Breaking New Ground with Innovation

For the eight finalists of the 2012 BAI-Finacle Global Banking Innovation Awards, innovation means breaking outside of banking’s traditional product, services and channel categories and sometimes even pioneering game-changing or “disruptive” technologies. Below are short profiles of the finalists. The final winners, as determined by a distinguished panel of judges will be announced October 9 at BAI Retail Delivery 2012 in Washington, D.C.

OCBC Bank is a finalist in both the product and service and channel innovation categories for its FRANK by OCBC concept. Targeted to the millennial set, the Singapore-based bank designed four of its branches to more resemble youth-oriented clothing stores than traditional bank branches. The concept plays to a long-held goal in banking: lock in consumers when they are young and you’ll have a customer for life.

“Through our research, we found that young people still wanted a physical place to browse, touch and ask questions about financial products and services, ruling out a full self-service model of do-it-yourself banking,” says Chng Bee Leng, head of mass affluent marketing for OCBC Bank. “We deliberately stayed away from ‘bank design.’” Of the four FRANK stores, three are located at Singapore universities.

Most recently, OCBC in July instituted an internship program at Singapore Polytechnic (the site of one of its FRANK stores) where college students learn more about banking – and the bank can get an inside perspective on its target population. “This ‘for youth, by youth’ approach is part of the bank’s continuous efforts to stay relevant,” Chng says.

First National Bank, a division of FirstRand Bank Ltd. of South Africa, a finalist in the Product and Service award category, pioneered on the payment product front with its FNB eWallet. This mobile payments application enables users to purchase prepaid airtime, send money to any mobile phone user and receive cash vouchers via Facebook. Customers can also use the application to pay one-time or periodic bills from their mobile phone.

Yolande van Wyk, the CEO of FNB’s eWallet service, says that with an estimated 13 million unbanked South Africans, the bank faced a “high demand for remittance solutions, particularly those which allow recipients to access cash in outlying areas.” So far, van Wyk says, more than 1.1 million people have directed funds into their FNB eWallet – more than half of whom do not hold FNB accounts. More than 40,000 transfer recipients subsequently opened bank accounts, he adds.

National Australia Bank is another finalist in the product and service category with its NAB UBank Website, which enables customers to compare their spending to other people in similar circumstances. This Big Data-driven application, dubbed People Like U, culls from three years of information and more than one billion of the bank’s transactions.

For channel innovation, the judges picked as a finalist Turkey’s DenizBank, which introduced a Facebook-based banking platform in January. Going beyond using the social network simply for marketing, DenizBank enables users to check their bank account, access credit card statements, view cash flows and payments within their accounts, send money online, and apply for consumer loans and credit cards within Facebook.

DenizBank Senior Vice President Ahmet Murat Erdag says the idea for the platform grew naturally from seeing how much time people already spent on the social site. “We began exploring the idea that if we could offer a solution in which people could experience a simple banking flow, they would adopt it quickly, since it would mean bringing a banking service to where they spend a lot of time.”

Erdag says the Facebook interface is already used by 10% of the Turkish bank’s online base. Next up, the bank plans to add card and bill payment options, access to mutual funds and foreign exchange transactions, mobile device top-up, and the ability to leverage a large group to get better pricing on loans or other products (otherwise known as “social buying”), he says.

For the channel category finalist, Bankwest, innovation involved overhauling one of the more traditional 20th century channels: phone access. The Australian bank created a national virtual contact center using its store and mobile lending staff, who commit a certain number of hours to handle calls. By transforming the call center approach, Bankwest was able to close a 140-seat telephone sales center within six months and improve customer service levels at the same time, according to Pete Birch, head of the bank’s direct channels and executive sponsor of the bank’s “Project Bell.”

“Our biggest risk was a reduction in customer satisfaction as store and mobile [staff] tried to adapt to phone sales,” Birch says. “However, it was our belief that talking to an expert rather than a call center agent would ensure the customers are bought in.”

Disruptive innovation, which really challenges the status quo, is arguably the riskiest kind of innovation. And some would say the category finalist Fidor Bank of Germany took a risk in offering its “like-zins” user-defined payable interest rate, where Facebook users can directly impact the interest paid on their bank deposits by hitting the “like” button on the bank’s social network site. CEO Matthias Kroner recalls how executives at other banks questioned whether the model went too far in putting control in the hands of customers. “In traditional banks, they say we are crazy. They ask, ‘What happens if you get so many ‘likes’ that the rate goes rocketing to the stars?’”

Kroner says the bank raises the interest rate it pays on its FidorPay accounts by 0.1% per year for every 2,000 ‘likes’ it receives, up to a cap of 1.5%. He says the idea behind the user-defined interest rate, launched in April, was to leverage the full interactivity of social media. “The DNA of social media, of Web 2.0, is the interaction of customer to bank, or customer to another customer,” he says. At press-time, the bank had received more than 11,500 likes on its page.

Barclaycard is also a disruptive innovation finalist for extending the notion of the online community to banking with its Barclaycard Ring Card and accompanying Ring Community, launched in April. The card itself is designed – “crowdsourced” in Internet lingo – by the bank’s online users, who vote to determine all the aspects of the card from whether it needs a near-field communication (NFC) chip for mobile payments to whether the card program should be serviced Stateside or overseas.

Cardholders get to see the card program’s profit and loss statements and share in its profits, according to Paul Wilmore, managing director of consumer markets for Barclaycard. Wilmore says the concept began about a year ago, driven by the all-time low confidence in banks, the changing climate and regulation surrounding credit cards and the explosion of social media communities such as Groupon and LivingSocial. The cardholder community also posts ideas for developing new features; out of the 45 original ideas posted in the first six months, 10 are in progress and another 10 are under consideration, Wilmore adds.

Another bank with a quickly evolving (and disruptive) model for breaking free from business as usual is Poland’s Alior Bank with its Alior Sync fully virtual online bank. This award finalist in the disruptive innovation category introduced Alior Sync in mid-June and already boasts 80,000 users, only 30% of which were customers of Alior Bank, according to Celina Waleskiewicz, head of Alior’s new banking area. 

With fully online account-opening and credit application process, round-the-clock video and electronic chat-based customer service, integration with Facebook, and rewards paid in entertainment offerings and preferred interest rates, Alior Sync is blazing a new trail in what has been a very conventional part of the banking world.

“The decision was driven by the fact that we believed a new generation has grown up to participate in banking services,” says Waleskiewicz. “As they live in a virtual world they also need truly virtual banking with fully online processes, without the necessity to visit branches.”

Ms. Hoffman is a contributing writer to BAI Banking Strategies based in Schweinfurt, Germany.