The pandemic may ease off, but not banking innovation

Growing competition in financial services is fueling a corresponding upswing in innovation among both new entrants and established players.

BAI’s Debbie Bianucci and Dennis Gada from Infosys join us to talk about the latest innovations they’re seeing, and how those advances stand to change the industry.

A few takeaways from the conversation:

  • Innovations they’ve seen in the past year include more new products and services that center on the customer, as well as a greater priority on end-to-end digital integration.
  • While some pressure for digital innovation may ease, both Bianucci and Gada believe the pace of change will keep accelerating to meet customer expectations.
  • In 2022, they expect banks to place more emphasis on diversity, equity and inclusion, “buy now, pay later” and banking-as-a-service as a feature in financial-related apps.

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Below is a full transcript of my interview with Debbie Bianucci and Dennis Gada.

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We’re here to talk about transformation and about innovation, and on point with that is the 2021 BAI Global Innovation Awards. Debbie, you are one of the judges for the Innovation Awards, which are now down to the finalists in the various categories. So looking at this year’s entrance collectively, what sorts of trends are you seeing that might offer some insight into innovation in 2021?

BIANUCCI: Yes, Terry, this has been a really interesting year. We’ve been recognizing innovation for over a decade now, and each year looks a little different. This year, I would say that there were many more innovations that seemed more incremental, or should I say, extensions of previous innovations as that evolution has continued for financial services companies. But we also saw the maturing of some technologies in innovation like AI, machine learning and APIs. Maybe the biggest trend that we saw, though, is that, in general, the innovations were much more customer-centric than they have been in the past, which was great to see. This demonstrates how, when the financial services companies have a laser focus on the customer, it drives results in their innovation initiatives.

So starting this year, BAI started a new category in the Global Innovation Awards for digital transformation. So it seems with the pandemic and the huge upswing that we’ve seen in digital adoption over the past 18 months, that digital transformation would cross over into other categories as well. So Debbie, what were the judges looking for in the digital transformation category to distinguish it as an innovation category unto itself?

BIANUCCI: Well, you’re absolutely right about the impact of digital transformation as a result of the pandemic. What we saw this year is that… we felt that it was important to have a specific award for this category to be able to put a spotlight on the innovation that we’re seeing. And every year we’ve done this, we’ve made changes to the award categories. For example, this year we also added a category on ESG, and we expanded our category on regtech. But as it relates to digital transformation, there were two main areas that we focused on: originality and impact. For the digital transformation category, we looked at the problem that the innovation was created to solve, what made it unique, and what value it brought to customers. We also considered very specific results related to the customer experience improvements and revenue generation. Customer experience is so important in this.

So Dennis, let’s bring you into the conversation now. From your vantage point at Infosys, you have a clear sightline into advances in digital banking, both on the customer-facing side and also in the middle and back offices. So what have you been seeing this year transformation-wise, and did any of those things that you have seen, did any of them cause you to sit up straight and say, “Wow, that’s kind of different”?

GADA: Yeah, lots of them. So in my view, 2021 has truly been kind of a pivotal year for transformation in banking. As some say, it was generational change, a decade worth of transformation done in 12 to 18 months. But there were three things that I want to call out that really stand out. First of all, I think banks in 2021 were looking for, beyond just enriching their front-end channel experiences, towards truly a front-to-back digitization – what can be truly impactful and beneficial for the clients, looking at the full stack of vertical processes, end-to-end operations, marketing, contact centers, et cetera. There was a very interesting comment I heard from one of the banks when they did the “voice of the customer” survey. The customer said, “Yes, your front-end experience looks great, but it still takes 30 days to open the account, so what’s the point?” And I think that’s the mindset to change that has happened. Secondly, I think banks are trying to become integral into people’s lifestyle, rather than just being very transaction-oriented. Hence, a lot of focus on hyper-personalization getting embedded into online shopping, buying a house, buying a phone or anything like that. So banks really trying to place their products in other companies’ apps and ecosystems. And third, and very important, in my view, is also the talent transformation that’s getting a lot of attention within banks and credit unions. So to deliver on the transformation, there is also a need for a change of culture, of talent within these organizations. So we see banks hiring a lot from the outside and focusing on reskilling and upskilling of talent.

