One year into EH Digital Agency
Creating a platform for innovation within a B2B insurer
EH Digital Agency started in July 2015, with a simple baseline: reinventing trade finance. How long does it take to reinvent an industry and to make it innovation-friendly?
From our perspective at EH Digital Agency, it took 12 months to build the foundations of a platform for innovation. What we basically did for 12 months, was to create two-way porosity between the world of credit insurance and the ecosystems of innovation.
EH is known for being the world leader in trade credit solutions. Not many innovators wake up in the morning thinking about our industry: it is not very well-known, the few people who know it would not call it a sexy industry, and it is heavily regulated.
Reciprocally, as many other corporates, EH innovation was very in-house and lacked an opening to the outside world. To be fair, this was not uniquely a EH issue, it’s the whole B2B finance industry which has a marked tendency to operate in a vacuum.
Just to set the scenes — what is trade credit management and where does insurance come into the picture?
Trade credit is about managing how companies invoice and pay each other. It is the number 1 driver of liquidity in the economy — even before funding. Indeed, the biggest bank for corporates is other corporates, through the terms of payment that they give each other. On average, more than a third of a company’s balance sheet is made of trade receivables. It’s such an important asset that it just makes sense to insure it! Our analysis shows that more than 25% of company bankruptcies are caused by the default of a client. Credit insurance provides coverage against this precise risk — the risk of non-payment of a trade receivable. Millions of SMEs will strive if we manage to reinvent credit insurance, to make it known, understandable and accessible.
In its current form, credit insurance is a very traditional, formal, product, just like any other wholesale transaction banking product (L/C, Factoring, Bonding). It’s highly regulated, highly intermediated, highly manual and pretty time consuming to deploy. Millions of SMEs will strive if we manage to reinvent credit insurance, to make it known, understandable and accessible.
If we look at trade credit management from an intellectual point of view, it is a hard and interesting problem to solve: it’s all about credit risk. it It ultimately requires to map the social graph of B2B commerce, to design the right algorithms to predict how efficient the relationships and transactions will be, and to derive useful and accessible products that fit within the constraints imposed by local insurance regulations.
We will write a longer piece to describe our vision for the future of trade credit and trade finance, but in short: trade credit insurance is a great ecosystem, hidden inside a non- porous surface to continue the metaphore. Our mission in EH Digital Agency was to create porosity into the surface to let positive innovators infiltrate the ecosystem and step-by-step enrich and develop it.
How did you create porosity into the ecosystem of trade credit?
In 12 months, we explained the fundamental concepts of credit management and insurance to hundreds of innovators, acting as evangelists for EH and for our industry. We have listened to our customers, designed value propositions with them and for them, unleashed the creativity of our colleagues, opened APIs into EH assets and made our data accessible in different ways, and designed numerous partnerships, in the Silicon Valley, in other innovation hubs in the US, in the UK, France and Germany, and in a few other countries.
Our goal was to set the foundations of a scalable platform for innovation. The platform would accelerate the creation of positive porosity into the trade credit ecosystem. We have always believed that true innovation would be the result of open discussions between experts from EH and external innovators. Therefore, getting innovators interested in our ecosystem was not enough — we also had to get our people interested in the world of innovators.
When we started EH Digital Agency, we were just a team of three, at the frontier between the two worlds, acting as translators and interpreters. Therefore, it was crucial to inject scalability into our endeavors to maximize the number of ideas tested and to reach out to the external world meaningfully. Our action was materialized by proof of concepts and prototypes — in fact 10s of them in just 12 months, in the US and Western Europe mainly. But what was happening behind the scenes was far greater: a relationship was being created between the world of innovators and the people within EH, growing stronger each every day. That’s the key to our platform for innovation.
How does the platform for innovation materialize concretely? What does scalability mean in this context?
The platform for innovation is called EH Digital Agency. It provides a number of innovation services which are relatively common in corporate innovation labs and startup studios: deciphering market trends and technology shifts, connecting with networks of innovators inside and outside of our industry, ideating and validating ideas through POCs and prototypes, and evangelizing digital culture across Euler Hermes.
