: cheaper insurance.

2. Can people in the target market immediately see how it can fit into their lives?

   Yes: I have to buy insurance.

3. Is the innovation quick, easy and good value?

   Yes. Buying insurance in this way is more or less as quick and easy as any other way, and the result gives better value.

4. Do the perceived benefits outweigh the perceived risks?

   Yes. There aren't really any perceived risks, unless you choose an obscure and unknown company simply because it offers the lowest price. And most people don't do this – the quote most people are likely to accept is the lowest from a company they've heard of.

That seems to add up to a solid four out of four, and may help to explain why price comparison sites have been so successful. But otherwise, while there are many exciting digital innovations launching into specialist or niche markets – and very significantly changing the way that intermediaries do business – mass-market consumers' financial lives seem remarkably unchanged.

This seems certain to change. The new generation of challenger banks, for example, are starting life with a recognition of the extraordinary power of data to extend their role in their customers' lives – one, for example, is not just proposing to handle payments to its customers' gas and electricity suppliers, but to use its insights into their usage patterns to choose the most suitable contracts and to switch suppliers automatically whenever necessary – even on a weekly basis.

Time will tell, and there's no doubt at all that the industry's enormous investment in innovation will continue. Only a small fraction of that huge total falls directly within our remit as marketers: most is back-office innovation, investment on innovation in processes that make businesses more efficient, manage risks and improve financial performance, but have little direct effect on our customers or on the products or services we're able to offer them. But even so, managing customer-facing innovation is a big and exciting part of the new financial services marketing. It may even be both the most important, and the most enjoyable, part of the job.