The emphasis on innovation has never been more acute; that has been clearly established based on the findings of this year’s Efma-Infosys Innovation in Retail Banking study. But the study has also found that the innovation effort in most banks is not supported by a designated central resource or by an organizational framework that brings together employees from across functions and business lines.
But there are banks, as the study documents, that have mastered the art of making innovation a structured and enterprise-wide effort.
One of Europe’s largest banks UniCredit, for example, has a clearly defined structure for fostering innovation. Firstly, it relies on strong processes for identifying trends, defining priorities and using open innovation. It also has dedicated innovation teams – for retail banking, for technology & operations and a specialized R&D team – and uses internal networking and collaboration tools and communities to ensure that employees are engaged in the innovation process.
Colombian bank Davivienda has a fully fleshed out innovation system that includes tools, principles, procedures and guidelines. The system has thus far been used to train more than 600 ‘innovation coaches’ and over 7,000 employees and to deliver hundreds of innovation projects. The company’s innovation culture is a result of continuing investments in external professional support, thousands of man-days of training and company-wide events to address various aspects of innovation.
And then from the technological hotspot that is South Korea comes a bank that firmly believes that constant innovation is the fundamental catalyst for growth. Hana Bank, one of the largest retail banks in the country, has won multiple awards for innovation. It was the first to offer a smartphone banking service in the country in 2009. In 2010, it rolled out its personal financial management tool by pre-installing it on Samsung phones. Last year saw the launch of its award winning e-wallet that even non-Hana customers could use. All this has been driven by making innovation an integral part of the bank’s culture.
For innovation to be successful and sustainable, banks have to create the requisite frameworks and structures that enable all stakeholders to participate in the process. For continuous innovation to deliver tangible results, it has to become part of the cultural DNA at banks.
On my way to the office, I met an old friend on the train today. During the course of our conversation, I learnt that despite owning a smartphone, she does not carry out banking transactions through it. She doubts if her bank has made mobile transactions completely safe and is biding her time, waiting for the day when mobile banking becomes foolproof.
Most of us believe that it is the sole responsibility of financial institutions to safeguard mobile banking transactions from fraud and phishing attacks. But the truth is that customers must share that responsibility by taking proactive measures to help reduce the risk. Some basic precautions while using the mobile phone can go a long way in reducing incidence of fraud.
We need to create complex passwords, not divulge them, and change them often to help reduce phishing attacks. Simple actions, like employing the digital locking mechanism for mobile phones when not in use, can possibly avert identity theft. We must conduct a periodic review of bank accounts to help identify unauthorized or suspicious transactions, and on spotting any, must promptly contact the financial institution. We must access online banking sites via bookmarks and not click on links accompanying e-mails and text messages. Banking on public Wi-Fi networks is best avoided but if that’s not possible, it is advisable to disable Bluetooth and switch to the cellular network. Care should be taken to download banks’ official apps only and steer clear of apps, which are not reputed.
At the slightest suspicion of foul play, it would be a good idea to wipe all personal data from the mobile device (some of them can be remotely reset to factory settings). If not, we can contact the financial institution to help deactivate their app from afar and notify the wireless carrier to have the service turned off. Mobile anti-virus apps help prevent sophisticated malware attacks which manage to breach even the most advanced security systems put in place by banks. We must also keep the OS and apps on the smartphone updated, to avoid any malicious exploitation of security holes in outdated versions.
On the other hand, financial institutions too should take the initiative to reduce fraudulent mobile transactions. Multiple factor authentication, digital signature, One Time Password generation from a security token, use of virtual key board to mask user-entered passwords and codes, remote wipe option, PIN generation to activate the authentication mechanism, and limited storage of personal information on the device, are some of the features that need to be introduced. Banks should also monitor large and potentially suspicious transactions and immediately text the relevant information to customers.
In short, financial institutions and customers must work hand-in-hand to popularize mobile banking and ensure a secure environment for its widespread use.
Even as traditional banks concentrate on strengthening their online and mobile channels as a viable alternative to their core brick & mortar proposition, a new breed of direct-only competitors are making their presence felt among retail banking customers. A new study reveals that direct-only is the only category in banking to gain market share amongst customers establishing or shifting their financial loyalties. It is estimated that over the past five years, deposits in this emerging category have grown three times the industry average.
Two banks made it to the innovators gallery in this year’s Innovation in Retail Banking study from Efma & Infosys for their unique interpretations of the direct-only model.
