Marriage of Leadership and Technology Driving Global Financial Services Innovation
By Debbie Bianucci, President and CEO of BAI and publisher of BAI Banking Strategies and BAI Banking Strategies Daily
Innovation in retail financial services is alive and well as leaders in every region of the world recognize the need for change to better serve customers by building innovative cultures.
The financial services world changed forever following the financial crisis, but not just because of the economic environment. Sure, the economy had an impact on the way regulatory requirements were established but the real driver of change has been the consumer. Faced with increasing expectations, changing behavior and advancing technology, some leading financial institutions have successfully recognized this evolution and responded with innovation like nothing we have seen in this industry in decades.
Since 2011, the BAI-Infosys Finacle Global Banking Innovation Awards have recognized innovation excellence in a variety of categories. In the course of evaluating hundreds of nominations from financial institutions in every region of the world, we have come to better understand the reasons why leading financial services companies want to make innovation a priority and the approaches they use that enable them to do so successfully.
To begin with, financial services innovation is truly a global phenomenon, and we see this clearly in the nominations we have studied over the years. Innovation leadership, however, does tend to vary by region. In Europe and Asia, for example, innovation leadership typically comes from traditional banks while, in the U.S., the most impactful innovation is more likely to be spurred by venture capital-funded startups and fintech companies.
Different regulatory environments and dependence on multiple legacy systems no doubt explain much of this difference. That said, we see that financial services leaders across the globe are building cultures and capabilities to overcome a variety of barriers they encounter in developing new products and services to improve the financial lives of their customers.
Within this global context, we have uncovered a few surprising trends. For example, we might expect that the largest financial institutions in any region would be the most advanced in delivering on innovation strategies; after all, they command the most resources. But that has manifestly not been the case. Time and time again, it is the smaller regional-based banks that have delivered the strongest results in innovation, perhaps because they devote the time and energy to developing game-changing products. For examples, CaixaBank in Spain; Fidor Bank in Germany; and Hong Kong-based Bank of East Asia all have built sustained cultures that support experimentation and innovation in new and different ways. We have also seen an abundance of successful innovation in regions you might not expect, including IdeaBank SA (Poland), Deniz Bank (Turkey) and Hana Bank (South Korea).
So, what motivates these banks to innovate and what is their secret to successful execution? Ed Carrell, managing director, head of commercial transformation for London-based Barclays and one of the judges for the 2015 Global Banking Innovation Awards, says the evolution of digital technology and the sudden rise of fintech firms have delivered a high-impact wake-up call to banks. “Suddenly, there is a recognition that the competitive environment, consumer preferences and economics have changed, and those who don’t adapt and re-invent will be left behind. The economics have changed and it is critical that the incumbents evolve to new business models quickly.”
A similar view is expressed by Gurhan Cam, senior vice president of Digital Generation Banking at Istanbul, Turkey-based DenizBank: “Innovation is basically the business of solving problems, which is huge for financial institutions because the main value of banks lies in their customer relationships. As customer needs change, we need to reshape the bank to meet those needs. Innovation is simply important for survival.”
The successful innovators are those institutions that can harness the resources needed to develop new products and services and then direct those resources with intensity to deliver the desired results. For Slawomir Lachowski, CEO of Warsaw, Poland-based FM Bank PBP SA, which developed a digital-only bank known as Bank SMART, the innovation process starts with “entrepreneurship and values; it’s the interaction between co-workers and teammates, how they work together to design and build products. It’s important to continue searching for new things.”
Along similar lines, Ricardo Campos, senior director, Electronic Banking, at Warsaw-based Bank Millennium, says innovation “has to be something that is within the company, part of the routine. You must create a culture that has no fear of failure so that employees can keep trying new things – if something new doesn’t work a second time, we move on.” However, Todd Roberts, senior vice president of Products & Payments at Toronto, Canada-based CIBC, cautions against innovation for innovation’s sake: “Innovation doesn’t stand alone; it has to be in service of what your clients need and what the marketplace needs.”
I couldn’t agree more. In the pursuit of innovation, it’s critical that financial services leaders focus on meeting customer needs and solving customer problems rather than becoming enamored with a new technology. It can’t be about the shiny new toy; the only way to drive customer acquisition, retention and satisfaction and build shareholder value is to focus on the customer.
As for trends in actual products and services, digitization and mobile technology have been important drivers of innovation in the award nominations since the beginning. This year, we observed three important trends:
Processes and technologies to enable the omnichannel experience. Financial services companies are rationalizing and consolidating disparate channels that possess unique and inconsistent interfaces that can be confusing to customers and are costly to maintain. Functions are being streamlined in order to provide consistent customer support across various platforms. Unifying the customer experience across all direct banking channels has resulted in a competitive advantage for these institutions because they have differentiated products and services for their customers, as well as increased efficiency and improved engagement with the employees who serve customers across these channels.
Customized banking through Application Programing Interfaces (APIs). Banks are turning to APIs for customizable product offerings for targeted segments, enabling them to provide their customers with a more personalized banking experience. While the API marketplaces and app stores are emerging across the global banking ecosystem, there are four types of stores that appear to most influence the market: 1) public app stores that are used by banks and nonbanks to deploy mobile apps built for banking customers; 2) vendor app stores that are either cloud-based or bricks-and-mortar; 3) enterprise app stores for employees offering personal banking, business services, and third-party consumer apps; and 4) banking app stores for customers.
Integration with revolutionary technology. Some financial services companies focus on incremental innovation, including small, gradual improvements to existing products. The major advantage of this approach is the immediacy of the changes, which presents lower execution risk and usually protects customer loyalty and brand position. However, in an increasingly competitive marketplace with changing customer preferences, more aggressive innovators are placing bigger bets on radical innovative approaches that capitalize on today’s changing environment.
The evolution of the Internet of Things (IoT) and the development of other new capabilities have presented many opportunities for financial services companies to develop services that can improve the global and multichannel experience of customers. For example, banks have started using robots in branches to enhance the customer experience using advanced technology combined with a different kind of personal touch. Robots can serve customers using state-of-the-art multi-lingual speech and voice/face recognition technologies, accumulate customer interaction data to analyze and discover customer needs and improve branch security by monitoring customers with facial recognition and behavioral analytics. Customer response has been positive, with some segments even preferring this delivery over other traditional approaches.
The lesson from all this is that customer needs are always evolving and that banks must as well as they try to meet those needs. As CIBC’s Roberts says, “You must always be looking at the next thing to please the customer year after year. We need to come to terms with the fact that while our product lifecycles used to be one product per quarter, we now need to sharpen up products every quarter and that is just the new world we’re living in.”