Reported by: banking|Updated: May 27, 2015
With innovation being the key driver of value in their business, banks are not only putting strategic plans in place, but are also dramatically increasing investments to up their value differentiation and drive business transformation. For this, banks must make innovation an integral part of their enterprise strategy. This is necessary to successfully compete in a new banking paradigm, where a range of disruptive forces is radically redefining traditional structures, strategies and practices.
The most disruptive of these forces is rapid technology evolution, wherein a number of next-generation digital technologies like mobility, big data, social, wearable and cloud. These technologies have created a connected, informed and self-directed consumer who demands a personalized and contextual experience over and above the ability to transact ‘anytime anywhere’. Technology has also streamlined entry for competition from non-traditional industries such as retail and telecom, operating on nimble, cost efficient business models. Amidst all this, banks are under increasing pressure to maintain margins and profitability.
This perfect storm of disruption requires banks to innovate in ways that allow them to renew current models, processes and systems on the one hand, and add new capabilities and technologies relevant to a digital marketplace, on the other. At Infosys Finacle, we believe there are opportunities for banks to innovate with this “renew and new” focus,in every major aspect of the business, including infrastructure, business model, process, product, channel and customer experience. As the core banking partner of several banks around the globe, we have enabled many of them to forge ahead with “renew and new” innovation.
With legacy systems still prevailing at several established banks, the IT ecosystem is often the biggest barrier to innovation, and therefore its logical starting point. U.S.based Discover Financial Services (DFS) started out on a five-year renewal program to eliminate operational inefficiencies, refresh enterprise capabilities and add a brand new platform to enhance agility in new product/service innovation and deliver an exceptional omnichannel customer experience.
BUSINESS MODEL INNOVATION
This is critical on three levels. One, business model innovation typically delivers a more sustainable competitive advantage, as it is not easily replicable. Two, it enables incumbent banksto take on non-traditional competition flaunting new age business models. And three, a purpose-built digital model can assimilate future technology trends, without the need for another round of reinvention.
A perfect example of this approach is Raiffeisen Bank International’s launch of a new digital entity called Zuno Bank, a direct bank designed specifically for digital consumers. By eschewing a branch network – a mere 3% of spend is on physical distribution – Zunohas been able to translate low costs into low fees without compromising either the expectations or experience of their self-directed digital customers. The result is a cost-income ratio that is one-third that of traditional banks and extremely high net promoter scores for customer satisfaction.
Most process innovation is ongoing, and renews through simplification,standardization and rationalization. But, when innovation is part of enterprise strategy, the focus shifts to the customer and value maximizationby addressing their priorities of cost, service, time, and transparency.
This was a leading South African bank’s objective in completely redesigningthe business process for its underlying sales operations to proactively reach out to remote sub-Saharan markets beyond their banking network. This also enabled the deployment of a tablet-based application that guided agents and customers through sales activities, while streamlining the documentation process. The application’s built-in predictive capabilities helped match products to individual customers’ financial context toimprove the number of products per customer.
In an era of digital banking customers, digital-only products are becoming fundamental to experience. This was one of the key convictions that drove the transformation initiative at ICICI Bank.
After investing in a new e-banking platform, ICICI Bank quickly followed through with two unique social banking products aimed at the digital generation. The first, iWish, is a socially integrated flexible recurring deposit product that allows customers to plan and save for their goals while earning traditional deposit product interest rates. The second all-in-one app called Pockets is a unique ‘Digital Bank’ for young customers, which enables them to book tickets, pay bills, recharge mobile phones and send money to friends.
Globally, it has been observed that customers who give high ratings for banking experience also tend to rate high for channel experience. For the younger generation, the quality of mobile banking strongly influences their choice of banking service provider. As products and services become increasingly homogeneous, channel innovation represents a huge opportunity for banks to deliver an exceptional and personalized digital experience that helps create competitive differentiation as well as customer value.
mBank, a next generation digital bank from Poland, seized this opportunity to launch an enhanced Internet and mobile banking platform that not only opened up digital access to the entire suite of products and services, but also featured over 200 innovative and experiential features. The solution combines customer-centric interfaces with advanced money management features, gamification, Facebook integration, video banking, real-time customer relationship management and merchant-funded rewards.
To sum up, in the constantly changing dynamics of banking, continuous innovation will be critical to sustainable business growth. Banks need to renew their capabilities toimprove the efficiency, productivity and agility of existing models, processes and systems. Simultaneously they must also acquire the new capabilities that are expected of a bank of the future. A dual “renew and new” strategy enables them to balance these priorities on the way to maximizing both customer and enterprise value.