The latest edition of the Infosys Finacle Efma Innovation in Retail Banking Report marks the tenth year of providing relevant and insightful content for the banking industry. Back in 2009, in the aftermath of the financial crisis, banks were pulling out all stops to restore faith in banking, but surprisingly even then 78% of the banks in our survey rated growth-related and efficiency-related innovations highly important. Innovation in the industry has come a long way since then with the significant uptake of mobile and online banking, emerging competition from digital players and technology giants, new possibilities powered by emerging technologies, changes in regulatory attitude, and new disruptive business models.
This year the report brings together perspectives of over 300 bankers across areas and themes such as innovation investment, impact of emerging technologies, technology readiness, crucial delivery channels for the future, and more. Many of these findings align with what we at Finacle have observed in our interactions with market leaders globally. Like every year, in this blog post I’d like to take you through the key research findings of the year.
In our experience, over the last 12 months banking leaders have consistently expressed interest in two key priority areas – enhancing customer experience on various delivery channels, and developing accurate single comprehensive view of the customer. When we asked our survey respondents which area of banking is likely to witness maximum innovation over the next four years, the response was heavily skewed in favor of product delivery channels, with 50% of the respondents reporting it as their largest focus for innovation. This perfectly aligns with our view of priorities of banks in the next few years.
Reflecting a complete correlation with this finding was the response to our question about the area likely to see the greatest increase in innovation investment. Investment in channel innovation and customer experience emerged as two of the top three areas, while ‘technology enhancement’ bagged the top spot for increased innovation investment.
Next, we asked banks and financial service providers the technology they perceive to have the maximum impact on the future of innovation in banking in 2019. Against the backdrop of the much talked about regulations such as Open Banking in Europe, PSD2 in the UK, and similar initiatives in other parts of the world, API topped the list of technologies with the greatest potential to impact banking. Advanced Analytics / AI / Machine Learning came a close second. Consistent with the findings from last year, blockchain continued to drop in this ranking. We reckon that this is largely a result of the technology reaching a plateau when it comes to its perceived potential to disrupt, thanks to the myriad blockchain pilots and successful implementations at all leading and progressive banks. Blockchain seems to have transcended the initial stage of speculation well into stable and progressive adoption.
Open Banking APIs did not only emerge as the top technology of impact over the next year, but also the technology banks and financial service institutions assess themselves to be in the best position to take advantage of. When asked about their level of readiness to use emerging technologies for desired business outcomes, our respondents rated open APIs, conversational interfaces, cloud processing and mobility/wearables the highest. These areas were closely followed by advanced analytics / AI and machine learning. However, the ability of banks to harness the potential of these technologies also depends on their use of APIs for communication and facilitation of information exchange.
While we clearly stated the impact of digital technologies and open banking on the competitive structure of the industry in our report last year, the survey did not delve deep into bankers’ view of the primary business model for banking. Given the pace of change and competition in the industry, this year we asked the survey respondents about how banks are most likely to evolve in structure and business model by the year 2022. The response is a strong reinforcement of Infosys Finacle’s point of view that most banks will transition from a full-stack provider of services to a marketplace model, become a manufacturer bank that leans on distribution by other players, or be a distributor of services from various providers.
In our research last year and this year, we interviewed a few banking leaders and also sought responses from survey participants about the biggest challenges they face in the innovation process. Apart from legacy technology estates that continue to be a barrier to innovation this year, enforcing a company-wide customer-centric culture and finding the right talent also figured high on the list of challenges in 2017 and 2018. In this year’s research we enquired the respondents about their talent sourcing strategies for the next three years. Banks are likely to adopt a hybrid sourcing strategy which includes traditional hiring of new employees, recruiting part-time employees, retraining current employees, even buying outside organizations for access to specialized talent pool, and partnering with outside organizations. Partnering with outside employees was a key focus area for a majority of respondent organizations. Furthermore, organizations will focus on reskilling and retraining existing employees to take up higher value tasks as they work on improving margins with digitization for repetitive tasks.
Read the full report to prioritize and benchmark your innovation investments, and validate your innovation strategies.
Rajashekara Maiya, Vice President, Global Head of Business Consulting & Product Strategy, Infosys Finacle
Rajashekara Maiya is responsible for charting Finacle’s product strategy and defining its product roadmap, strategic acquisitions, alliance partnerships, and client engagements. He represents the company while interacting with external stakeholders such as analysts and the media. He is also responsible for the business consulting practice at Finacle, Eco-system innovation Group along with Cloud, Blockchain business. He has played several roles across diverse areas, including product management, solution architecture, implementation, and pre-sales over the last 20 years at Infosys.
Maiya has been instrumental in the conceptualization and planning of Finacle Enterprise – the latest addition to the Finacle portfolio designed to deliver simplified transformation and progressive modernization capabilities to global banks.
Maiya specializes in core banking, risk management, regulations, and compliance. He has been quoted on these and other topics in reputed publications such as Forbes, The Banker, Banking Technology, The Economist, Business Line, BBC Radio, and the Economic Times. He is on the expert panel of the McKinsey Quarterly; is a member of the XBRL Abstract Modelling Task Force (AMTF) Group, MIT Technology Review Global Panel; and is an Associate member of the Institute of Chartered Accountants of India. Maiya holds several patents and has pending patents in the areas of partner portals, delivery channels, offline banking, and customer experience.
Maiya is also a co-author of the book ‘SMACing the Bank’.