Innovation in Retail Banking

September 2012, 4th Annual Edition

Growth of Channel Innovation innovation in retail banking 2012

Contents

Preface...... 3 Executive summary...... 4 Introduction...... 7 Innovation and strategy...... 13 Innovation performance...... 21 Focus on channel innovation...... 27 Innovation in financial inclusion...... 49

A global and regional channel innovation summary...... 53 Innovation case studies...... 56 How to become more innovative...... 62 Conclusion...... 63 About the research...... 66 About us...... 70 List of Participants...... 71

2 Preface

Efma and Finacle from Infosys are proud to present the fourth annual study of innovation in retail banking. We are pleased to say that the study is now carried out on a global basis and hence this report has valuable perspectives from all regions of the world covering Europe, Middle East, Africa, Asia Pacific and the Americas.

Amid the immediate and conflicting priorities that bankers face today, it is good to see that the most innovative are committed to the cause of innovation with increased investment. It is also worth noting that the interest and approach to innovation transcends the internal boundaries of business lines and distribution channels within banks.

Banks tell us that innovation in delivering a superior customer service and experience is increasingly important. However, they say that channel innovation is equally important and banks have been investing more and more in digital channel innovation. From mobile payments of different kinds to online personal financial management services, the rate of deployment of new channel innovations is increasing. Hence the focus of our study this year is channel innovation.

There are many common innovation themes from across the regions and countries of the world, but clearly there are always important differences as well. One in particular relates to financial inclusion because many low income countries have a large proportion of the population who are not currently using formal banking services and we highlight some relevant innovation examples in the study.

Our study has attracted enthusiastic participation from across the world and we are pleased to present this report that captures the perspectives of over 300 bankers from 66 different countries who responded to an online survey. In addition to the valuable insights that we extracted from the survey, we have also highlighted many different channel innovation case examples in the report and we hope you find it both fascinating and useful.

Patrick Desmarès Haragopal M Secretary General . Global Head – Finacle. Efma Infosys Limited

3 innovation in retail banking 2012

Executive summary

The most innovative banks recognise innovation is a key management priority

Innovation often ranks behind risk management, balance sheet management and cost management as a priority, but the most innovative banks are still able to make sure it is very high on the management agenda and their senior management demonstrate strong commitment to innovation as a differentiator and driver of long-term growth.

Increasing innovation investment, particularly in channels and customer service/ experience

On a global basis 73% of banks say they are increasing their investment in innovation in 2012 compared to 2011, showing a growing recognition of the importance of innovation even in difficult economic times. Investment growth is particularly strong in the areas of channels and customer service or customer experience.

Key innovation drivers are attracting new customers and growing revenues, not costs and compliance

The key innovation drivers for most banks are attracting new customers and growing revenues, even in mature economies, while cost management and regulatory compliance are not believed to be as important.

Less than half of the banks are measuring their innovation performance

The use of innovation metrics to measure innovation performance is relatively weak, with only 41% of banks having clear metrics in place. The most common metrics are revenue growth from new products and services and changes in customer satisfaction.

Innovation performance is strongest in channels and weakest in processes

The self-assessment of banks of their own innovation performance shows this is strongest in channels and weakest in processes. In fact, 56% of banks rate their innovation performance in channels as high or very high. These findings are broadly consistent across regions, although in the Americas innovation in customer service and experience is stronger than innovation in channels. Innovation in channels is particularly strong in the Middle East & Africa.

Banks feel they are becoming more innovative but there are mixed signals

70% of banks say they are becoming more innovative and this has been a consistent finding in the last few years. However, the innovation self-assessment scores in Europe have not been improving since our survey began four years ago, so there are some mixed signals on whether there really is an improving trend.

Innovation performance strongest in Middle East & Africa compared to other regions

There is not a large difference between regions in the innovation self-assessment scores though banks in the Middle East & Africa on average believe they are doing slightly better than banks in other regions. For individual countries where there is a reasonable sample of banks in the survey we notice strong performance scores in India, Turkey and the United Arab Emirates.

