Raising the bar for innovation

As the role of technology grows in retail banking, innovation is no longer simply about online, mobile or even omnichannel, say the judges in the BAI-Infosys Finacle Global Banking Innovation Awards 2015. “2015 feels like a year in which retail banks have finally figured that things will never be the same again,” says Ed Carrell, managing director, head of commercial transformation for London-based Barclays. “The real innovators and progressives that we’ve watched over the past years were exceptions that proved the rule.”

“Most banks continued to look at digital, data, mobile and cloud as important trends that needed to be covered but were really add-ons to their business,” Carrell adds. “Fintechs (financial technology firms) were interesting but small. In 2015, I think this has changed. Suddenly, there is a recognition that the whole economics have changed, and those who don’t adapt and re-invent will be left behind.”

Carrell joined eight other judges who evaluated the 250 entries that came from 34 countries. The others were: myself; Abonty Banerjee, general manager, head of digital channels for ICICI Bank, Mumbai, India; Matt Calman, managing director of Charlotte, N.C.-based Calman & Co. LLC and a former top technology executive at Bank of America Corp.; Jan Hendrik Kraus, former general manager, group strategy, Emirates NBD in Dubai; Adrian Li, deputy chief executive, The Bank of East Asia, Hong Kong; Steve Monaghan, chief innovation officer for Hong Kong-based AIA; David Passavant, senior vice president, banking innovation center director, Pittsburgh-based PNC Bank; and Gustavo Vinacua, innovation centers and open innovation director, Madrid-based BBVA.

Global interest in the awards, as well as the entries themselves, indicates just how important innovation is to banks today, says Li. “They have been incredibly creative in the way they have responded to market challenges, particularly the new competition they face from fintech companies and online service providers.”

I personally couldn’t agree more. In this digital age, customers have come to expect innovation in products or service from all the companies that they do business with. This particularly applies to technology companies, but increasingly includes providers of financial services. The fintech competition, in fact, is raising the bar for our industry to meet this heightened demand from consumers, which can translate into improved profitability. As judges, we look for companies that are not only using innovation to differentiate themselves in the market, but also to drive customer growth, market share and institutional value.

I’m often asked the question: why should U.S. banks care what their innovative peers are doing in Europe, Asia or other parts of the globe? The reason is that those innovations could soon show up in your market in the U.S. Likewise, fintech innovations in the U.S. could materialize elsewhere tomorrow. The importance of these awards is that, by highlighting innovation around the globe, they can serve as a predictive model for what’s going to be in your marketplace tomorrow.

The winners will be announced at BAI Retail Delivery 2015 on October 13 in Las Vegas. Here, the other judges share their comments on the finalists and on global trends in retail banking innovation:

Q: What is the state of innovation in retail banking globally in 2015? How has it changed from previous years?

Vinacua: It’s fair to say there’s more happening. Banks are starting to be aware of the speed of transformation going on and the importance of what nimble players are doing and can do to disrupt the industry.

Passavant: With the global economy mostly improving, I think banks are anticipating and preparing for an upswing in the overall economy, so you’re seeing an overall acceleration in innovation. It’s also a broad trend that banks continue to look at non-traditional financial institutions that are innovating and taking ground in the industry, and in many cases, banks are adapting. They’re studying those models, incorporating those ideas and in some cases they’re acquiring. That takes some time to bring those ideas in house. You’re starting to see banks learn from young, nimble startups.

Monaghan: Mobility has gone mainstream. Banks are becoming more sophisticated in their approaches to creating ecosystems around customers. Clearly, many banks are moving faster in embracing digital engagement with their customers.

Q: What economic or regulatory forces are affecting banks’ willingness to invest in innovation? How has that changed?

Calman: Number one is security, which is actually a regulatory reality for banks that affects their ability to invest in innovation because they have certain infrastructure factors they must address. Expense is a factor, too, with many banks seeing innovation investments as too uncertain. When banks make product and infrastructure choices, often the riskier innovation investments lose out to more certain, but incremental, initiatives,

Passavant: With rising interest rates, there’s more capital available, in theory, for banks to invest in innovation. There will also be more competition, especially on the retail banking side, for customer dollars because they’re now more valuable to banks. The smart banks are investing now to prepare to launch some noteworthy products and services as rates increase.

Carrell: Our business model has been impacted via regulation leading to less attractive returns on capital versus cost of capital. This has coincided with “next-gen tech” actually being current generation. Progressive leaders in the industry have understood this point and are able to drive competitive advantage pretty quickly.

Monaghan: Regulators have always been seen as an impediment to innovation. This has really shifted over the last year. Increasingly, you are seeing regulators taking a more active stance in promoting innovation. One example is the Monetary Authority of Singapore, which has set up an innovation division and is actively engaged in mentoring startups and collaborating with banks in innovation.

Q: Compared to previous years, what trends did you notice in the innovations submitted this year? What problems did the innovations focus on solving?

Calman: Apple’s introduction of Apple Pay is a watershed event for all mobile payments solutions. It has unlocked the possibilities for mobile commerce solutions and unlocked a lot of contactless payment terminal deployments. Compared to previous years, mobile contactless payments are now a reality, not a pipe dream. Now, there’s more room for attention to other, more uncertain topics. I saw a broader set of candidates with a broader set of innovations because widespread mobile payments are no longer an unknown.

Li: In previous years, entries focused on gamification and Internet channel development, aiming to encourage customers to conduct transactions online. However, this year, the trend has shifted to mobile and handheld devices. To shorten lead times as much as possible, banks are offering paperless, straight-through services through mobile devices and in branches.

Vinacua: This is my first year as a juror, but I would definitely highlight the innovations coming from non-banks. They are clearly focusing on delivering simple and rich value propositions in a very timely manner.

Q: What kind of innovations do you think would help the industry most going into 2016?

Monaghan: The industry would be well served by focusing on the creation of digital cost leadership. While we have seen a necessary focus on customer experience over the past years, we are yet to see banks changing their business models significantly, and there continues to be a significant divide between the explosive growth of fintech and traditional banking. Re-thinking value chains and cutting across silos will be more important in 2016 as banks seek to close the cost gap with fintech startups.

Vinacua: Banks still need to focus on new ways to do business in the digital context, taking some friction out and having customers truly at the center of their decisions when designing and delivering products and services.

Li: Customer demands are rapidly changing, and the industry has to adapt to remain relevant. By adopting an omnichannel strategy and making full use of big data analysis, banks can enhance the customer experience and drive loyalty. Additionally, close attention should be paid to payment innovation, as we are seeing more and more non-bank players entering the online payment market.

Passavant: Banks need to focus on topics beyond convenience. Choose innovations that resonate with customers in your market; it’s not the same across the globe and we see that in the breadth of entries we receive. Understand your customers and deliver innovations that speak to their specific needs, whether it’s security or a complete end-to-end digital experience. I think banks would be smart to recognize that as the economy improves, competition will heat up, including competition from non-traditional financial institutions.

Carrell: The billion-dollar question! There is a long way to go in innovating around the customer experience, channels and data, but these fronts are now quite established as innovation focal points. I would love to see, and it would be truly breakout, smart capabilities to disaggregate complex financial services architecture and re-write to cloud-native applications. We need to get off capital-intensive, proprietary and infrastructure-intensive hardware and software and move to newer tech that operates at a fraction of the cost with better resiliency. The economics have changed and somehow the incumbents need to get the new economics quickly.

Mr. Hippensteel is chief content officer at BAI. He can be reached at [email protected].