Even as banks across the globe accelerate their innovation in mobile, big data and social channels, they also face the need to renew the legacy system infrastructures that often prevent them from taking full advantage of these front-end improvements.
“To continuously innovate on digital channels and customer touch points, one requires a robust back-end enterprise infrastructure,” says Michael Reh, executive vice president of Bangalore, India-based Infosys and CEO designate of EdgeVerve, a new Infosys subsidiary. “Hence, many banks are also renewing their legacy enterprise systems, such as core banking and payments, to keep pace with the customer expectations.”
Reh enjoys a good vantage point for observing innovation in financial services as Infosys partners with BAI in the 2015 BAI-Infosys Finacle Global Banking Innovation Awards. The winners of these awards, which this year attracted more than 250 submissions from 34 countries, will be announced Oct. 13 at BAI Retail Delivery 2015 in Las Vegas. In the following interview with BAI Banking Strategies, Reh further presents his insights into financial services innovation worldwide:
Q: What is your assessment of the state of innovation in global banking today? Improved over last year, about the same or worse (less innovation)
Reh: Banks are certainly accelerating investment in innovation. In our experience of working with banks across 84 countries, we understand that there are four key drivers accelerating innovation in the industry. These are: changing customer preferences, rapid technology evolution, competitive threats from non-traditional competition and pressures on margins.
Progressive banks, across the globe, are increasing their focus and investments towards continuous innovation to respond to these challenges, as corroborated by our 2014 research on innovation trends in retail banking. Nearly 84% of banks told us they were increasing their innovation investments compared to the previous year. If we were to compare this to past data – in 2009, in the heat of the financial crisis, only 13% of banks were increasing innovation investment – there has been a dramatic change in attitude.
I believe that banks that leverage the latest technologies to drive innovation will emerge as leaders, while others run a serious risk of losing out to the new agile competition.
Q: In terms of specific investments, where are banks putting their money today? Where are they looking for the most return on their investments?
Reh: In our experience, banks are clearly prioritizing investments towards programs that can help them deliver superior customer experience and drive growth. Investments in digital channels, particularly mobility, are emerging as the top priority. Our global innovation research revealed that mobility is a strategic innovation area for nearly 88% of banks. Big data and social channels followed close behind, with 67% and 63% of banks rating them as key focus areas for innovation.
Having said that, most banks realize that investments need to be balanced across front-, middle- and back-office capabilities. To continuously innovate on digital channels and customer touch points, one requires a robust back-end enterprise infrastructure. Hence, many banks are also renewing their legacy enterprise systems such as core banking, and payments, to keep pace with the customer expectations.
In terms of return on investment, I believe most banks are looking at progressive deployment of new capabilities to shorten the time-to-market, as well as time-to-value. This approach also helps them reduce the risk of failure and offers opportunities to gain feedback from consumers rapidly to further their transformation journey.
Q: Is the focus of this innovation primarily on the customer or improving the bank’s internal efficiency in a difficult cost environment? What’s your recommended strategy to help banks find the right balance?
Reh: Undoubtedly, the key to success lies in finding the right balance. We are in an environment where customer expectations from banks are growing rapidly. We are dealing with the most informed, connected and sophisticated customer in banking history. Today’s customers demand convenience, speed and personalization – besides accessibility on a device and channel of their choice. When customers can track the status of their Amazon purchase anytime, anywhere, they expect the same experience with their mortgage application. However, the legacy platforms which most banks run on weren’t designed to service such requests.
To keep pace it’s important for the industry to renew legacy systems while adding new capabilities. The solution, I believe, lies in the dual strategy of “New and Renew,” which calls for the creation of new capabilities leveraging the latest technologies. This will enable business growth in unprecedented ways, while renewing existing systems and processes leveraging mobility, analytics, cloud computing and connected systems for higher cost efficiency and productivity.
The effective use of modern technology, within the culture of continuous innovation, is really the cornerstone to create a successful organization.
Mr. Cline is managing editor of BAI Banking Strategies and can be reached at [email protected].