I’d like to tap into your global perspective, Dennis, as you’ve been based in several different spots around the world during your career with Infosys. What we’ve been seeing lately with the Global Innovation Awards is more entries and more winners from overseas, particularly from Asia. Is that your experience as well? And if it is, what do you think may be driving that innovative spirit abroad? And are those same drivers, are they the ones that we see here in the U.S. as well?

GADA: The West has led much of the development of the world, the modern banking industry, across various dimensions. However, in recent years, it’s true Asia especially has tilted the scale. And the reason, I think, is because Asia has proven to be a very fertile ground for innovation in banking, and many companies are really able to leapfrog, to become digitally native. There are also less legacy concerns, more scale that provides to really improve on these opportunities. Now, let me give you some specific data points. India’s digital payment market completely surged during the pandemic. In 2020, India was ranked number one, with 25.5 billion in real-time payment transactions, even ahead of China, and U.S. was ranked 9th with 1.2 billion transactions. So you can really see the difference in scale. Also, in Europe, real-time payments, digital payments has been going on for a decade. There are no checks in Europe for a very long time. So, while there is some great innovation happening in U.S., especially in technology, there’s a lot of that happening in Asia and other parts of the world that U.S. banks and governments can learn from as well.

As we mentioned earlier in this conversation, and a lot has been written about this, the pandemic greatly accelerated the pace of digital adoption by financial institutions, out of necessity. Time and vaccines and, to some degree, new behavioral changes are reducing that necessity. So Debbie, let me ask you first, and Dennis, you can weigh in as well: How do you see the reduced urgency affecting the pace of digital change and operational innovation going forward? So should we expect that sprint to maybe slow down to a trot or even a brisk walk, perhaps?

BIANUCCI: Terry, BAI works with executives from all types of financial services, companies who have faced different pandemic-related challenges, and they have overcome those or addressed those in different ways. But the common denominator that we’ve observed during this time was not just the speed at which these companies made changes to serve their customers, but also the fact that they experienced first-hand that decisions can be made quickly for changes that support what customers need. Bank executives will always be thoughtful about how they lead their organizations, but this experience revealed capabilities that I believe will keep them at a fast pace. All good for the customer.

GADA: Yeah, I agree with Debbie, and I think, just adding on to that, I feel the adoption is definitely likely to keep increasing. This is a trend that cannot be reversed. Last year, banks have really moved a lot of their interactions to digital and the crisis served as a catalyst, an accelerator, or whatever you want to call it. But I think the most important thing is, it’s the shift in customer behavior that has put pressure on the banks not just to accelerate one time, but continue to be on that journey. So we actually did a survey of about 1,000 clients across financial services globally, and almost 90 percent indicated that their companies have doubled the pace of innovation, and almost three-fourths cited that they would invest more in transformation, as well as have a great deal of confidence of ability to transform and meet changing customer needs. So I think this is something which will only accelerate further and not slow down.

Dennis, you mentioned the survey that Infosys did early this year that was largely focused on the cloud. Cloud still counts as an innovation, right? So what were a few of the key things you learned about how banks and credit unions are thinking about the cloud, about their comfort level with the cloud, and how do you see the cloud as a catalyst for their digital capabilities?

GADA: Yeah. In fact, our survey truly uncovered that there is some immense progress in cloud adoption, really creating better customer experiences, more resilient infrastructure and overall accelerating the transformation. And across our clients, any discussion that is around modernization of their systems or transformation of their client experiences, cloud is front and center of that. I think JPMorgan Chase’s announcement of working towards moving their entire retail core banking in the U.S. to cloud is a very industry-defining innovation. And several other banks that we see are also in the process of moving many of their banking platforms to the cloud. So I think this will really set the stage as well. And the other thing is that if you look at many cloud companies, like the hyperscalers, there is a clear trend of verticalization of cloud, having financial services-specific cloud offerings to take care of several of the regulatory requirements and concerns, and I think that’s absolutely a step in the right direction to increase the adoption of cloud. So every single client that we talk with in financial services – banks, credit unions, other firms… extremely bullish on cloud in the future.

