Bank innovation inspired globally
Innovation in financial services has become a worldwide phenomenon, as showcased in the annual BAI-Infosys Finacle Global Banking Innovation Awards. Having spent a good part of my career in designing new financial services and products, it has been a great privilege for me to serve as a judge on these awards for the last two years. You might say that this experience gives me a bird’s eye view of financial services innovation around the world.
This experience, in turn, set me to wondering whether some parts of the globe or individual countries are more prone to innovation than others. Or, put another way, what cultural and societal features are required to inspire financial services innovation? We posed this question to some of the other fine judges on this panel, who cite the influence of culture, leadership, technology and government policies.
Innovation is “coming from everywhere,” says Adrian Li, deputy chief executive, Bank of East Asia in Hong Kong. While Li credits the U.S. banking market with being highly innovative, he also cites “a wave of transformation in Spain and parts of Eastern Europe triggered by technological advances, particularly in mobile banking, cloud computing and Big Data analysis.”
“You have certain players who drive the innovation agenda and are at the forefront of new ideas and solutions in the industry,” says Jan Hendrik Kraus, former general manager for group strategy at Emirates NBD, Dubai, United Arab Emirates. “This leads to higher customer expectations in the market and forces the other key players to move along if they don’t want to fall behind and lose market share.”
“If the executive team believes in customer centricity and wants to make innovation happen, it drives the behavior through the organization,” Kraus says. “In addition, if legacy IT system issues exist to a lesser extent, an organization can move faster, as the resources can be dedicated to making new things happen versus dealing with existing complexities.”
Steve Monaghan, regional director and head of group innovation at AIA in Singapore, believes that innovations are most often driven by a visionary leader, an industry crisis, or inspired by another industry. “Market level innovation is often driven at the intersection between crisis, regulatory forces and renewal,” he says.
The Asian financial crisis that began in 1997, for example, created an eventual innovation imperative in the 2000s for banks in Korea. In response, institutions such as Hana Bank discarded their legacy infrastructure and transformed their core, reinventing their business models around digital capabilities. “A focus on design and ecosystem models rapidly transformed the industry from physical to digital distribution with branch traffic being displaced online,” Monaghan says.
Li says banks in emerging East Asian markets are displaying creative approaches to service delivery and payments due to intense competition and consumer interest. Meanwhile, North American banks can draw upon a strong tradition of innovation and entrepreneurship. “Decades of nurturing tech innovators, whether in universities or in areas like Silicon Valley, have resulted in a great number of success stories,” Li says. “This culture, and the huge financial reward that success can bring, provides motivation for new ideas to emerge.”
Consultant Matt Calman, managing director of Calman & Co., Charlotte, N.C., says that developments outside of pure banking, such as the emergence of Apple Pay and the rise of Mint and PayPal, have raised the priority of payments innovations at banks. Regulatory changes, such as Check21 and the Durbin Amendment in the United States and the revised Payment Service Directive in Europe, have spurred banks to develop new, inventive retail delivery and payments offerings, Calman says. He adds that in the Nordic countries of Europe – Sweden, Norway and Finland – banks have been working with government to combine financial accounts and payments access with citizen identification.
Other banks are motivated by customer demand and a desire to associate their brand with the technological or forward thinking in the social sphere, he adds. Case in point: in Spain, CaixaBank’s innovation enabling voice-controlled services for mobile banking serves customers with mobility and sight issues while also advancing the bank’s entry into voice biometrics. Calman says he has noticed an increasing number of offerings from banks aimed at customers with special challenges.
Banks clearly view new technology as a way to improve service for all customers. Wearable technology – like offering banking access through “smartwatches” and other non-traditional access devices – is gaining traction with banks like Citigroup, according to Li. Commonwealth Bank of Australia is adding a wider range of mobile and tablet-based services, such as securities trading, property market advice and data analytics for business customers, while also enabling customers to make payments and withdraw cash without a card, he adds.
Even China, traditionally not a pioneer in banking innovation, is seeing new developments such as China Merchants Bank’s launch of the country’s first online banking platform, All-in-One Net, which provides instant payment services to China’s booming local online retail industry. Meanwhile, Tencent recently launched China’s first online-only bank, WeBank, taking the name from its popular WeChat social media network, according to Li.
The desire to create new platforms and pathways has also opened banks up to working with outsiders, Calman says, citing Citigroup as among the banks that are openly working with third-party application developers to build new applications that customers can use to tap into their banking information. Several banks in Europe have participated in “hack-a-thons,” where the goal is developing new banking applications and more elegant code for banking systems. “Banks are increasingly aware that they could end up as dumb pipes, the way mobile carriers have,” Calman says.
What can other banks learn from these examples of innovators around the globe? Li says that when looking at these innovations, one can often find that they have been tailored to the local business environment. “They are targeted to appeal to a particular segment, or to answer a specific challenge, and so may not be directly applicable to other markets,” Li says. “However, banks can learn a lot through understanding how and why these innovations are being applied, and adapting them for their own particular circumstances.” For example, Li adds some technologies can be used for a range of purposes that go beyond the scope of their original application.
Bankers who want to introduce truly new developments need to “learn to tolerate small failures at the beginning,” says Calman, who previously ran Bank of America’s Innovation Lab, which developed early versions of the bank’s mobile deposits and payments, authentication and video servicing platforms. He recommends creating “a culture of learning” and experimentation where banks can try new things in a controlled way, and dispassionately pull the plug if need be. “It doesn’t require a $100 million research and development budget … you just need to find a way that is compatible with your brand,” he adds.
Monaghan recommends that banks work on transforming the relationship with their regulators from “being adversarial to one of partnership.” Additionally, he says that banks should focus on creating ecosystems for corporate learning and designing customer solutions. “To paraphrase Steve Jobs,” he adds, “it’s not about the technology; it’s about the customer experience.”
I couldn’t agree more. In the pursuit of innovation, it’s critical that bankers focus on solving customer problems rather than letting themselves become enamored by some shiny new technology. That’s the only way you can drive household growth and shareholder value which, after all, are the main objectives of the exercise. And when you do find an innovation that solves customer problems, keep in mind that partnering closely with your technology providers is critical to delivering these solutions on a timely basis.
It has also been my experience that bankers need to be more attuned to innovations worldwide, as opposed to simply their local markets. For that reason, I would recommend that the larger institutions at least hold an “innovation day” each month to enable top managers to discuss recent innovative developments globally and the implications for these innovations on their own markets and key customer segments.
And finally, study those institutions that embrace innovation cultures, such as CaixaBank, Hana Bank and Istanbul, Turkey-based Deniz Bank, which manage to generate new innovative solutions year after year. After all, you can’t become the best unless you spend some time learning from the best.
Mr. Hippensteel is chief content officer for BAI. He can be reached at [email protected].