The term "financial innovation" is a bit of a weird one. Overdraft fees are a "financial innovation." So too is the noxious practice of universal default. But so are ATMs. And, for that matter, banks. It's all a bit broad.

"Innovation," in most other areas of life, means forward progress of a discrete sort. A new price for the Nintendo Wii, for instance, wouldn't be considered an innovation in video games. But the Nintendo Wii was considered an innovation. "Innovation," in that sector, tends to mean technical progress. Conversely, the financial sector takes a pretty relaxed view of the word "innovation": It seems to denote "new stuff we're doing." That stuff might be ways to eke out more profit or spread risk or hide risk or make it simpler to withdraw money. It would be a lot easier to say whether financial innovation is good or bad, however, if people were a bit more specific on what sort of innovation they were looking for. What I think we can say, with some certainty, is that simply trusting the financial sector's definition of worthwhile innovation hasn't worked out too well.

Innovation is a change in the thought process for doing something or "new stuff that is made useful". It may refer to an incremental emergent or radical and revolutionary changes in thinking, products, processes, or organizations. Following Schumpeter (1934), contributors to the scholarly literature on innovation typically distinguish between invention, an idea made manifest, and innovation, ideas applied successfully in practice. In many fields, such as the arts, economics and government policy, something new must be substantially different to be innovative. In economics the change must increase value, customer value, or producer value. The goal of innovation is positive change, to make someone or something better. Innovation leading to increased productivity is the fundamental source of increasing wealth in an economy.