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Innovation is the application of that meet newrequirements, in articulated needs, or existing market needs. Thisis accomplished through products, processes,services, technologies, or ideas that are readily available tomarkets, governments and society.
Innovation - Definition
The term innovation can be defined as something original and, as consequence, new that "breaks in to" the market or into society. One usually associates to new phenomena that are important in some way.A definition of the term, in line with these aspects, would be the following: "Aninnovation is something , new, and important - in whatever field – that
(or obtains a foothold in) a market or society."
better solution
more effective
originalbreaks in to
Better Solutions - Original - More Effective - Breaks into
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ARMONK, N.Y. - 10 Jan 2013: IBM (NYSE: IBM) today announced that it received a record 6,478patents in 2012 for inventions that will enable fundamental advancements across key domains includinganalytics, Big Data, cybersecurity, cloud, mobile, social networking and software defined environments, aswell as industry solutions for retail, banking, healthcare, and transportation. These patented inventions alsowill advance a major shift in computing, known as the era of cognitive systems.
IBM's record-setting 2012 patent tally was made possible by more than 8,000 IBM inventors residing in46 different U.S. states and 35 countries. IBM inventors residing outside the U.S. contributed to nearly30% of the company's 2012 U.S. patent output.
From 1993-2012, IBM inventors received nearly 67,000 U.S. patents. The company's 2012 patent countexceeded the combined totals of Accenture, Amazon, Apple, EMC, HP, Intel, Oracle/SUN and Symantec.
Source : http://www-03.ibm.com/press/us/en/pressrelease/40070.wss
Is Innovation related to Technology?
It is obvious that Information Technology industry has to rely on innovations, inventions. “This way of life” will also influence other industry which being IT users. Adoption of new technology will drive the industry to have better business operation The basic business of banking has been established over 100years and primarily commercial banks do take funding from deposit customers and lend to loan customers. Basic principle are stay the same, but the way of delivering the service will be different with the use of Technology
3
Case Study of Indonesian Banks
Virtual Account
EDC Mini ATM
Paperless Account Opening
Cardless ATM withdrawal
Started as institution payment, then changed into Virtual AccountIntroduced in 2002-2003, and later adopted by many banks
Extension on usage of EDCIntroduced in 2002-2003, and later adopted by many banks
Cash Withdrawal on ATM without using cardIntroduced in 2002-2003, and later adopted by many banks
Speed up account opening process, reducing paper useIntroduced in 2012-2013 by some banks using their own processes
Innovation in banking requires time to develop into operation and may even longer time for customer adoption . Bank’s Innovation is on the service and processes.
4
Virtual Account
Problems/ Challenge: 1. Increasing number of billers connected to banks
1. Installment2. Bill payments3. Tuition fee4. Insurance premium5. Other fees
2. Limitation of ATM technology (limited screens to show Biller’s name)3. Need to do reconciliations/ identifying payer4. Text description on passbook is not enough for certain volume of transaction, need an identifier
78000 –12345678901 Virtual AccountBiller code
CustomerCode
Customer Code: Identifier of payer account, can be invoice #, membership #, installment #, subscriber #, belong to a specific biller/ community/ club/ insurance / payTV, school/ university/ social institution/ foundation
Institution Code : Assigned by bank to a specific beneficiary account
Solution :
Virtual Account
RekeningPenampungan
Virtual Account
Virtual Account
Virtual Account
Virtual Account
Virtual Account
A/C# : 1122334455
7800012345678901Customer A
7800012345678902Customer B
7800012345678903Pelanggan C
7800012345678904Pelanggan D
7800012345678905Pelanggan E
Transfer Dana
Transfer Dana
Transfer Dana
Transfer Dana
Transfer Dana
Via ATM BII
Via Mobile Banking BII
Via ATM Bersama, Prima, ALTO
Via Internet Banking Bank Lain
Via Mobile Banking Bank Lain
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- Some banks make a proprietary transfer to intrabank account, some do openly interbank transfer- Value proposition:
- Customer : Helping customer/ beneficiary do reconciliations of their incoming transfer- Bank : Retain funding and increase loyalty
VA – System View
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Transfer Dana
Transfer Dana
Transfer Dana
Via Mobile Banking BII
Via ATM Bersama, Prima, ALTO
Via Internet Banking Bank Lain
A/C1: 1122334455V/A: 78000xxxxxx…xx001
78000xxxxxx…xx00278000xxxxxx…xx00378000xxxxxx…xx004
A/C2: 6677889900V/A: 78002xxxxxx…xx001
78002xxxxxx…xx00278002xxxxxx…xx00378002xxxxxx…xx004
Core Banking/Account System
VA System
AC1 : 1122334455AC2 : 6677889900
- Technically can be done as easy as just adding a table in front of account system to map the virtual accounts
and real bank accounts- VA system can be developed within core banking or separate system by itself- VA functionalities can be extended with billing with partial payments, etc- It is a must have platform for every bank to compete in market. There will be more application to it in future.