4 Online and mobile are the most important channels for innovation, not branches

There is a consistent view across regions that online and mobile are the most important channels for innovation in the next few years, and branches are seen to be much less important. Banks in Asia Pacific say that innovation in the online channel is slightly more important than innovation in the mobile channel, whereas in the other regions innovation in the mobile channel is more important. Innovation performance is also strongest in these two channels – 63% of banks say their innovation performance is high or very high in the online channel, and the figure for the mobile channel is 56%.

IT is important for channel innovation and branches get more technology investment

87% of banks say that IT is important or very important for channel innovation. The IT investment mix is still biased toward branches (27%) as the most significant channel, but across the four regions online (25%) and mobile (20%) combined now exceeds the branch channel. In Europe and the Americas, IT investment in the online channel alone is already greater than IT investment in the branch channel.

The survey shows the status of innovation deployment in mobile, online and branch channels

Mobile: Advanced visualisation (augmented reality) for locating branches and ATMs (38% of banks), and mobile payments (35% of banks) are currently the most frequently deployed mobile innovations. Following these is tablet applications, an area that will get significant further investment in the next few years. Personalised location-based offers are not very common yet, but banks also expect a rapid growth in deployment of innovation in this area.

Online: Personal financial management tools are the most common innovation currently deployed (29% of banks), followed by integration with social media (24% of banks), and web chat or click to call (21% of banks). A big area of focus for the next few years will be improvements in the online account opening process and most banks expect to have fully automated account origination for complex products within three years. The self-configuration of products has not yet seen a significant deployment but this appears to be in the plans for many banks.

Branches: Deployment of innovations in the branch channel shows a wider divergence of views than in online and mobile. For example, cashless branches have been adopted by 17% of banks but 51% of banks say they have no plans to go down this route. There is a similar divergence of views on the sale of non-financial products and services in branches. Videoconferencing in branches has been possible now for a few years but deployment is low and not high on the agenda for many banks.

Channel innovation deployment is still very low in most banks but accelerating

We surveyed twenty two channel innovations and found that 58% of banks had deployed less than 20% of these innovations (i.e. four or less). However, taking into account the stated plans for the next twelve months, the pace of deployment is accelerating and we expect 47% of banks to have soon deployed at least nine of these innovations.

5 innovation in retail banking 2012

Multi-channel integration, not just innovation, a very important part of channel strategy

Not to be forgotten, there are other very important factors in channel strategy and not just innovation. 86% of banks say that multi-channel integration is important or very important. For the single customer view the proportion is 81% and for multi-channel analytics the proportion is 72%.

Innovation in financial inclusion is important in low income, developing markets

The challenges of innovation in developing markets – especially in the lowest income countries where financial inclusion is low – are quite different than for retail banks in mature markets. Nevertheless, many innovations are taking place, for example in micro savings, and channel innovation using mobile and agents has an important role to play. Key to the innovation is often the adoption of a very different business model from traditional banking.

Leading banks show how to become more innovative

For banks to become more innovative, they need to look at how to make sure innovation is on the strategic agenda, dedicate resources to innovation, develop an approach to “open innovation”, embed customer insight into the innovation process, and design the right processes from idea generation, through selection, prototyping and launch.

6 innovation in retail banking 2012

About us

As a global not-for-profit organisation, Efma brings together more than 3,300 retail companies from over 130 countries. With membership from almost a third of all large retail banks worldwide, Efma has proven to be a valuable resource for the global industry, offering members exclusive access to a multitude of resources, databases, studies, articles, news feeds and publications. Efma also provides numerous networking opportunities through work groups, online communities and international meetings.

For more information: www.efma.com

Finacle from Infosys partners with banks to transform process, product and customer experience, arming them with ‘accelerated innovation’ that is key to building tomorrow’s . Today Finacle is the choice of 165 banks across 78 countries and powers operations across 49,618 branches globally. Our solutions address the core banking, e-banking, mobile banking, CRM, wealth management, treasury, and islamic banking requirements of retail, corporate and universal banks worldwide. Keeping up with global trends, Finacle also offers new-age solutions like digital commerce for enabling cashless transactions and financial inclusion for banking the un-banked. With these offerings Finacle enables banks to stay ahead of changing customer demands, competition and mounting global regulations as they transform into tomorrow’s banks.

