Innovation: Both Homegrown and Outsourced

Let’s put it out there: The banking industry is rising to the many challenges it currently faces, and the key to that ascension is innovation. One clear indication comes from the new report Innovation in Retail Banking 2013, commissioned by IT services conglomerate Infosys and conducted by the European Financial Management & Marketing Association (EFMA), which features a raft of good news.

The study, which surveyed 148 banks in 66 countries, shows that retail institutions around the world are systematically investing in innovation specifically to boost revenue and cut costs. A remarkable 60% of the banks now actually have an innovation strategy, compared to only 37% five years ago. Among other highlights, more than half (58%) say their deployment of new systems will have a positive impact on their ability to innovate even further, 69% are making moves into mobile location-based offerings, and 61% are working on enabling customers to do some form of product personalization. And of course, 77% already have in place or are working on a mobile wallet solution.

What’s just as interesting, however, is how all this innovation is coming into the organization. For example, Denver’s FirstBank is about to become the first regional U.S. bank to launch mobile photo bill pay. But the $13 billion institution, which has  more than 115 locations in both Colorado and neighboring states, didn’t outsource the development of its technology—with 12% of its employee base working in IT, the company developed its own core banking software and 12% of its employee base of about 2,100 works in IT. FirstBank sees this as a competitive advantage, and a way to move fast in response to market demands.

On the other hand, there’s Tioga-Franklin Savings Bank, which has a 140-year history in the Fishtown neighborhood of Philadelphia. The institution has long prided itself on its reputation for stability, but it has more recently recognized that there must also be change—its numerous manual processes required a major transformation in order to stay competitive. So, after a year-long search, Tioga-Franklin—the bastion of tradition—signed on with Data Center Inc. (DCI), of Hutchinson, Kansas, the force behind the iCore360 core banking software. The bank is now looking forward to significant enhancements in organizational efficiencies through workflow automation and regulatory simplification.

The big picture on change through innovation offers an even more diverse view. One interesting point: as noted in a recent column on the ABA Banking Journal, a remarkable amount of the real innovation seems to be happening in less developed markets.  Many market analyses make the same point.

For example, a broad study from consulting firm BearingPoint found that emerging economies are twice as efficient at innovating as their more developed counterparts. Similarly, PriceWaterhouse Coopers says that U.S. companies are certainly tracking with the shift in innovation strategy, but most pioneers in its study are actually not U.S. companies.

Finally, a contest launched by Accenture and EFMA to find winners of their inaugural global distribution and marketing innovation awards for retail banks handed out plaudits to entries from, among other markets, Nykredit in Denmark, Hana Bank in Korea, BRE Bank in Poland and Aktifbank in Turkey.

It’s not as if in the new world, all the rulebooks should be thrown out. In fact, we still should value industry best practices and see how they apply to us. But there’s also no question that at least some of the rules are changing, and we need to keep pace. Just think who our next great rival might be: Wal-Mart (which officially gave up the banking chase in 2007), Amazon (which clearly has many irons in the fire), Facebook (which has even more), some tiny technology startup, or someone different from all of the above.

In this competitive and rapidly evolving competitive environment, we know that innovation is both the best defense and the best offense. Where that innovation comes from, however, is a different question altogether.

What We’re Reading: BAI Retail Delivery, Banking Trends, Innovation

Below are interesting stories the Banking.com staff has been reading over the past week. What have you been reading? Let us know in the comments section below or Tweet @bankingdotcom.

 

  • The Case for Keeping Mobile and Online Banking Separate

American Banker

Some people expect to be mobile-first customers.  To date, however, many banks require customers to first enroll in online banking – partly due to security and compliance concerns, partly due to integration challenges. Even so, some banks are separating mobile from online.  U.S. Bank, for one, already lets people enroll in mobile directly and activate some services without needing additional online setup. (The bank also offers imaging technologies that simplify the deposit and payment process, including mobile photo bill payment).  “Experience is king,” said Chris Peper, U.S. Bank’s vice president of mobile channel management.

Read more 

 

Bank Systems & Technology 

  • Mobile Banking Best Practices Highlighted at BAI

Several leading banks shared some of their experiences, challenges and lessons learned at BAI Retail Delivery 2013 today at a panel discussion titled “Mobile Influencers: Lessons Learned, Mobile Today, Mobile Tomorrow.” Some of the key themes that emerged from the discussion included the evolving relationship between online and mobile banking, the growing value of mobile check deposit and the use of mobile coupons and shopping offers.

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  • Banks Should Act Like Startups When it Comes to Innovation

Bank Systems & Technology

A session at BAI Retail Delivery 2013 emphasized creating new ideas and having deep customer empathy. When it comes to pursuing innovation, banks need to adopt the mentality of a startup. That was the theme of a session titled “Creating an Innovation Framework that Works” at BAI Retail Delivery 2013 featuring Nicole Lorch, SVP Retail Banking at First Internet Bank and Jeff Lauterer, Leader, Product Operations for online banking services provider Digital Insight.  According to Lauterer, innovation occurs in any industry not just by creating new products, but by tweaking existing products in such a way that demand increases so much a company needs to hire extra employees just to handle that product. He cited Taco Bell’s “Taco Loco” — a recent addition to the fast food chain’s menu featuring a Dorito as a taco shell — as one prime example of this. “Innovation can happen anywhere,” Lauterer noted. “The key is bringing in a culture of innovation that is sustainable and continuous.”

