Banks Around the World Are Racing to File Patents: Are Israeli Banks Following the Trend?
By Gil Perlberg and Itai Green
Banks around the world are filing hundreds of patents annually to protect their investment in innovation and R&D. Since 2013, large financial institutions have filed over 2,679 patents in growing areas such as blockchain, analytics and cybersecurity – a surge of 83% from the prior three years (WSJ).
During the same period a total of three patents were filed in Israel – all by a single bank.
Increased Patents Filing in the Financial Sector
The surge in patent filings marks a reverse in the banking industry’s historic reluctance to patenting.
“For a long time, the conventional wisdom was that financial institutions were uninterested in patents and the litigation surrounding patents. Instead, banks relied on other means of protecting their innovations, such as trade secret rights and first mover advantages. But a convergence of events over the past decade or so challenged this conventional wisdom, and now patents undoubtedly matter to the financial industry”. (BIG BANKS AND BUSINESS METHOD PATENTS, Megan M. La Belle & Heidi Mandanis Schooner, 2014)
Toronto-Dominion Bank used to file around one patent application a year. But after ramping up its strategy about five years ago, it now files about 40 to 50 applications annually, according to Josh Death, associate vice president, legal, intellectual property and patentable innovation at TDB.
A recent Fintech IP report (published by Cipher strategic patent intelligence firm) shows the steady increase in patents by major banks over the last decade. Bank of America has taken the lead in filing Fintech patents since 2007. Today, it also holds the most patents in the blockchain space.
(Cipher – Fintech – understanding the role of patents)
Banks are patenting nearly every aspect of banking and finance technologies, including: ATM technologies, banking related IT infrastructure, payments, wealth management, capital markets, insurance and lending. Banks are also filing patents in technologies such as: blockchain, Internet of Things, optical character recognition. Technologies that are relevant to Fintech but could also have significant value in other industries.
An analysis of the financial industry patent landscape (ReleCure 2015), patents covering technology that support banking and financial services, shows that not only banks are amassing large Fintech patent portfolios. Credit card companies and large technology companies also have significant portfolios. Visa, Bank of America and Hitachi, lead the pack, each has over 1,000 Fintech patents.
Other Fintech patent holders are from a range of sectors, including financial institutions, telecoms companies, software companies, IP commercialization entities and e-commerce firms.
Innovation is the name of the game – worldwide
To be able to compete and flourish where profit margins are thin, regulations are changing, risk monitoring is more complex and technology has an increasing impact, financial institutions must place innovation as a top priority. Banks are introducing in-house innovation programs as well as collaborations for external innovation.
The Bank of Israel (BOI) has recognized innovation’s pivotal role. In a proposed directive the Banking Supervision Department of the BOI, states
“Innovation and technological development are changing and will continue to change the face of banking, both in terms of opportunities and in terms of risks. Various traditional banking processes such as customer service, remote customer identification, risk monitoring, business continuity, and operations are undergoing widespread changes that are being enabled by technological advancement, but that also involve new risks that must be managed.”
Israeli banks have followed suit, by investing millions of dollars in innovation to maintain their competitive edge. To stay competitive, banks are developing customer-focused innovative products and services, which are replacing traditional offerings of lower interest rates and FOREX services. For example, Bank Leumi initiated a company-wide innovation campaign in 2013, and two years later, established the Digital Banking Division to implement its new innovation strategy.
Other banks such as Mizrachi Tefahot and Discount Bank, have also joined the digital banking revolution.
Banks are collaborating with technology companies
Banking in the next decade will unquestionably look very different. Technological developments, consumer expectations, regulatory changes and the entrance of new players are all factors driving the change. Many banks are already taking steps to prepare for the transformations ahead. JP Morgan has already deployed a ‘digital everything strategy’ Bank of America recently launched its AI-powered chatbot, Erica. Barclaycard in the U.K. has developed the Grab+Go application that transforms a smartphone into a ‘pocket checkout.’
In response to the changing landscape, banks will increase collaborations and joint developments with technology companies, and develop new banking platforms adjacent to their core offering. They will bundle services from multiple entities, while focusing on their financial core strengths – customer intimacy and dealing with regulatory licenses.
In Israel, Bank Hapoalim has partnered with the Technion in a new joint initiative that aims to provide customers with new technologies that will improve the banking experience. It has also established an internal innovation lab for banking related technologies.
Banks will increasingly use internal data as well as data obtained through collaborations, for example, with Facebook or Waze, to offer customers location, time and event-based services.
“Innovation without protection is philanthropy.”
Why should banks acquire patent rights? Kevin Rivette, Chairman, USPTO Public Patent Advisory Committee put it succinctly:
“Innovation without protection is philanthropy.”
Like the automobile and AI industries of recent years, the banking and finance sector is undergoing significant transformation. Many banks realize that to survive and flourish in this new landscape, they need to adapt their business models and internal processes to the changing environment. Many of the larger players are racing to develop significant IP portfolios, realizing that “innovation without protection” is simply not sufficient.
Global banks are following the example of successful tech companies that develop IP strategies to maintain and increase their competitive advantage. Tech companies use IP rights as tradable currency. They monetize their patent portfolios by out-licensing, cross licensing and use their patents in litigation.
IP-savvy companies develop portfolios to mitigate risk and deter aggression. A patent portfolio provides “market access” – freedom to operate in specific fields and markets. Financial institutions that are building significant patent portfolios are doing so to ‘hedge’ against what may happen in the future.
Israeli banks are not following through – leaving their innovation unprotected
Despite the heavy investment in innovation, banks in Israel are not developing patent portfolios. Data from the Israeli Patent Office shows that in the past decade, only three patents were filed by Israeli banks.
To revisit the directive from the Supervisor of Israeli banks:
(from – Encouraging innovation at banks and acquirers, BOI, Supervisor of Banks, Dr. Hedva Ber, June 23, 2019)
“In accordance with the requirements of Proper Conduct of Banking Business
Directive no. 301, the banking corporations are required to formulate a clear and
holistic strategic approach regarding adopting innovation in their banking
Adopting innovation is intended to add value to the bank. To do so, innovation products must be protected. Effective IP portfolios are aligned with the bank’s short and long-term business plans, and take into consideration a number of factors: licensable IP assets; risk mitigation; identifying ‘patent currency’; and developing a territory filing strategy.
By neglecting to secure patent protection, banks in Israel are failing to leverage their investment in innovation. Establishing an IP strategy is a key step to securing a bank’s competitive edge and long-term viability.
For a list of references, please contact: Gil Perlberg at firstname.lastname@example.org
Gil Perlberg, founder and CEO of Perl IP Consulting specializes in developing and implementing business strategy patents that create business value. In addition, Gil lectures at international and local conferences on patent strategy and innovation in companies. Gil is a registered inventor of more than 25 patents and author of “PROVISIONAL PATENT APPLICATIONS: Use and Abuse”.