I also want to talk a little bit about open banking, which is ever so slowly making some headway here in the U.S. There’s been some resistance, some concern on a few fronts, the regulatory side being one, information security being another. Debbie, you speak with a lot of C-suite-level bankers. Where do you think their heads are at now regarding open banking? And Dennis, maybe you could follow on with any thoughts you may have on how digital technology can address those various concerns, particularly on the data security side.

BIANUCCI: Terry, open banking is a topic that is on the short list for executive teams in financial services companies of all sizes. They may be tackling it differently, but it’s definitely on the priority list because it is a capability that will change the way in which these companies can serve their customers, giving them different kinds of flexibility than they’ve had in the past. Unlike Europe, which has a clearly defined regulatory framework, what we have in the U.S. that’s different is that there aren’t open-banking regulations that clearly define compliance requirements. The benefits of open banking are numerous, and these financial services companies are developing strategies, but they have to understand the frameworks for various forms of operational and regulatory risk.

GADA: Yeah, I agree with Debbie. I think the trend of open banking is, again, irreversible. Around the world, it’s happening in multiple different ways. In U.S., while it’s more a market-led movement, but in Europe, in India, in Australia and several other countries, governments have also mandated large banks to really open up in a bid to stimulate the competition, specifically on data security because that gets talked about as always an important concern. I think, first and foremost, the regulators and government bodies need to create standards that will allow all third-party providers and banks to follow common standards. But it also holds the customer in the control, so it allows customers to give the consent, be aware of how the data is being used, how they can control it. And I think that’s a great opportunity for banks to be transparent and provide that consent layer to customers using technology.

Let’s wrap things up with some short-term future gazing. A lot of what we’ve been talking about are long-term trends, multi-year initiatives. So let’s just look at 2022 for a minute. What do you see as a banking-related trend that’s going to emerge with more energy, with more focus in the coming year? So Debbie, you go first.

BIANUCCI: Well, it’s hard to narrow it down to one, but I’ll try to describe what we’re seeing as we go into 2022. We absolutely believe digital transformation will continue to be a high priority. And the experience that financial services companies have gained during these last couple of years will matter a lot in how they are continuing to evolve to meet customer needs. But another area that goes beyond digital transformation is the importance of the bank’s commitment to diversity, equity and inclusion, and how that is relating to an accelerated emphasis on ESG, with much more emphasis on the environmental piece as we go into the new year. All of that, we believe, has an underpinning of a high strategic priority that focuses on talent. It’s higher than I’ve seen in my entire career and, by that, I mean the importance of retaining top talent, reskilling talent in certain areas and recruiting new, more technically skilled talent. All of that is going to be a priority in the next year.

GADA: I think from a banking business perspective, one of the things that will gain a lot more traction in 2022, I think, is the “buy now, pay later,” or point-of-sale lending. That’s an opportunity for banks to grow their revenues, expand their customer base, and we’ve seen some acquisitions that happened in 2021 and more of that is likely to happen in 2022. I think the other key focus area is going to be around banking or platform as a service being embedded into apps of organizations to provide banking as a white-label service. As we speak to fintechs and banking clients and credit unions, these are the two trends that we see will really take off.

OK, you’re both on the record now across a range of areas. We’ll all see how strong your forecasting powers are as 2022 plays out. So, Debbie Bianucci from BAI and Dennis Gada from Infosys, thanks again – we appreciate you both being with us on the BAI Banking Strategies podcast.

BIANUCCI: Thanks for having me, Terry.

GADA: Thanks, Terry, it was great to be here.

Terry Badger is the managing editor at BAI.