What is less common, especially in regulated industries like ours, is the level of autonomy that the management of EH gave us from the start. We believe this extreme freedom was key to our success: allowing us to speak the right language both for the world of innovators and the world of trade credit, and to act at the speed of innovators, gave us the credibility to kick start and scale up the platform.
Scalability was created through a highly decentralized, yet highly cohesive, network of internal and external innovators. We view our role as connectors: we connect tech solutions to client needs, we bring people in our network who we trust to solve the hard problems at hand, we assemble teams of internal, external and partner resources. A typical EH Digital Agency PoC will typically mobilize a partner startup, a data lab, a couple of developers and a business owner for a few weeks. Accelerating this cycle of ideating, assembling, testing, disbanding […] is what creates the scalability for EH. When you’re still in the exploration phase, velocity is a must and oftentimes it is very tempting for large corporates — including EH — to revert to a more structured, belts and braces approach.
Another originality in EH Digital Agency’s trajectory is the way it is emerging more and more as a “New Business Factory” with its own P&L. Ultimately, our objective is to create and test products that will end up on the shelf of EH salesforce. We’re at the beginning of the journey here, but having the ability to bring products to the market and scaling them up as a mini Business Unit brings huge credibility to EH Digital Agency, be it internally with our stakeholders or externally with our partners.
As a result, 100s of innovators are now simultaneously engaged with EH Digital Agency initiatives. They connect with 100s of colleagues within EH, and beyond within our trade finance industry. This is the main ingredient of our platform — a rich dynamic of open innovation, creating more positive porosity into trade credit each day.
How does EH derive value from this platform for innovation?
EH Digital Agency platform for innovation transforms connections and ideas in tangible business which benefits EH and the industry in several ways.
EH Digital Agency both develops the platform for innovation, and transforms the connections enabled by the platform into tangible business. This transformation into tangible business is done in several ways.
Firstly, the porosity between trade credit finance and innovation ecosystems step by step catalyzessupports deeper exchanges and a more forward-looking understanding of client needs long-term mutual enrichment, which in turn leads to the emergence of fundamentally better trade credit services. Better trade credit services are obviously good for the overall economy — but they are also good for EH and the industry in general, despite the fact that some changes may be disruptive to current offerings. Indeed, despite a widespread need for risk protection, less than 5% of receivables are insured nowadays so it’s clear that better, more accessible trade credit services will unlock the potential of massively growing thea huge market — from currently just a small fraction of overall B2B trade.
Secondly, and this was not expected when we started in this journey, EH Digital Agency appears to be a powerful lead generator for EH. With our innovators’ hats and our technology-first approach, we bring discussions with clients and partners to a whole new level and deepen the relationship. The better relationship translates into more trust, and into winning deals.
Finally, by mixing the best trade credit experts and amazing external innovators, we got a glimpse into the future of trade. EH Digital Agency is actively building the technologies and the services to power the future of trade. We call it theThanks to the New Business Factory, and it aims at scaling upwe have the tools to scale up successful experiments from our innovation lab into future business lines for the group.
We are here to reinvent trade finance and credit insurance. The first 12 months into EH Digital Agency have been a furiously fast and intense journey and we have unlocked a big number of opportunities already. Our platform for innovation is a great achievement as it opens many more opportunities for EH and for the industry.
This being said, we are just at the beginning of a long journey, paved with new challenges. We need to scale up EH Digital Agency, both in terms of size, geographical reach, to leverage the 6000 employees of EH — and that’s usually the biggest challenge of a digital transformation. We have started to adjust the design of our platform for innovation to serve equally well at global and at local level, while still being able to attract top innovators to our ecosystem. We will see in the coming months if this can work well, along with continuing to bring tangible new business to the group. Trade finance and wholesale transaction banking are a fascinating industry and we feel that we’re only scratching the surface of what’s ultimately possible.
Louis Carbonnier, Christophe Spoerry, EH Digital Agency, Sept 2016