{"id":35197,"date":"2018-11-13T18:54:02","date_gmt":"2018-11-13T23:54:02","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/neighborly-leveraging-open-innovation-to-spur-product-innovation-in-fintech\/"},"modified":"2018-11-13T18:54:02","modified_gmt":"2018-11-13T23:54:02","slug":"neighborly-leveraging-open-innovation-to-spur-product-innovation-in-fintech","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/neighborly-leveraging-open-innovation-to-spur-product-innovation-in-fintech\/","title":{"rendered":"Neighborly: Leveraging Open Innovation to Spur Product Innovation in FinTech"},"content":{"rendered":"

When people think about public finance, innovation is usually not one of the first things that comes to mind. In fact, some people might argue that investment banking and traditional finance are outdated industries that lack the technology infrastructure to compete in the future. While most finance companies and investment banks have recently started to invest more in improving their technological capabilities, they have still struggled to innovate[1]<\/a>.<\/p>\n

That is not the case for Neighborly, a financial technology (FinTech) start-up that allows individuals to invest directly in projects that they care about via municipal bonds. It has been deemed as the kickstarter for municipal bonds.[2]<\/a> Municipal bonds are debts that are issued by a government entity to finance expenditures like infrastructure projects, schools, and\/or hospitals. They are also usually tax exempt, which make them attractive securities for people looking to lower their tax burden (typically high net worth individuals).[3]<\/a> As local government budgets have decreased over time and the tax base has shrunk, Neighborly has provided an innovative way for local governments to finance projects by directly connecting individual investors to projects that they\u2019re interested in financing. Essentially, they are able to crowdsource investment resources to meet the demand of their customers.<\/p>\n

Although Neighborly\u2019s business model has successfully been able to crowdsource and pool individual investors, I believe the company can greatly benefit from leveraging open innovation. Open innovation could help the organization develop new products and services to remain competitive and become an even more innovative market player.<\/p>\n

This is particularly important as Neighborly might face growth challenges in the near term due to macro and economic trends. For example, the 2017 tax bill reduced the income tax for companies and most individual Americans[4]<\/a>; this is relevant because reductions in income taxes might drive down demand for tax-exempt bonds (Neighborly\u2019s core product).[5]<\/a> This presents a challenge to Neighborly as its base of crowdsourced investors might also shrink.<\/p>\n

To address this issue in the short and medium term, Neighborly should leverage the insights and feedback from their customers to develop more products and solutions that can benefit local communities in a cost-effective way and that can benefit the people those communities serve (individual investors). It\u2019s unclear that the organization is currently doing anything to address these shifts. They have invested in business development and expanded their financing offerings to new municipalities. However, there are many additional opportunities that Neighborly could capture. For example, many local governments will never have access to public finance offerings from large investment banks (ie. Goldman Sachs, Morgan Stanley) because the projects they need to finance are relatively small. Neighborly should focus on gathering input on the needs of these smaller local municipalities and develop affordable investment products that cater to them.<\/p>\n

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Open innovation is about finding ways to leverage the knowledge and creative solutions that exist outside of your organization. The primary benefits of open innovation include: new content generation, customer feedback, access to external expertise and creativity, and development of communities with shared incentives\/interests.[6]<\/a><\/p>\n

The megatrend of open innovation in product development is especially relevant to Neighborly because it is a natural extension of their existing business model. Neighborly has a two-sided platform that can foster collaboration. They have two sets of customers that they can leverage to gather information about new products and services to offer.[7]<\/a> Some examples of ways for Neighborly to leverage open innovation to develop new products and services might include:<\/p>\n