For more information: www.infosys.com/finacle

About the Author

Michael Pearson is a strategy and corporate development expert with 25 years’ experience working for and advising financial institutions worldwide, developing new ventures, and investing in start-ups. Michael founded Clarus Investments in 2006 to invest in early stage ventures, with a particular focus on financial services and then set up Clarus Insight to report on trends and developments in financial services and strategic management. Michael is also the author of the Efma report “Innovation in Retail Banking” and provides advice on strategy to entrepreneurs and financial services firms in developed and emerging markets. Michael has an MBA from Harvard Business School.

70 List of participants

Europe Delta Lloyd Bank Belgium ABN Amro Bank Netherlands Germany Allied Irish Bank Ireland Deutsche Bank Italy Italy Akbank Turkey DNB Norway Aktia Bank Finland Equa Bank Czech Republic Aktif Bank Turkey Alfa Bank Russia Eurobank EFG Greece Alior Bank Poland FBBANK Greece Romania Romania Fondsdepot Bank Germany Arion Bank Iceland Geniki Bank Greece AXA Bank Belgium Getin Holding Poland Banca Monte dei Paschi di Siena Italy Halkbank Turkey Banca Popolare di Lodi Italy HSBC United Kingdom Banco Espirito Santo Portugal Ibercaja Banco Spain Spain ING Netherlands Bank Millennium Poland ING Luxembourg Luxembourg United Kingdom Italy Ireland Isbank Turkey Bank Zachodni WBK Poland K&H Bank Hungary Spain KBC Belgium Spain Komercni Banka Czech Republic Banque Internationale à Luxembourg Luxembourg Lån & Spar Bank Denmark United Kingdom Lloyds Banking Group United Kingdom Bawag PSK Austria Mazerik Slovakia Banca Comerciala Romana Romania Millennium bcp Portugal BNL Italy Montepio Portugal BNP Paribas France Municipalbank Bulgaria BNP Paribas Fortis Belgium National Australia Group Europe United Kingdom Bosna Bank International Bosnia Herz. Greece Crédito Agricola Portugal Nova Ljubljanska Banka Slovenia Centea Belgium NLB Montenegrobanka Montenegro Ceskoslovenska Obchodni Banka Czech Republic Denmark Denmark Caixa Geral de Depósitos Portugal Nordea Estonia Estonia Central-European International Bank Italy Nordea Finland Finland CIB Hungary Nordea Norway Norway Citi United Kingdom Nordea Sweden Sweden Turkey Turkey OP-Pohjola Finland Germany OTP Bank Hungary Credem Italy OTP Bank Romania Romania Crédit Agricole France Greece Sweden Piraeus Bank Romania Romania DekaBank Deutsche Girozentrale Germany Procredit Bank Serbia

71 innovation in retail banking 2012

Promsvyazbank Russia Middle East and Africa Nederland Netherlands ABSA South Africa Raiffeisen Bank Czech Republic Czech Republic Abu Dhabi Commercial Bank United Arab Emirates Raiffeisen Bank Romania Romania Al Hilal Bank United Arab Emirates Sandnes Sparebank Norway Al Rajhi Bank Saudi Arabia Sberbank Russia Russia Amen Bank Tunisia SEB Estonia Estonia Arab African International Bank Egypt SEB Lithuania Lithuania Arab National Bank Saudi Arabia SKB Slovenia BancABC South Africa Slovenska Sporitelna Slovakia Bank Muscat Oman Societe Generale Montenegro Montenegro Barclays Botswana Botswana Sparkasse Bank dd Sarajevo Bosnia Herz. Centenary Bank Uganda Sweden Diamond Bank Nigeria TEB Turkey Emirates NBD United Arab Emirates The Co-operative Bank United Kingdom Family Bank Kenya Triodos Bank Germany First Bank of Nigeria Nigeria UniCredit Italy First National Bank South Africa UniCredit Bank Austria Austria Gulf International Bank UniCredit Banka Slovenija Slovenia I&M Bank Kenya Unicredit Business Integrated Solutions Italy Israel Discount Bank Israel UniCredit Consumer Finance Italy Ithmaar Bank Bahrain USB Russia Jordan Ahli Bank Jordan Volksbank International Austria Kakawa Discount House Nigeria VUB Slovakia United Arab Emirates Zao Citibank Russia Nedbank South Africa Zuno Bank Slovakia NIC Bank Kenya NMB Bank Limited Zimbabwe RAK Bank United Arab Emirates Standard Bank South Africa UAE United Arab Emirates The National Commercial Bank Saudi Arabia Union Bank of Nigeria Nigeria

