Innovation and Financial Markets

Christophe Dispas, Georges Kayanakis, Nicolas Servel, Ludmila Striukova

• Publisher: Wiley-ISTE
• Year: 2021
• ISBN:
  9781119819905
• Edition: 1
• Topic: Mathematics
• Subtopic: Applied Mathematics
• Index: Mathematics

Combining insights from academic research and practical examples, this book aims to better understand the link between financial markets and innovation management. First, we are back to the very definition of innovation and what it means for financial and non-financial companies. Then, we analyze if efficient innovation management by companies is recognized and valued by financial markets. Finally, we focus on innovation within the financial sector: does it really create value outside the financial sector itself. Are Financial innovations value … or risk creators?

1
From the Idea to the Stock Market

1.1. Prologue

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Box 1.1. Excerpt from notes by Georges Kayanakis, December 1998

I set up a company, ASK, which aimed to be a world leader in contactless technology. I thought that my vision was unstoppable, but I could not help thinking that the contactless smart cards that I was about to develop would be a huge disappointment in terms of functionality. I could not convince myself, of course, but I could not despair either: I told myself that I was missing something and that I needed to think more about the properties of the conductive ink. I went over everything again to make sure that my specifications were well adapted to the ultimate goal: “To sell contactless smart cards in ISO format, no more expensive than a contact smart card, that works a few meters away from a reader.” The solution I chose was perfectly in line with the famous “vision”. As the card had to be very light in order to be inexpensive, I opted for a paper substrate (the photocopy kind, not expensive) containing an antenna made of conductive Ag ink applied via silk printing, a technique whose cost for large volumes is almost equal to that of the material. “Away we go”, I told myself. “I’m sure it will work. But there will be some fine-tuning!” I am not yet at the stage of using conductive ink on paper! I am only at the stage where I use a small brush on an epoxy glass plate. It does not work!

Pierre, the employee I had just hired, appears quietly behind me. “Are you coming to eat?” he asks me. “It is eight o’clock.” I hesitate for a moment and say, “I’d rather stay. You go alone. I mustn’t interrupt myself.” He doesn’t go away. He doesn’t want to let me down. Living far away from our families, we are used to eating together in the evening before going to our hotel rooms. “I’ll stay a little longer, if you don’t mind.” I don’t listen to him anymore; I look at two Ag ink loops. Two millimeters wide, uncontrolled thickness, but apparently sufficient. I take the binoculars and inspect them again. Maybe something is missing? A discontinuity? No, nothing! And the skin effect? What is there to get from that? I am thinking about it. I do not see it. There is so much material that it should pass! But it does not! It does not pass! It is the ink that does not conduct well enough. I have 60 ohms, when I should have 3 or 4. For the third or fourth time, I take the specification of the ink again. The manufacturer does not mention 3 or 4 ohms. This is not normal: they are small silver grains embedded in epoxy. They are supposed to touch each other to ensure the continuity of electron flow. So, they are not touching each other as much as they should be! I immediately call Pierre and say, “Pass me the hammer, please.” I put my epoxy glass plate on the ground on which the antenna is placed at 60 ohms and I delicately tapped its surface with the hammer, taking care not to damage it. When both loops are finished, I take the ohmmeter and measure: 12 ohms! That is good. The Ag grains have come closer together and there are more of them touching each other. I continue tapping with the hammer. The resistance does not change anymore! I understood: the polymerized epoxy prevents them from going further. The mechanical treatment must be done before the end of the polymerization… Pierre remained silent, as did I. I set us free by saying, “It’s good. It will work. Give me some paper!” At full speed with my brush, I lay down a new antenna. I put it in the oven at 80 degrees and wait a few minutes. I confess that I am guessing a little bit. I take the antenna out on its paper and I tap it with my hammer. It flattens more easily. I stop and measure. 3 ohms! When we get out of our little room, the night and the Aix cold envelop us. The ground is very slippery, icy. We go directly to the Formula 1 hotel, where we have chosen to stay. We are not hungry anymore, but we are thirsty for the future…

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And the future will prove us right. Indeed, in the 2000s, thanks to ASK products, RATP (a French state-owned public transport operator and maintainer) launched one of the precursors of contactless payment in France: the Navigo pass.

This client, among others, enabled ASK, which was founded in 1997, to become the world’s leading manufacturer of contactless microprocessor cards, contactless paper tickets and contactless paper radio frequency labels, in a decade. The initial specialization in the public transport sector was extended to other industries, for identification purposes and biometric passports. ASK became a tier-2 supplier for companies such as Gemalto and Oberthur and its technology equipped US biometric passports.

The growth of this company, which had a turnover of 0–32 million in 10 years, led to an introduction in the new market in 2014. The company merged with Paragon two years later, to form the company Paragon ID, to become a world leader in identification, with a turnover of more than 100 million euros at the time of writing.

Since then, contactless technology has become widespread. According to a study conducted by MasterCard at the end of 2018 in Europe, nearly one out of every two transactions in stores is now carried out using contactless payment¹. In 2020, the Covid-19 crisis gave the start signal for its massive use. This new use is based on an invention, transformed into an innovation, which took several decades to spread in our society.

The process of developing a company through innovation can be, at least, in part, systematized. In fact, as part of a national study evaluating companies based on their innovative capacities, the Collège des Bernardins, the Centre de Gestion Scientifique of the École des Mines de Paris, under the direction of Armand Hatchuel², and the Fondation Sophia Antipolis, under the direction of Georges Kayanakis, conducted a study to explore and propose solutions.

Under the chairmanship of its creator, Pierre Laffitte, the Foundation Sophia Antipolis was mostly in charge of the “proposal of new criteria for the evaluation of innovation capacities in companies”.

The aim of this bottom-up study was to define the criteria required for innovation. It was organized according to the following modalities:

• – 30 companies forming a representative sample and operating on the territory of Sophia Antipolis, linking to the PACA region’s competitiveness clusters who were called upon to give their opinions on the factors that favor innovation, based on their own experiences;
• – representatives in the companies had to be founders or managers of innovative companies with a valid opinion on the subject due to past or present experiences;
• – the only question they were asked was, based on their own experience, what the most favorable criteria for innovation (organizational, sequential, technological, relational, financial, commercial, marketing, product/market, strategic, etc.) were and which would have had, according to them, the most influence on the success or failure of the company;
• – a team of six...

Table of contents

• Cover
• Table of Contents
• Title Page
• Copyright
• Foreword
• Introduction
• 1 From the Idea to the Stock Market
• 2 How to Develop the Innovative Capacity of Companies
• 3 Innovation and Its Challenges for the Company
• 4 Financial Evaluation of an Innovation Project
• 5 Funding Innovation
• 6 Valorization of Innovation by Financial Markets
• 7 Innovation and Credit Risk
• 8 Financial Innovation: Creating Value… or Risk?
• Conclusion
• References
• Index
• End User License Agreement