Impactful Innovation – for Less Than $1

A few months ago, my Filene colleague Ryan Foss wrote about disruptive innovation and technology impacting credit unions and their members. Some of these “moonshot” ideas in and out of the credit union space have the potential to fundamentally shape the way we live. These innovations typically draw all the attention, excitement and sometimes credit union investment. Should they? Filene’s report “Structures for Innovation” correctly says “no.” Credit unions should balance investments in both disruptive and incremental innovation. That is, in addition to incredible breakthroughs, small improvements to existing concepts can also make a drastic improvement in the lives of consumers and solve ongoing challenges.

Inspiring Incremental Innovation Outside of CUs

To frame the necessity of incremental innovation for credit unions to solve old problems, let me share my favorite example from outside the industry. Manu Prakash and his colleagues at Stanford University took on a disease that contributes to one million deaths per year and puts one billion people at risk. If you haven’t guessed it by now, Bill Gates pledged an additional $1 billion in April to fund research and development efforts to end the disease, according to Fortune.

What is it? Malaria. Mr. Prakash, like any good innovator, first took a hard look at the essence of the problem. He focused on one nagging issue: The accessibility of a malaria diagnosis. Malaria diagnoses historically required expensive, bulky microscopes, centrifuges and other equipment to confirm presence of the disease and lead to appropriate treatment. In developing areas of the world, this type of equipment was often unavailable locally and blood samples could take months to be processed if shipped elsewhere.

Mr. Prakash came up with a remarkable innovation: The Foldscope. This simple microscope starts as a sheet of durable paper that is then punched out, folded and assembled without tools. It can be stomped on and still function. Hundreds of microscopes can be sent in one envelope. Coupled with a hand-held paper centrifuge  needed to separate blood for analysis (as reported by Stanford University), the Foldscope can help accurately diagnose malaria. The most mind-blowing part: Both tools cost a combined 68 cents, according to TechNadu. Let me emphasize this reality – billions of people could have access to an accurate malaria diagnosis for less than a dollar.

Why is this so amazing? To me this incredible device is an incremental innovation. Normally you would expect to see the headline “billions of lives improved” with an accompanying disruptive medical innovation like penicillin or the polio vaccine. But Mr. Prakash didn’t invent the microscope or malaria detection. Nor did he invent folding cardboard like origami or manufacturing inexpensive lenses. Through some sophisticated engineering, he improved upon these existing concepts. Mr. Prakash simplified the microscope and made it highly scalable, all at a dramatically lower cost. The genius of this innovative solution was hidden in plain sight – simply re-tooling an existing solution to an old problem and making it incrementally better. While other scientists pursue disruptive innovations like a malaria vaccine, Mr. Prakash is saving lives through a small, but radically impactful incremental innovation.

Focus on Impact, Not the Size of the Innovation

Credit unions are not in the business of diagnosing malaria, but the industry must take a page from this story. In an era where time and resources are always limited, it’s necessary to invest resources in incremental innovation. Innovation doesn’t have to be flashy, big or push technology by leaps and bounds. Finding the solution to any problem first requires clearly defining the problem. Often, what is uncovered is an elegant, simple, incremental improvement of an idea sitting right under your nose.

There are examples of this type of incremental innovation in the credit union movement. Take the concept of an Employer Sponsored Small Dollar Loan. This generations-old idea – credit unions offering small-dollar loans via an employer partner – is once again gaining momentum. It solves for multiple persistent challenges for a variety of community stakeholders.

• For the credit union: A new way to manage risk and profitability of a small dollar loan.
• For the member/employee: Access to affordable small-dollar loans based on simple factors of employment and standing.
• For the employer: Ablility to offer a differentiating employee benefit.

The United Way of Chittenden County in Vermont and NorthCountry Federal Credit Union reignited this idea through some incremental modifications to underwriting and management practices to make it work for their community. Through Filene’s Incubator testing in partnership with The FINRA Foundation, we determined that this program was (guess what?) scalable, low-cost and very impactful.

During our testing, more than 5,000 loans were issued by 13 financial institutions over three years, totaling over $5 million. ESSDL is not a new mobile application, artificial intelligence chat bot or (fill in the blank) financial service innovation buzzword. It’s just a ridiculously simple incremental improvement on an existing idea. To make it even more simple, financial institutions now have access to free ESSDL implementation materials through Filene.

Less Than a Dollar Idea

What is the next credit union equivalent of a “less than a dollar” investment to positively disrupt a consumer’s life? Like the example of the Foldscope and hand held centrifuge, credit unions should target innovations that are simple, low-cost and highly scalable as part of their innovation portfolio. Those credit unions don’t have the luxury of waiting for the next big moonshot to address persistent challenges. Moonshot ideas will come, but in the meantime, credit unions should take bold, perhaps unexciting steps to focus on the small, the incremental and the tweaks to existing ideas.

Ultimately, the most important innovation accolade any credit union should seek is based on member impact. That is the true “disruption” factor the credit union movement should be chasing. Consider the access to financial services created, the dollars saved and lives empowered through innovative cooperative finance. Just think, you could be sitting on the next big “incremental” thing.

Adam Lee is Incubator Director for Filene Research Institute. He can be reached at 608-661-3747 or adaml@filene.org.