Banks need innovation to beat present day challenges. The count for 2010 shows that one bank fails every two days in the United States. It’s not easy being a survivor in the current financial milieu that is constantly throwing up challenges in the form of regulatory enforcement, consumer expectations, competitive threat and elusive profitability. On the flip side, the same forces hold out new opportunities for those with a clear initiative and innovation agenda.

1. Mastering Change with an
Effective Innovation Strategy
Universal Banking Solution System Integration Consulting Business Process Outsourcing

2. Banks need innovation to beat present day their debit card is another. Flexible payment
challenges. options and product bundles are other notable
innovations from the past which are now being
The count for 2010 shows that one bank fails offered regularly.
every two days in the United States.
Apart from their scale of impact, strategic and
It’s not easy being a survivor in the current incremental innovations differ in the following
financial milieu that is constantly throwing up ways. The former consumes more organisational
challenges in the form of regulatory enforcement, resources, takes longer to hit the market and
consumer expectations, competitive threat and yields a bigger but slower payback. Since
elusive profitability. On the flip side, the same strategic innovation often heralds a fundamental
forces hold out new opportunities for those with a shift, users take longer to adapt to it. Its ‘big bang’
clear initiative and innovation agenda. characteristic makes strategic innovation riskier
than the incremental version. These qualities
Most banking innovations have come about in ensure first mover advantage for strategic
response to the challenges of their times. The innovators. This is not the case with incremental
inventor of the ATM came up with the idea of a innovation, wherein a creative product variant or
chocolate bar dispenser that gave cash instead promotion can be replicated and offered with
out of frustration of not being able to withdraw different extensions.
money whenever he felt like it. Similarly, the
proliferation of electronic channels was driven as An innovation strategy enables banks to respond
much by changing habits as the need for banks to to change and leverage new ideas.
reduce distribution costs.
This relative ease of incremental innovation
Present day banking challenges include adopting makes it an imperative component of a bank’s
social technology meaningfully as well as business strategy as a competitive defence
ensuring accessibility of services on emerging mechanism, growth lever and survival tool. To
devices. Once again, some innovation is necessary pass it over means to be left behind. An effective
to meet these. Banks that ignore these strategy for incremental innovation feeds off
developments risk isolation and worse; the environmental change and new ideas of
implication is that innovation is now a must have. significance to work in a continuous cycle as
illustrated below.
Banking has undergone continuous incremental
innovation, punctuated by periodic strategic Incremental
Social Innovation
innovation. Networks
• Customers Growth /
Internet • Shareholders
Consolidation /
Ideas Competitive
History indicates that the banking industry has • Employees
Internet • Management Advantage
been a laggard in innovation, especially the
strategic kind which creates revolutionary impact. New Change / External
There are many reasons for this including Opportunities Disruption World
regulatory restrictions, risk mitigation and the fact
that in any business of enormous scale, the
results of innovation take years to show. But The major forces of change in the survivor’s world
above all, since banking is a complex but stable are tighter regulation and compliance, growing
business, the possibility of strategic innovation consumerism, measurable productivity drivers
emerges only once in a while. and growing unexplored potential, each bearing
both challenges and opportunities. Incremental
That being said, banking has been home to a innovation helps its practitioners deal with both
series of incremental innovations, producing appropriately by imparting agility, enabling
smaller but tangible effects. A global bank’s efficiency and better diversity management, as
‘unfixed’ deposit which earns higher interest for well as facilitating expansion:
customers without cutting off their liquidity, is one
example. A leading American bank’s program that • There has been no let up in the tightening of
allows customers to save a bit every time they use financial regulation which was initiated in
Mastering Change with an
Effective Innovation Strategy

