Banking Innovation: Whats Same,Whats Different, in the Developed andDeveloping World Universal Banking Solution System Int...
If there wasn’t enough focus on it already, the          competition. Here, banks can grow alongfinancial crisis has taken...
multiple channels, such as the phone, ATM,             transactions as efficiently as possible. They    POS terminal, Inte...
investments – available in the developed         may gain marginal acceptance at best in    world, but not in the developi...
Banking Innovation: What's same, What's Different, in the Developed and Developing world
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Banking Innovation: What's same, What's Different, in the Developed and Developing world

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Banking Innovation: What's same, What's Different, in the Developed and Developing world
If there wasn’t enough focus on it already, the financial crisis has taken innovation to the top of the most banks’ agendas. In mature as well as emerging markets, banking instructions are differentiating their value proposition from that of their competitors by innovating upon their offerings, benefiting both customers and the organisation in the process

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Banking Innovation: What's same, What's Different, in the Developed and Developing world

  1. 1. Banking Innovation: Whats Same,Whats Different, in the Developed andDeveloping World Universal Banking Solution System Integration Consulting Business Process Outsourcing
  2. 2. If there wasn’t enough focus on it already, the competition. Here, banks can grow alongfinancial crisis has taken innovation to the top with the market by bringing those withoutof most banks’ agendas. In mature as well as financial access into the net of basicemerging markets, banking institutions are banking services.differentiating their value proposition from thatof their competitors by innovating upon their Although financial inclusion is a much largerofferings, benefiting both customers and the priority – and opportunity for innovation – inorganization in the process. emerging economies, it does not mean that it has no place in mature markets. In fact,The pursuit of globalization and global the U.S. alone was estimated to have overstandardization by banks has meant that 70 million unbanked/underbanked peopleinnovations that originate in a particular region in 2009. However, the nature of the problemmake their way quickly across the world, so is quite different there. Financial exclusionthat banking customers everywhere enjoy a in the developing world is essentially onsimilar, if not the same, usage experience. account of poor branch penetration in rural or remote areas, whereas in developedThat being said, there are many differences in countries it is quite often, a voluntary decisionthe way that banks from the developed and or the result of inability to meet KYC norms –developing worlds innovate, arising from other the Hispanic immigrants living in the Unitedfundamental differences in their respective States are a classic example of thismarkets. The nature of these factors and their phenomenon, choosing to rely on informalcausative impact on innovation differentiation is networks or carriers rather than on a bank todiscussed below: send money home.• Market Maturity • High Net Worth Segment A research report presented by The Asian In every banking market around the world, Banker and Finacle from Infosys on the High Net Worth Individuals (HNWI) are innovation trends and practices in Asia top-drawer. Because the financial elite come made an interesting observation about how in small stable numbers, (even in 2020, the banks go through successive stages of U.S., which has the most HNWI, will have innovation – from Product to Sales to Market less than 21 million millionaire households) Share to Customer Service Innovation – acquiring such customers in both developing depending on market maturity. Therefore, and developed markets is usually a matter while banks in Bangladesh, Sri Lanka, of poaching them from rival banks. Also, Vietnam, and rural China and India, which since the ultra-rich are the same everywhere, have large unbanked segments focus on having similar needs, wealth managers and introducing basic products, their counterparts private bankers in both the developed and in the competitive Australian, Singapore developing world follow a largely similar and Hong Kong Markets are more intent approach while serving these customers. A on defending their market share by key difference however, is that the HNWI providing accessibility, convenience and segment is growing faster in emerging cheaper distribution. markets thanks to their rising prosperity as a result of which their mass affluent are turning• Customer Universe rich and the already rich are turning richer quicker than their mature market counterparts. Given the high penetration of banking This is creating more opportunities for services amongst developed nations, a bank innovation in emerging nations. operating in those markets can only grow its market share at the cost of another. On • Telecom and Payments Infrastructure the other hand, developing countries house the majority of the 2 billion-strong global The well-established telecommunications and unbanked population and hence have more payments infrastructure of the developed room for growth and relatively less aggressive world facilitates banking transactions over Banking Innovation: Whats Same, Whats Different, in the Developed and Developing World
  3. 3. multiple channels, such as the phone, ATM, transactions as efficiently as possible. They POS terminal, Internet and mobile, and are interested in innovations that cut cost, payments through several additional modes improve productivity or ramp up scale at the including cards, giros and third party branch. In contrast, branch banking is on the payment gateways like PayPal. Unfortunately, decline in mature markets, where customers such facilities are either missing or very use electronic channels to conduct routine poorly developed in developing countries – transactions. In these markets, branches are infrastructure for financial transactions is focused on delivering financial advice and still in its infancy and only a limited number high-end services; therefore, their innovation of payment options exist. priorities revolve around improving customer experience within the branch. However, with mobile networks penetrating remote corners of the developing world that • Legacy Burden still lack basic channels of banking and communication, the mobile phone is