The first is GoBank, from the Green Dot Corporation in the US, with its claim to being the world’s first mobile-only bank. GoBank is seeking to transform the traditional checking account by reinventing it for the app generation and offering an array of features and services at a transparent price. The service allows customers to set up their accounts in just a few minutes, enables instant money transfers via e-mail or text message and also offers real-time spending advice. But in what must be considered financial sacrilege at least in some circles, GoBank also lets its customers choose how much they want to pay for the service.
French bank BNP Paribas, meanwhile, has launched its avatar of the direct-only concept, called Hello bank!, in May this year. Hello bank! accounts can be activated in four simple steps either online or on the mobile phone. The service can be accessed over a native mobile app designed to be simple and intuitive. It also offers attractive savings rates, fee-less cards and the added benefit of access to the BNP Paribas branch network. GoBank also provides interactive customer service support by chat, email, tweet or voice calls.
The mobile has rapidly become customers’ go-to device of choice for almost all frequently used services. With these ubiquitously accessible devices predicted to overtake fixed Internet access by next year, more and more customers will be expecting to tap and swipe their way through their next banking transaction.
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Open innovation, the process of encouraging ideation across all stakeholders to drive enterprise innovation, is gaining traction in a diverse range of business applications – from automotive design to drug discovery. Two banks that are harnessing the power of Open Innovation to drive organization change were featured in the most recent edition of the Efma-Infosys Innovation in Retail Banking study.
One bank, Noor Islamic in Dubai, is taking the process of idea generation right to the average banking customer. The other, Spanish bank BBVA, set up a US$ 100 million venture fund in Silicon Valley to catch disruptive financial models and technologies as soon as they germinate.
Islamic bank Noor Islamic launched a major ‘Bank of the Future’ initiative in 2012 as part of which the public was invited to participate in a competition called ‘Shape Your Bank’. The idea was to get customers involved in the process of idea generation to improve their banking experience. In keeping with the shared risk-reward concept of Open Innovation, Noor Islamic also incentivized winners with iPads and a bounty of $20,000 for the grand winner. One of the winning concepts to emerge from the initiative was the concept of a family card that would enable the main card holder to monitor and manage finances of the entire family.
BBVA’s venture capital initiative formalizes the bank’s strategy of investing in start-ups and funds with the potential to disrupt the financial services industry. Through BBVA Ventures, the bank has already invested in SaveUp, a concept that leverages gaming technologies to encourage savings, debt reduction and financial education, and in Ribbit Capital, a fund targeted at radical financial businesses worldwide. By taking the venture capital route, BBVA expects to build capabilities that will enable it to better anticipate challenges and opportunities as well as to create a quick access point for emerging trends and disruptive innovations.
In the over-regulated realm of financial services, Open Innovation has always been seen as a bit of a slow starter. But the approaches of both BBVA and Noor Islamic prove that a well-defined focus can bring to banking the same benefits that other industries are reaping by shifting the boundaries of innovation.
Can personalization deliver sustainable competitive advantage for retail banks? It would seem so if one references a study in which up to 70% of global banking customers expressed willingness to even offer up personal data if it could positively influence personalization and service.
Two recent banking start-ups, featured in this year’s edition of the Efma-Infosys Innovation in Retail Banking study, are betting their business models on personalization. Though each brings its unique take to the concept, both ideas are based on a common founding principle – digital-only operations.
The first is Knab, which incidentally is ‘bank’ spelt backwards, an online and mobile focused bank launched in the Netherlands by Dutch insurer Aegon. Knab’s personalization strategy is driven by two key components. The first is an array of sophisticated personal financial management tools that customers can use to aggregate data from across all their bank accounts to indulge in some holistic budgeting and forecasting. The model also provides access to Knab-vetted but independent financial advisors who can help customers fine-tune their financial plans. All customer information, including e-mails, chats, financial statements, agreements and even telephone conversations with the service desk, are stored in personal archives.
US-based start-up Moven is not a bank; it’s a financial management service with banking services provided by an FDIC registered institution. And it’s not online; it’s built around the mobile phone, using mobile contactless technology. Moven’s approach to personalization brings some aspects of the ‘quantified self’ movement to help track and manage spending patterns. By allowing the integration of its personal financial management tools with a customer’s Facebook social timeline, Moven helps customers understand the impact of their social life on their spending. Customer spending profiles are also updated in real-time, as they are transacting in the brick & mortar world, to keep them on top of their spending trends.
