Banking Innovation: Not Made in the U.S.A.

For the third year in a row, I attended the BAI-Finacle Global Banking Innovation Awards ceremony that takes place as part of the BAI Retail Delivery Conference. This year's program, which recognizes innovation excellence in the banking industry, drew more than 200 nominations from institutions based in over 30 countries.

The two overriding impressions I have had each year when the finalists and winners were announced were that 1) despite industry challenges, there are amazing innovations happening in the banking industry that impact the daily customer experience and 2) with the exception of Citibank in 2011 (for their 'Smart Banking Branch), no other U.S. bank has ever won the award.

Traditionally, the financial services industry in the U.S. has been slow to innovate compared to many other industries due to compliance and regulatory obligations, dependence on large internal and external infrastructures and the need to focus on security and privacy. In addition, the lack of a formal structure or process for innovation or dedicated funding also inhibits initiatives.

Despite these limitations, the industry globally continues their effort to innovate, with varying degrees of success. Some institutions are recognized regularly for their efforts, with some regions (Asia Pacific) being hotbeds for new ideas and innovation. In addition, social media banking innovations are being found in places like India, Brazil and Nigeria.

The Efma and Infosys Finacle sponsored study, Innovation in Retail Banking: Simplify Technology to Innovate provides a good perspective on global innovation trends, ways banks can overcome some of the barriers to innovation and why some banks have been so successful in their efforts. This year is the fifth year of the study and it appears that banks worldwide are increasing their investment in innovation and beginning to structure organizations in a way that is more conducive to innovative practices.

While defining innovation continues to be a challenge, examples of new ideas globally illustrate the need for banks to measure not only against domestic competition but also against global standards. The key findings of the study were:

• More banks have an innovation strategy: 60% had a formal strategy in 2013 vs. 37% in 2009.
• Investment in innovation is increasing: In 2009, more banks were decreasing innovation investment than increasing. Today, 77% of banks say they are increasing investment vs. 5% decreasing (personally, I am concerned about the definition of innovation investment in this study).

Monetizing Mobile Banking

As consumers are becoming more comfortable with mobile banking and mobile payments, financial institutions and technology providers are beginning to develop and deploy more innovative solutions with a focus on gaining market share, reducing costs and realizing new sources of revenue. It is clear that the question is no longer whether mobile banking and mobile payments will be important to a bank's business (84% of respondents to a recent KPMG survey said that it is). The question has become, can banks realize the full potential of the channel from a customer development and revenue perspective.

To this end, one of the best sessions I attended last week at the BAI Retail Delivery Conference was around the opportunity for banks to monetize mobile banking. Presented by Matt Wilcox, senior vice president of eBusiness strategy for Zions Bancorporation and Drew Sievers, CEO of mFoundry, the session focused on the opportunity for mobile banking to move from simply reducing costs to actually being the foundation for revenue generation. 

Mobile Banking Evolution

At the beginning of the presentation, Wilcox presented an overview of the mobile banking evolution that has occurred over the past several years. According to Wilcox, mobile banking has evolved from being simply a channel innovation to providing the potential for significant channel migration cost savings as shown below. He noted, however, that banks should not build business cases around 1:1 transaction displacement, since many consumers increase their overall transaction volume as they move to more automated channels. This is similar to what occurred with ATM volumes that increased at a much higher rate than branch transactions decreased in the past.

Source: TowerGroup and Fiserv (2010)

An Open Letter to BankSimple

On January 18, you impressed me when Rachel Giuliani from BankSimple wrote an email to me unexpectedly asking me for my "loves, hates, quibbles, hopes and dreams" regarding my financial life. Her email seemed surprisingly personal coming from a bank I had signed up to be part of a beta test several months earlier. In her letter, she piqued my interest when she told me she represented a 'new' bank that was committed to building the best possible customer service without surprises.

Her timing was great since I had been a bit upset with my current bank. Not only had my bank changed their fee structure without a clear notification, but they seemed to be looking for new ways to generate fees for actions I had become accustomed to not paying for. Sure, I could avoid the fees as I had in the past by maintaining a steady balance in my account, but even that had been raised to a level that really didn't correspond to the value I felt I was receiving from the bank.

You made it so easy for me to respond to Rachel's email since she even provided her email address (rachel@banksimple.com). And, as opposed to feeling like my response would end up in some black hole of customer service or would be responded to by a person not even named Rachel, it was easy to see that my new pen pal had been hired just a week earlier as the first of two customer service representatives to provide 'brilliant customer service'.

Post Financial Reform Checking: Fee, Free or Wait and See?

With August 15 in the rear view mirror, the impact of the new regulations around overdraft protection (Reg E) are beginning to be played out in the marketplace. While most of the larger banks, such as Bank of America, Chase and Wells Fargo have declared an end to free checking without stipulations, most small and some regional banks such as US Bank, Suntrust and Capital One have left the product unchanged while many of the large regionals such as PNC, KeyBank and others appear to be adopting a wait and see approach.

In fact, according to research released this week from Moebs Services, only 63.6 percent of the largest banks currently offer free checking compared to 92.6 percent in 2009, while community banks’ use of free checking declined only declined from 78.3 percent to 71.7 percent.