emerging In a 2010 survey of banks in Europe, Middle as a viable mode of payment and financial East and Africa presented jointly by the transaction. Banking innovation in many European Financial Marketing Association emerging economies is focusing on mobile and Finacle from Infosys, nearly two out of phone-based services, albeit of a basic three respondents from the mature markets variety. On the other hand, in the sophisticated of West Europe said that inflexible legacy mobile markets of the developed world, it’s systems posed a barrier to innovation. the Smartphones and tablets that are taking Indeed, this is symptomatic of the banking banking innovation towards augmented industries of most developed nations, which reality, location-based services, contactless are struggling to implement new ideas, payments etc. hindered by their burden of legacy. For instance, in the U.S., the legacy infrastructure The most interesting contrast though, is supporting card transactions is so widespread that while the infrastructure of developed that replacing it in order to switch to new countries has enabled high-end innovation, robust EMV card technology is both it has mostly brought incremental change, prohibitively expensive and extremely difficult whereas in the developing world, the to implement. On the other hand, adopting absence of infrastructure has forced industry new technology is much simpler in the players to look for breakthrough, at times developing world, which is unhindered by disruptive, solutions. The development and legacy issues. Not only that, freedom from success of M-PESA, a mobile phone-based legacy has also allowed banks in developing money transfer service in Kenya is a perfect countries to come up with unique products example of the latter. that were unheard of in the rest of the world.• Customer Need • Cost of Innovation In many emerging economies, a sizeable It is found that the cost of implementing a majority of people are first or second completely new system in the developing generation banking customers and therefore, world is lower than that in the developed relatively new to such services. Therefore, one. Often, the developed world has heavy the product and service expectations of investments in an existing technology and these customers are quite different – and an inventory of infrastructure on which the dare we say, less evolved – than those of return is yet to be fully realised. The developing mature market customers, which has a strong world has no such legacy investment in bearing on innovation. infrastructure to worry about, and hence innovations are comparatively cost effective. Branch banking is a classic example of this difference. Bank branches located in The tables are turned in the case of emerging markets are mainly concerned incremental innovation, which typically with processing a large number of small-ticket works around existing infrastructure or Banking Innovation: Whats Same, Whats Different, in the Developed and Developing World
  4. 4. investments – available in the developed may gain marginal acceptance at best in world, but not in the developing. Therefore, say, Western Europe or Australia. Ironically, in in order to adopt or innovate upon something their respective worlds, these mobile payment that isn’t totally new, the developing world innovations are happening at break-neck pace! may first need to make sizeable investment in basic infrastructure. Conclusion• Legal and Compliance Issues While local and cultural variations will continue to create some differences between banking Compared to emerging economies, mature innovation in different countries (even McDonalds markets face tougher legal and compliance has a separate menu for certain countries!) for requirements that could be a constraint while at least a while, connectivity and globalization innovating. The former not only have a more will pull in the opposite direction to spread many permissive regulatory environment, but also other innovations from one part of the world to less harsh liability norms, making it easier another, sometimes in real time. Therefore, in for banks to experiment, and if unsuccessful, future it is more likely that an innovation will withdraw quickly without suffering too much get picked up, replicated, adapted, improved damage. This would not be possible in a and transported much faster than before. The country like the U.S., for instance, where consolidation and standardization of systems, there is a high likelihood of severe public processes and products by global banks will backlash should an innovation fail. It is further this trend of global relevance. Also, much therefore no surprise that many multinational of the developing world will evolve into a banks including HSBC, Citibank, and Standard developed state, erasing many of the differences Chartered pilot innovations in the developing that exist today. That being said, institutions world before taking them elsewhere. that are rooted locally will continue to practice localized innovation as a way of differentiation.What is common? Reference:Differences apart, the two worlds do have • Innovation in Retail Banking – Asia Pacific,some things in common. Both encounter similar Presented by The Asian Banker and Finaclechallenges while trying to establish a culture from Infosys, September 2010of innovation, namely resistance to change,misalignment between business and technology • Innovation in Retail Banking, Presentedteams, and lack of unanimity of purpose. by EFMA and Finacle from Infosys,Similarly, all banks in all markets face budgetary September 2010constraints, made worse by the financial crisis. • The US Wealth Management Market In 2020 – Deloitte,http://www.wealthbriefing.com/html/There’s another ‘peculiar’ commonality between article.php?id=36520developed and developing world bankinginnovation, which is that some ideas, particularly • Identifying the Unbanked Market,in the realm of payments, which are well suited http://www.idology.com/blog?p=344to one world are quite irrelevant in the other.For instance, NFC technology, which has madea big impact in Japan – by enabling tap and gomobile payments – and is gathering momentum Authorin many developed countries, is likely to be a Balwant C Surtislow-starter in emerging economies on account Head - Solutions Architecture andof the infrastructure that it calls for. Likewise, Design Group, Finaclemobile money transfer, a super hit amongst the Infosys Limitedunbanked classes of Africa and South Asia, Banking Innovation: Whats Same, Whats Different, in the Developed and Developing World

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