Finacle Webinar – Innovation in Retail Banking 2013

Global Innovation Trends in Retail Banking

Efma Webinar, October 2013

Michael Pearson, Efma Strategic Adviser

Speakers

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• Hand icon: Click on the icon if you wish to jump in the conversation. The organizer will unmute your microphone and you will be able to speak.• Chat section: Type your question and click Send to submit it to the organizer.

Patrick Desmarès Secretary GeneralEfma

Michael Pearson Senior Retail Banking Adviser Efma

Ask your question via the chat session

Introduction

• 5th annual study of retail banking innovation

• 150+ banks from around the world participated in the research

• Focus was on how to overcome barriers to innovation

• Study measured of deployment of various channel innovations

Agenda

• Innovation strategy and performance

• Overcoming barriers to innovation

• Digital channel innovations

• Innovation case studies

Many successful business leaders have claimed that innovation is essential for growth and value creation

“As I’ve looked at a number of industries, virtually all the value gets created by innovation. At our company, all of our revenue growth was

either organic innovation or it was through acquisition, and acquisition was a platform for

future innovation.”

AG Lafley, Chairman & CEO, Procter & Gamble

Academic research also shows that companies with growth track records rely heavily on innovation

“Growth outliers do a tremendous amount of experimentation and innovation. They develop and deploy new technologies, move into new

markets, explore new business models and even open up new industries. They take on acquisitions

and aggressively seek input from people and organisations quite unlike their own.”

Rita Gunther McGrath

“How the Growth Outliers Do It”, Harvard Business Review

Most banks say they are becoming more innovative and investing more in innovation

Innovation Level

More Innovative

Investment

Less Innovative

Investing More

Investing Less

Source: Efma/Infosys Innovation Survey 2013

+76%

-6%

+70%

-5%

Banks are also now more likely to have an innovation strategy than before

Percentage of Banks With an Innovation Strategy

37%

2009

60%50%

2011 2013


Most banks think that their innovation performance is improving


76%

17%7%

Improving Performance No Change Declining Performance

Percentage of Banks with Improving or Declining Innovation

The continuing threat of disruptive innovation may be a factor which is encouraging banks to be more innovative

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Agenda





IT systems are perceived to be the most significant innovation barrier for banks, followed by culture


Large Banks Medium Banks Small Banks

1 IT systems IT systems IT systems

2 Culture Culture Regulation

3 Organisation silos Organisation silos Financial

4 Regulation Regulation Culture

5 Management priorities Management priorities Management priorities

6 Financial Financial Organisation silos

The problem with silo-based IT systems is mainly that they increase time to market and the cost of innovation


Innovation in service

Time to market

Cost of innovation

Innovation in products

Innovation in process

5.2

4.9

4.6

4.5

4.4

Very Low Impact

Average Impact

Very High Impact

Scale 1-7


The time to market for new offers is particularly high for large banks

Time to Market for New Offers in Months

6

Small Banks

12

8

Medium Banks

Large Banks


There are two specific IT-related factors which could improve innovation execution

Yes No Don't Know

Enterprise-widebanking systems*

Componentised deployment of banking systems*

* Question: Would enterprise-wide banking systems or componentised deployment improve innovation execution

Yes No Don't Know

There are several specific capabilities which would help banks improve their overall innovation capability

Product

Channel

Customer• Customer insight

• Single customer view

• Unified experience across channels

• Multichannel integration

• Personalisation of product offers

• Ability to launch in collaboration


Open innovation is being increasingly used although there are very mixed views on its effectiveness


Investment in start-ups

Partnering with IT companies or other suppliers

Online idea generation portals

Competitions for non-staff

Relationships with academic institutions

Very Low Effectiveness

Average Effectiveness

Very High Effectiveness

4.2

3.8

3.1

3.1

3.1

Scale 1-7

Investing in start-ups through a structured corporate venturing approach can be of value if done well

“Investing in start-up companies committed to new business models enables BBVA to learn and anticipate the emerging challenges facing the financial services sector.”

Jay Reinemann, BBVA Ventures

• $100m fund targeting start-ups with the potential to transform financial services.

• Based in Silicon Valley, early investments included SaveUp and Ribbit Capital.

Agenda






Out of 10 digital innovations surveyed, large banks had on average deployed the most

Number of Digital Innovations Deployed

1.2/10

Small Banks

2.8/10

1.7/10

Medium Banks

Large Banks

1. Mobile P2P payments

2. Mobile NFC payments

3. Mobile wallet

4. Mobile location-based offers

5. Voice recognition for mobile

6. Direct only banking

7. Self-configuration of products

8. Video conferencing

9. Gamification

10. Transactions via social media


Out of 10 digital innovations surveyed, large banks had on average deployed the most

Number of Digital Innovations Deployed (out of 10)

1.2

Small Banks

2.8

1.7

Medium Banks

Large Banks

Digital only banking…

“Hello bank! is fully geared to the new social habits that are now transforming people’s relationships with their bank.”

Plans for Digital Only Banking


23%

Currently Deployed

21%

Planned

56%

No Plans

% of banks at different stages of deployment

Mobile wallets…

Plans for Mobile Wallets


21%

Currently Deployed

56%

Planned

23%

No Plans

“CaixaBank, Santander and Telefónica to create first joint venture between banks and

telecom operators in Europe to develop new digital businesses.”

“Berg Insight expects that 2016–17 will be the first years in which

mobile wallets approach mass market penetration and more than 10m new wallet users will then be

added annually in Europe.”


Location based marketing…

18%

Currently Deployed

51%

Planned

31%

No Plans

Plans for Location Based Marketing


“Barclaycard’s bespoke offers is the savvy shoppers ‘savings SatNav’, always at your

fingertips offering whatever you want, whenever you want it.”


Gamification…

9%

Currently Deployed

35%

Planned

56%

No Plans

Plans for Gamification


“It is a good application to change our way of communicating with our customers, which is now more approachable and friendlier.”


Agenda





Some of the speakers at the Efma Banking on Innovation conference described useful case examples

FNB (South Africa)

TEB (Turkey)

UniCredit (Italy)• How to co-ordinate across a multi-country,

matrix organisation, and invest in R&D

• Entrepreneurial culture, using multiple innovation activities and open innovation

• Long term commitment, driven by CEO, focused on an employee competition

Davivienda from Colombia is also an excellent innovation case study

Conclusions…

• The innovation “good news” is that performance is improving, investment is increasing and more banks have a strategy.

• The key challenges when trying to improve innovation performance are typically to do with IT systems and culture.

• Some banks are able to work around their IT systems issues but ultimately simplification and working across silos is key.

• Other banks have successfully addressed the innovation culture issues and are also actively using open innovation techniques.

Discussion session

Elisabet BrodinHead of Strategy RetailSEB Sweden

Dorel Blitz Innovation Manager, Strategy & International Operations DivisionBank LeumiIsrael

Rajashekara V. MaiyaAssociate VP and Head Finacle Product StrategyInfosys India

• What are the innovation investments that will achieve short term benefits and which ones are important in the long term?

• Increasing business process speed, agility and efficiency has been rated as having the highest impact on a bank's innovation capability. What can banks do to increase their agility and efficiency to be able to innovate better?

• The research has found that current legacy IT systems are one of the top three barriers to innovation. How should banks overcome this as a barrier?

Follow-up email:- Innovation in retail banking 2013 report - Webinar presentation - Recording link

Technology

Finacle Webinar – Innovation in Retail Banking 2013