3. response to the economic crisis. No doubt, enabling them to serve rural and fringe markets
compliance is harder for banks with a high without setting up physical infrastructure.
degree of global exposure, that have to adjust to Innovative first movers entering unbanked
regulatory change in multiple geographies; at territory are strengthening their competitive
the same time they must do so quickly in order position by erecting entry barriers.
to minimise risk, penalty or both. Only a few
banks view adhering to greater regulation as an • Today’s youth belong to a truly mobile
opportunity to tighten their operations and generation which expects their banks to be with
reduce the costs associated with them regardless of which part of the world they
non-compliance. Some believe that their travel to on work or leisure. Being used to an
superior ability to comply with ever-changing, online social world which is accessible from
increasing regulation gives them competitive anywhere, anytime, on any available device,
advantage over others who struggle to do so they expect the same from their banks. The race
while incurring great cost. Thanks to their among banks for a presence on all devices is on!
positive mindset, these forward thinking banks
are able to win the trust of existing and Leveraging ideas has never been easier or more
prospective customers who are more important than in the present age of easy access.
concerned about compliance than ever before. Thanks to social networking technology, banks
can reach out to millions of customers and all their
• Technology-led innovation enables banks to employees over the Internet and Intranet
respond quickly to new mandates; it also gives respectively in next to no time. This affords an
them the agility to take advantage of market opportunity to involve all stakeholders in the
opportunities, launch products and services and innovation process right from the idea generation
counter any threats faster than the competition. stage and sustain their participation all the way
until co-creation.
• Innovation improves efficiency by streamlining
processes so that they can achieve more In contrast to incremental innovation which may
using less effort and time; creating a be pursued by all, strategic innovation is a likely
supportive environment in which partners can preserve of the big banks. The reasons are simple
be more effective making the best use of – heavy resource requirement, long timelines and
existing resources. higher risk. However, these are balanced by the
potential of a much larger upside than that of any
• In the area of customer management, incremental innovation.
innovation in the form of a unified customer
information repository enhances a bank’s Through their strategic innovation strategy,
knowledge of its users. Since this information is leading banks must raise the bar and usher in
recorded permanently within the bank’s trends for others to follow. Since this is easier said
collective memory, it can be recalled by any than done, it is advisable to approach it - like Bank
customer facing executive to improve of America has in its ‘Bank of Tomorrow’ initiative
subsequent interactions. Over time, the bank with MIT - in partnership with other entities that
acquires intimate knowledge of each customer can bring complementary strengths to the table.
beyond the basic details of location, profession,
income etc. to include preferences, habits, risk When the chance for strategic innovation comes
appetite and tacit insights, which it could along once in several years, big banks don’t have
leverage to refine its approach to segmentation much option but to take it. That is because by
and right selling in order to better manage the letting the initiative slip, they will be reduced to
diversity of its customers and satisfy their following - a sure disadvantage given that they
unique needs. lack the fleet-footedness of their smaller rivals in
adopting anything new. On the other hand, by
• Banks have long since relied on innovation to leading the change, they can dictate the pace from
extend their footprint in new geographies. But a position of strength.
the saturation of prime markets is now driving
them towards unexplored pockets. Channel Ironically, while smaller institutions face several
innovation, particularly in the mobile domain, is barriers in pioneering strategic innovation, they
Mastering Change with an
Effective Innovation Strategy

4. can follow it with relative ease. One reason for this
is agility; the other is that those that have invested
a small amount in existing technology and
infrastructure can write it off and deploy their funds
for greater strategic impact. Hence, such banks
must wait and watch for an opportunity to adapt
quickly to any new strategic innovation. The
rationale of working in partnership holds in this
case as well and smaller banks could operate in
consortium to reduce individual investment and risk.
That being said, strategic innovation is not
exclusively driven by the leaders and sometimes
even a small institution with a big idea might set
the ball rolling.
Innovation is the key to future success.
While banks that are still standing may have
financial prudence and regulatory compliance to
thank for their existence, they need continuous
innovation to survive and thrive in the future. An
effective innovation strategy will help them satisfy
customers better, manage the expectations of
internal stakeholders and respond to the other
challenges thrown up by the survivor’s world.
While all banks must have a clear agenda for
incremental innovation, the current environment is
also opportune for strategic innovation,
particularly for big banks having resources at their
disposal. By seizing the initiative, banks can meet
future opportunities and challenges from a
position of strength.
Authors
Balwant C Surti
Head - Solutions Architecture and Design Group,
Finacle
Infosys Technologies Limited
Amit Kumar Agarwal
Lead Consultant, Finacle
Infosys Technologies Limited
Mastering Change with an
Effective Innovation Strategy

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