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EDC MiniATM
Problems/ Challenge: 1. ATM investment & operation cost is high2. ATM expansion is not fast enough3. Increasing market share means also increasing distribution channels
Opportunity: 1. Financial Transaction require small online system with limited screen size, and numerical
pinpad2. ATMs are connected thru interbank ATM switching system, which can be leveraged for other
devices3. EDC is much cheaper compared to ATM, both capex and opex
- Extend Traditional Merchant Acquiring Business, to acquire merchants doing purchase and payments- New type of “merchants” specializing on payments- Use merchant to serve “cash withdrawals” from their cash register
- Shifting of mainly fee based income generated from MDR into revenue of interest income gained from deposit
account of merchants in the bank- Adoption of this “EDC MiniATM” spread over across banks including BPR- Deployment of EDC MiniATM to non-bank outlets
Traditional Banking Transaction: Balance Inquiry, Cash Withdrawal, Deposits, Fund Transfer
Payment to Merchant
Credit Card Payment
Telco Postpaid and Prepaid Payments
Public Utilities Payments
Tickets Payment
Financing Payment
Insurance Payment
EDC MiniATM
- It’s a bank’s channel that has the “equal” capability as other channel to do payments and transactions- Combination with peripheral devices enable EDC to do : account opening, mobile teller, collections, loan disbursement, etc- It consist of : card reader – screen – keypad
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Cardless ATM Withdrawals
Problems/ Challenge: 1. People forget to bring ATM Card2. Need emergency cash for someone else3. ATM network distribution coverage is quite large already
Opportunity: 1. Additional service to existing customers (mobile banking)2. Remittance capability which enable payments to the non-bank customers3. Extend service reach to non bank customers or non-bankable segment4. Facilitate conversion of electronic money into physical money (Telco e-money)
- Extend reach of banking service to non-banking customers by collaborating with Telco companies- There will be more e-money and virtual money in future need to be converted into physical money- More banks will be adopting this kind of mechanism, although already started in the market >10yrs
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OTP Request from Mobile Banking
TelcoMobile Banking Server
SwitchingSystem
Cardless DB
Send SMS to Request for OTP containing Withdrawal Amount
and Cardless Customer HP Number
Request for Cardless OTP
Validate CardlessCustomer HP Number.
Cardless OTP is generated.