Personal financial management tools and digital channels are two of the hottest trends in the world of banking today. And both these banks are positioned square at their intersection.
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An article on “Brain Mapping” that I read recently had some interesting insights on the working of our brain. A study at 3M Corporation concluded that we process visuals 60,000 times faster than text. Words are processed by our short-term memory, which retains only about 7 bits of information. On the other hand, images remain indelibly in our long-term memory. This probably explains the use of symbols worldwide to convey information related to a variety of subjects, like, vegetarian/non-vegetarian food, recyclable/one-time use plastics, parking/no parking areas, entry/exit symbols, emergency exits, fire alarms, hospitals etc.
International Standards developed by ISO (International Organization for Standardization) provide a coherent set of graphical symbols. These symbols make up for the constraints in deciphering written information owing to language barriers across geographies. In the same vein, it may be a good idea to introduce standard graphical symbols and colour codes for financial products and services as well.
Symbols indicating the type of product and exposure to risk can help customers become more aware of what the bank is trying to sell. It would be rather convenient if customers could distinguish between insurance and other investment products just as they would tell vegetarian from non-vegetarian content in packed food. Colour-coded application forms can help one easily distinguish between different offerings such as insurance, investment etc. This idea can be extended to indicate risk levels on the forms, for instance, red for high-risk and green for low-risk, relatively safer investments. Furthermore, a combination of symbols and colours can help indicate the type of investment (like structured products, mutual funds, deposits etc.) and risk exposure. When used in checklists that are attached to application forms, these symbols can inform customers about the document they are about to sign, thus averting any risk associated with signing wrong or unnecessary documents.
Besides impeding sales push and marketing overdrive, colour codes and symbols can help mitigate mis-selling of PPI and endowment mortgages to retail customers, rate swap (hedge) products to small businesses, and ULIPs as mutual funds to the uninformed.
There’s a hot new financial startup that has attracted US$ 25 million in seed funding from a veritable who’s who of the venture capital world and has already signed on nearly a hundred thousand customers. Except, no one, apart from the founders and the funders, have any idea whatsoever about what Clinkle will actually do. The only information forthcoming from the company is that it intends to disrupt the already hyperactive mobile payments market place.
Clinkle is only the latest in a long list of technology companies seeking to challenge contemporary banking norms; Google, Apple, Facebook alongside a host of other established names as well as startups are invested in reinventing banking for digital consumers.
In an era defined by a new breed of competition as well as customer, innovation is just table stakes. Traditional banks are responding to the new paradigm by investing in innovations to flank the competition and to build relevance with the digital customer. And these innovations are focused on reimagining almost every aspect of banking.
Take mobile wallets, for instance. According to a study conducted earlier this year, 21% of banks have already deployed some version of the wallet, with 56% planning to follow suit over the next couple of years. Keeping up with the trend of digital-only banks, BNP Paribas has launched Hello bank! designed specifically for the mobile channel. Barclays is delivering bespoke offers to customers based on their demographics, preferences and location. Bradesco, one of the largest retail banks in Brazil, has launched Bradesco Next with features like biometric identification, videoconferencing and social media banking. In India, Axis Bank is using innovation to take banking and payment services to the country’s unbanked. Spanish Bank BBVA, meanwhile, has set up a US$100 million fund in Silicon Valley to identify and invest in startups that can transform banking.
All in all, the prevalent focus on innovation as the surest route to competitive advantage is yielding products, processes and practices that are transforming the very fabric of banking. It is therefore only appropriate that these innovations and innovators be recognized and lauded for their contribution. Since 2011, the BAI-Finacle Global Banking Innovation Awards have honored retail banking institutions with game-changing products, services and practices.
Last year’s winners included Alior Sync for launching the first fully virtual bank in Poland, Turkey’s DenizBank for the world’s first Facebook banking platform, FRANK by OCBC for radically redefining banking for Generation Y in Singapore and First National Bank of South Africa which took home the Most Innovative Bank of the Year award for nurturing an organization-wide culture and commitment to continuous innovation.
A new category, Innovation in Internal Process Improvement, has been added to the 2013 awards to recognize banks that have recalibrated their internal processes to enhance customer-centricity in terms of products, services, channels and customer experience. Click here to know more about this year’s event.