72 Asia Pacific The Americas Alliance Bank Malaysia 1st Source Bank United States ANZ New Zealand Affinity Federal Credit Union United States ASB New Zealand Altra Federal Credit Union United States India AmeriCU Credit Union United States Bank Thailand Associated Bank United States Bank of Ayudhya Thailand ATB Financial United States Bank of Communications China Banco Galicia Argentina Bank of Communications Hong Kong Hong Kong Banco Intermedium Brazil Bank Rakyat Indonesia Indonesia Bancolombia Colombia Bank Sohar India Banesco Venezuela BIDV Vietnam United States BNI Indonesia Banco do Brasil Brazil CIMB Malaysia Mexico Danamon Indonesia Cape Cod Five Cents Savings Bank United States Fullerton Financial Holdings Singapore CIBC Canada Hana Bank South Korea CIBC FirstCaribbean. ICICI India International Bank Saint Kitts IndusInd Bank India E&A Credit Union United States India Eli Lilly Federal Credit Union United States Thailand Extraco Banks United States Maybank Malaysia FedChoice Federal Credit Union United States Mauritius Commercial Bank Mauritius Fifth Third Bancorp United States MPCB Mauritius First National Bank of Griffin United States OCBC Bank Malaysia First State Bank of St Robert United States OCBC NISP Indonesia First United Bank United States Bank ANZ Indonesia Indonesia Freedom Financial Bank United States Bank Negara Indonesia Indonesia Grupo Aval Colombia Rizal Commercial. Iberiabank United States Banking Corporation Philippines Key Corp United States Security Bank Corporation Philippines Lake Trust Credit Union United States South India MB Financial Bank United States Standard Chartered Korea South Korea Mediterranean Bank United States Standard Chartered Singapore Singapore Meriwest United States State India North Shore Bank United States State Bank of Mauritius Mauritius Peoples State Bank United States UBank Australia Purdue Federal Credit Union United States Rockland Trust United States Royal Bank of Canada Canada Santander Mexico Mexico Canada SSFCU United States

73 St. Kitts-Nevis-Anguilla . National Bank Saint Kitts Sun National Bank United States Susquehanna Bancshares United States TCF Bank United States Texas Capital Bank United States The Palmetto Bank United States TowneBank United States U.S. Bank United States Umpqua Bank United States Westminster Savings CU United States WSFS Bank United States Zions Bank United States

74 © 2012 Efma and Infosys Limited.

All Rights Reserved. Efma, Infosys Limited, Finacle from Infosys, their services mentioned herein as well as their respective logos, are trademarks or registered trademarks of their respective companies. All other company, product and service names mentioned are the trademarks of their respective owners and are used herein with no intention of trademark infringement. No part of this document may be reproduced or copied in any form or by any means without written permission from Efma and Infosys Limited.

Disclaimer

The information contained herein is general in nature and is not intended, and should not be construed, as professional advice or opinion provided to the user. This document does not purport to be a complete statement of the approaches or steps, which may vary accordingly to individual factors and circumstances, necessary for a business to accomplish any particular business goal.

This document is provided for informational purposes only; it is meant solely to provide helpful information to the user. This document is not a recommendation of any particular approach and

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Innovation in Retail Banking

September 2012