Response a Cardless OTPReceive SMS
containing a CardlessOTP
Cardless Withdrawal at ATM
1 2 3 4
5678
SwitchingSystem
Cardless DB
Perform Cardless Withdrawal by keying: Cardless Custimer HP
Number, Cardless PIN and OTP Validate Cardless Customer HP
Number + Cardless PIN and OTP
Response Cardless Withdrawal with Withdrawal Amount
Cardless Customer receives money from ATM equal to Withdrawal
Amount
Cardless Customer Registration at ATM
SwitchingSystem
Cardless DB
Save Cardless Customer HP Number and Cardless PIN
Cardless Customer Registration Completed
Perform Cardless Customer Registration by keying: Cardless
Customer HP Number and CardlessPIN
Save Cardless OTP
1 2 3
444
1 2 3
456
Cardless ATM Withdrawals
Paperless Account Opening
Problems/ Challenge: 1. Long time for account opening process2. 2 steps of customer data input creating issues of incomplete data input or error in data input3. Bank mission to humanizing financial services, means more personal interaction rather than
people-document interactions
Opportunity: 1. Network bandwidth has improved for the past few years (bandwidth size vs cost)2. Technology availability on ECM & OCR and has been long awaited to improve process3. Improving turnaround time: digitalizing at the first entrance point
- Improving turnaround time to process account opening from 27 min to 12 min- Combined with simplification of forms, sceen & use of scanner as well as process reengineering- More personal interaction, remove back & forth processes, and completed at 1 interaction
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Cust
omer
Ser
vice
START
Product information
Sign for passbook
& ATM cardCreate PIN
Override for ATM PIN &
sign forpassbook
Swipe ATM card
Give ATM Card
& passbook
Cust
omer
Hea
d CS
05:0
0
00:1
5
01:0
0
00:5
0
00:4
5
01:3
0
Informm-banking,
other facility& cross selling
05:0
0
00:3
4
00:4
9
END
Depositcash at teller +
copy cust ID
ActivateATM card
at ATM machine
05:0
0
RegisterATM number
Create acc number
Register +print
passbook
01:0
000
:28
01:0
0
Copy cust ID+ Prepare ATM card
& passbook
01:2
7
01:2
3
Input othercust data10
:00
Fill & signfor opening
acc. form11:0
0
Input cust’s data04
:11 Interview +
input other data
Repetitioncust data
Cross check+ update
scan result
Fill & signproduct
/ fac. form*
Scan cust ID
02:0
0
Sign forcust data
form
Print custdata form
Paperless Account Opening – Process Flow
12 min !
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It’s not Technology Innovation
What will make innovation successful:- Is the innovation really solve the current problem- Are there alternative to the solution of the problem?- Does our solution better than other solution? Does it driven in bigger way than other
solution? - Does the infrastructure to support the innovation is ready/ available?
- Knowledge of business process, business model, customer need and technology capability are prerequisite for an successful innovation to happen
Process to Stimulate an Innovation:1. It’s related with problems, opportunities, new technology, change on infrastructure2. IT requirements will start with a simple basic thing. It’s not necessarily started with heavy IT
investment or IT transformation3. Understanding the needs of people, process , payment mechanism or any particular area of
banking services
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Source of Innovation
Built in within Organization1. “Creative and Innovative” people within
organizations2. Culture of innovation within organisation3. Process and mechanism to nurture innovation within
organization processes:- Process improvement, operational excellence- Innovation competition- Continuous improvement process (kaizen, etc)
Adopt Innovation from other institutions/ countries1. Every organization has their own innovative ideas that might be applicable to other organisation
in other countries.2. Technology gap between countries are getting lesser, and copying them is not impossible (effort
& investment)3. Huge vs small investment: majority of innovation doesn’t require huge effort/ investment. 4. Self Innovation vs Fast Follower , dependency on organization environment.
- IT Architecture plays important role in adapting to new innovation- Innovation may change major part or minor part of IT Infrastructure
OperationIT
Consultant Sales Officers
Other Banks
Customers
Product Dev
INNOVATION
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What is a successful Innovation?
What drive Innovation:- Solution fo business problem- Solution to payment problems- Solution fo operation inefficiency/ problems
What will make innovation works:1. Who will be the customer segment using it?2. Why customers/ users willingly adapt to it3. What is the real value proposition for the customers?
Speed/ cost/ ease of use/ profit?
- Knowledge of business process, business model, customer need and technology capability are prerequisite for an successful innovation to happen
IT effort in Innovation:1. Huge, long time projects, eg:CRM, business analytics,
MSS2. Small, short projects: channels innovation,3. Balance the strategic and tactical innovation
MARKETACCEPTANCE
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Summary
1. Innovation needed to make us stay relevant and competitive in the business. The current innovation will be a mandatory standard requirements in future
2. Adopt the approach for the organization: in-house innovation or fast follower, or hybrid
3. It requires both combination of business and technology knowledge to drive a successful innovation
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