Banking’s Innovation Imperative

If the crisis of 2008-2009 exposed woeful lapses in the banking industry’s risk management practices, the years since have also revealed a strong need for innovation. Squeezed between declining revenues and excessive overhead, banks around the world are struggling to shrink their way back to profitability – not an encouraging prospect for customers, employees or shareholders alike.

Given the evident need for fresh thinking, both BAI and Finacle from Infosys combined to introduce the 2011 BAI-Finacle Global Banking Innovation Awards at this year’s BAI Retail Delivery. Now more than ever, bankers need to jettison outmoded ways of doing things and creatively plot a path to profitability that clearly keeps the customer’s needs front and center.

“Today, it is imperative for banks’ survival that they address what customers care about most now and quickly reevaluate the ways in which greater measurable value can be generated,” says Haragopal Mangipudi, senior vice president and global head, Finacle, Infosys Ltd. “And if that means a disruption of product portfolios, business models, conventional ways of working and long-worn processes, so be it.”

In the following interview, we explore more of Mangipudi’s thoughts on the need for global innovation in banking:

Q: Why is innovation important in banking today, particularly given all the pressures that banks currently face, such as heightened regulation, sluggish growth and increased capital requirements? How can innovation make a difference in this very difficult environment?

Mangipudi: Innovation can make a great difference precisely because of this very difficult environment. In fact, in these stressed times, it is innovation that can possibly help banks overcome the challenges you’ve mentioned.

Today, it is imperative for banks’ survival that they address what customers care about most now and quickly reevaluate the ways in which greater measurable value can be generated. And if that means a disruption of product portfolios, business models, conventional ways of working and long-worn processes, so be it.

As banks struggle to deal with the aftermath of a confidence-draining global economic slowdown, they need positive new approaches to understand customers and flexible new ways to do business. Ways for banks to innovate profitability include: creatively positioning compliance as their competitive differentiator; propelling growth by building “banks-of-one” – to each customer his or her own personal bank; and leveraging advances in technology to minimize capital expenditure while linking investments to measurable business outcomes.

Q: When you talk to bankers all over the world, what do you find to be their major obstacles to innovation?

Mangipudi: Lack of leadership support and focus for sustained innovation across the organization tops the chart of innovation obstacles. It is apparent banks need to make a fundamental shift in their approach to business – top down.

Non-availability of systems to track, analyze and report quantitative measures of business benefits derived from innovation is another oft-mentioned innovation deterrent. Current processes, structures and the people matrix largely consumed by the pressures of solving operational here-and-now issues also keep banks from focusing on innovation.

Another interesting finding from our interactions with financial institutions globally and from the surveys we’ve conducted with BAI in the U.S., the European Financial Management Association (EFMA) and Asian Banker Journal is that technology, although a strong driver of innovation, can actually prove counterproductive and hinder innovation when the systems leveraged are inflexible and archaic.

Q: What about lack of financial resources, since banks are obviously being pressured in today’s environment?

Mangipudi: Managing costs effectively can only take a bank so far. What banks really need today is accelerated growth. However, this does not have to be achieved at the cost of ignoring financial prudence. Innovative thinking and intelligent investing will help generate and sustain such financial resources, which should help address the current problem. Prudent cash management practices, online, real-time, cross-country, cross-currency funds management across the group entities, better and optimal use of current resources are some of the ideas that can be explored.

Q: What is Finacle’s particular interest in global innovation? Why is this topic important to your company?

Mangipudi: As an organization, Infosys is committed to helping clients leverage new business growth opportunities. We realize that accelerating innovation by delivering path breaking solutions or co-creating it with our clients is the way forward in these times of burgeoning discrete markets, rapidly growing product categories and clearly demarcated customer segments.

We strive to make our customers more competitive by injecting into their business the technology prowess to enter new markets and break into new product categories. We are also firm believers in the merits of co-creation. We routinely engage with customers and partners to co-develop solutions for complex business problems.

Finacle from Infosys partners with banks to power-up their innovation agenda, enabling them to differentiate their products and services, enhance customer experience and achieve greater operational efficiency. Our solutions are strong innovation-facilitators enabling banks to accelerate growth, while maximizing value from their large scale business transformation.

Mr. Cline is managing editor of BAI Banking Strategies. He can be reached at [email protected].