As the retail banking sector looks for new sources of growth, many banks are modernising without however managing to revolutionise their business model, often hampered by the persistence of organisational silos.

Retail Banking Still Lagging on Disruptive Innovation

As the global economy gradually gets back on its feet, retail banks remain under pressure, caught between growth expectations and the drive to reduce costs. Customer satisfaction has visibly improved over the last few years but customer expectations are constantly changing and a growing number of banks have put in place an innovation strategy to address these new requirements. In fact the 5th Innovation in Retail Banking report from Paris-based retail financial services companies association Efma and financial solutions provider Infosys Finacle reveals that 60% of 150 banks worldwide surveyed adopted innovation strategies in 2013, in comparison with just 37% in 2009, and investment in innovation is on the rise at 77% of the banks. Nevertheless, it is proving far from easy to bring about change: the report reveals that out of ten online and/or mobile innovations identified, the banks have actually deployed on average just two.

Organisational culture and silos hampering innovation

Just 29% of the retail banks surveyed by Efma/Infosys Finacle have implemented mobile P2P payments and 23% have introduced mobile NFC payments. Mobile location-based offers have been deployed by 18% of the banks, and a further 51% are planning to do so. However, while online banking is on offer at 23% of the financial institutions polled, the majority say they have no plans to follow suit.  Meanwhile 21% of the banks allow self-configuration of products online by customers but only 9% have so far made use of gamification. Allowing the customer to personalise banking products and ensuring seamless multichannel integration are capabilities which ought to be developed throughout retail banking, stress the report’s authors. However, too few financial institutions have as yet gone this route, largely because their organisational culture and – very importantly – their IT structures remain stuck in silos, factors which have a significant impact on time to market for new products and services and on innovation costs and functionality. The average time to market for new offers at large banks is currently around twelve months. Banks have tried experiments in Open Innovation techniques but their effectiveness is currently deemed to be low, with an average effectiveness score of just 3.6 on a scale of 1 to 7. Partnering with established IT companies appears to be the most effective approach to innovation, while investing in start-ups has so far proved to be the least successful approach.

Limited geographical disparity

The report’s authors observed relatively few differences in approaches to retail banking across the different regions of the world, irrespective of their stage of economic development. In fact there seems to be a general global convergence of innovation practices, with innovations deployed in one country being in many cases rapidly rolled out in others. One example is an innovative mobile payment functionality using Facebook, first deployed in Turkey in 2012, which was replicated in many other countries within eighteen months of its appearance. In fact there are probably more differences in approach between large and small banks than there are variations by region, the authors point out. Nevertheless there are still some differences in development between regions. Innovation performance at European retail banks is improving but is still lagging behind some other regions. This year, those in the Asia Pacific region have been showing a higher overall innovation performance than elsewhere, with banks in countries ranging from New Zealand to the Philippines proving innovative, says the Efma/Infosys Finacle report.

By Pierre-Marie Mateo