Reimagine Banking

Excerpts from the Efma – Infosys Finacle report on ‘Innovation in Retail Banking’

The ninth annual edition of Infosys Finacle – Efma report on ‘Innovation in Retail Banking’ report, launch recently, looked at innovation trends in the banking industry amidst increasingly demanding consumer, integrating new technologies and updating legacy systems and cultures. This report was authored by Jim Marous, Publisher, Digital Banking Report. As has been found in previous years’ reports, the innovation agenda has become intertwined with the digitalization agenda, where transforming back-office core processes and customer-facing experiences are brought together by application of data and advanced analytics. The level of investment in both digitalization and innovation has increased in lockstep with each other as a result.

This article covers excerpts from the report.

In order to re-imagine banking in today’s increasingly competitive environment, there needs to be a focus on disruptive technologies and innovations, as opposed to simply an iterative focus. The winners in the future will be defined by those organizations that can leverage digital technologies to deliver a customer experience that goes beyond the ordinary.

More and more financial organizations are embracing the potential of a greatly expanded definition of banking. Leveraging new technology and advanced analytics, the potential for a bank or financial technology firm to be at the epicenter of a consumer’s everyday life is not just possible, it is probable.

With this as a backdrop, the threat of disruption is perceived to be high by banks and credit unions globally. The biggest threat is expected to come from fintech start-ups (non-bank fintech firms) and large technology companies. These are the competitors that have best been able to apply data, analytics and advanced technologies for the benefit of the consumer.

With regards to business lines, payments and mobile wallets are expected to be the most impacted, with lending also expected to be challenged by non-traditional sources – especially in the U.S., where competition is fierce.

The benefits of collaboration between banking and fintech providers have never been greater. Fintech firms do not have the burden of a dated infrastructure, but have the benefits of innovation agility and focus. Alternatively, fintechs usually lack an understanding of regulations and have difficulty achieving scale. Legacy banking organizations have the benefits of customer trust, an established base and massive reservoirs of data, but usually lack digital expertise.

Innovation as a Competitive Weapon

While on the surface, the proportion of banks with a defined innovation strategy decreased significantly from 2016, this was caused by the inclusion of a much more representative sample of smaller institutions being included in the global research compared to prior years. Alternatively, when we look at the level of innovation maturity from the perspective of size of organization, we clearly see that larger financial organizations are more likely to have a clear innovation strategy, to invest in innovation and to have a chief innovation officer.

Across all sized organizations, we continue to see an increase in investment in channels and the customer experience, with sales and marketing innovation continuing to lag. We also see that legacy systems and old technology are challenging institutions wanting to innovate similar to prior years.

Taking a ‘wait and see’ approach to innovation is not a viable option. Instead, banking management teams need to commit to investments that limit risk and allow an organization to take advantage of market opportunities. More than ever, the banking industry needs to manage for the long-term, through cycles, even as they adapt in the short term through continuous test and-learn experimentation.

Digital Transformation and the Customer Journey

As consumers have moved most of their shopping and buying activities to digital channels, the banking industry has responded accordingly. This is important, since recent research shows that the definition of ‘convenience’ in banking is no longer associated with physical proximity, but with ease and functionality of digital capabilities.

There was a shift in many of the digital transformation priorities this year, with digitizing processes for products and services being ranked the highest. Reflecting the current cybersecurity environment, enhancing digital security was the second highest rated digital strategy, compared to being a mid-ranked strategy in 2016. Finally, improving the customer journey was ranked third in this year’s study, moving from the number one mentioned strategy in 2016.

When we asked executives of banking organizations worldwide about their aspirations regarding broader banking ecosystems, the majority of firms are either limiting their scope to local ecosystems or are still evaluating to ecosystem opportunities. Interestingly, close to 20% of firms surveyed are considering a global ecosystem.

The technology required to build the invisible bank of the future already exists today. Components such as APIs, cloud-based services, artificial intelligence and mass personalization are already becoming the foundation for the future at many financial institutions. But, in most cases, these technologies are being used in the peripheral systems rather than the core.

Deployment of Advanced Technologies

The pace of digital change is about to accelerate exponentially, with the integration of AI, robotics, blockchain, open banking APIs and the Internet of Things (IoT). The smarter use of data, combination of non-financial and financial solutions, and new, real-time delivery alternatives could significantly change the entire structure of banking.

As opposed to deploying disruptive technologies, such as augmented or virtual reality, IoT, robotics, blockchain or voice interfaces, most financial organizations are limiting their focus to more traditional technologies, such as information security, advanced analytics and open banking APIs (primarily in Europe). This is in alignment with priorities around risk and the customer experience.

There does seem to be an increasing focus on cloud processing and wearable technology as well according to our research. In many organizations, there has also been an expansion of the view of distribution, from specific devices (smartphone, wearables, etc.) to the broader concept of ‘digital’.

The impact of new digital technologies will be felt across the entire banking value chain, impacting the competitive structure and the ways people bank. More than ever, the transaction-based component of banking will be commoditized, with differentiation achieved through the personalized experiences provided to the consumer.

Preparing for the Future

Especially for the financial services industry, it is imperative to think beyond individual emerging technologies. With the advent of open banking APIs as a way to bring external technologies and innovations directly to banking customers, and the emergence of non-traditional banking ecosystems that may include non-banking services — a combination of technologies will become the norm.

For instance, the use of customer data insights and advanced analytics may be combined with IoT technologies to allow payments directly from smart home devices. Likewise, the expanded use of conversational AI and VR devices may come together, providing methods of banking interactions only imagined in sci-fi movies.

Financial institutions need to develop a rigorous approach to emerging technology and innovation — one that includes a formal framework of listening to those on the leading edge, learning the true impact of these technologies, sharing results from pilot projects, and quickly scaling by implementing them throughout the enterprise.

In other words, being a leader in innovation and emerging technology is no longer a luxury only for the big players. It is important for all financial organizations to make innovation and emerging technology a ‘core competency,’ with engagement throughout the organization (not just the very top). In addition, the focus of every implementation must include internal and external human experiences, as opposed to revenue, profit and cost savings.