Read more 

 

  • Mobile banking without a phone: Here comes the bank van

Christian Science Monitor

With the rise of tech-driven banking in developing nations, why is this rubber-to-the-road method of reaching customers gaining traction? In Uganda, many of the rural unbanked still prefer the physical presence of a banker, even though they have access to the technology for mobile banking. “The market reality is that people want bank services closer,” according to Tonny Miiro, managing director of Uptime Solutions Uganda, one of the banks in Uganda that is using vans to reach more far-flung residents. “That is what we are doing. It is important that government comes up with more policies that call for more inclusive bank services provided by financial institutions, as there is demand.”

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  • Google Data Reveals 2013 Banking Trends

The Financial Brand

Seven years ago, practically no one searched Google for anything related to mobile banking. And then… the iPhone came along. Now consumers see smartphones as an integral part of the financial toolbox. Consumer interest in mobile banking is climbing at a sustained 30° angle, with no signs of letting up.

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  • Are mobile wallets being made by the wrong people?

Finextra

The leaders in mobile wallet technology? Undoubtedly retailers. Starbucks and McDonald’s are already building these wallets in response to customer demand.  But with mobile wallet use predicted to rise in 2014, should banks or mobile operators—who are better positioned to offer levels of security customers expect—be building them instead? The challenge is that the business case for building a mobile wallet shows little direct financial benefit on its own to a bank or MNO (mobile network operator), while a retailer can leverage the wallet to drive loyalty.  But there’s actually no reason why banks should ignore the potential gains that will come from customer spending data and loyalty programmes that can be launched based on this information.

Read more 

 

What We’re Reading: Finovate, Mobile Payments, Underbanked

Below are interesting stories the Banking.com staff has been reading over the past week. What have you been reading? Let us know in the comments section below or Tweet @bankingdotcom.

 

  •  Use of Overdrafts Hits 14-Year Low: Report 

American Banker 

U.S. consumers are overdrawing their checking accounts less frequently than at any time in the last 14 years, according to new survey data. So far this year, the average consumer at a bank or credit union is overdrawing their checking account about seven times annually. That’s down from a peak of nearly 10 overdrafts per year in 2008 and 2009, the economic research firm Moebs Services found. Banks and credit unions have responded to the decline by raising their overdraft fees, says Michael Moebs, the firm’s chief executive officer. The average overdraft fee hit $30 in the second quarter of this year, up from $29 in the previous three months.

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  • 5 Ways Mobile Banking Is Evolving: Finovate

Bank Systems & Technology 

Several new technologies demoed at Finovate this week showcased new ways that mobile is solving pain points for banks and their customers. Mitek won the first place prize at Finovate this year for its mobile photo account opening solution that it unveiled at the show. Mitek wasn’t the only company making use of the smartphone camera in a new solution at the event. Capital Access Network, a small business finance specialist, showcased their Mobile Funder, a tablet-based tool for financial sales/ISO representatives selling small business loans.

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  • McDonald’s Testing Mobile Payment App as U.S. Sales Stumble

BusinessWeek

McDonald’s Corp. is currently testing a mobile payment application in Salt Lake City and in Austin, Texas, Lisa McComb, a spokeswoman, said today in an e-mail. McDonald’s, which today reported U.S. same-store sales that trailed estimates for August, is looking for ways to make it easier for diners to load up on Big Macs, McWraps and smoothies. It’s not alone in seeking to ignite growth at a time when many Americans are eating out less. Burger King Worldwide Inc. offers a delivery service with a $10 minimum order in some U.S. cities, while Chipotle Mexican Grill Inc. has a mobile ordering app.

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  • Digital Case Studies – What’s Next: The Search for Disruptive Innovation

Celent Banking Blog

Over the past five years digital technology has evolved significantly. Many financial services firms have moved past the exploration stage and are now more committed to the mobile channel. There is increased demand for expanded capabilities and functions and users expect “always on” access through an app on their smart devices.  Celent has seen a rise in the focus on mobility solutions across the enterprise and this trend is expected to be a sustained area of investment for the short to medium term. In short, there is a broad consensus that digital channels and mobile platforms represent a critical path forward.

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  • A Mobile Wallet for the Underbanked

Fast Company

Banks and private startups are all pushing digital wallets–smartphone software packages that allow users to connect their bank accounts or credit cards to their phone, and then make payments through NFC, mobile money transfers, or other technology. Wipit, which offers mobile banking services through Boost Mobile, just received a new round of Series A funding from VCs Core Innovation, who join current investors H&R Block and Euronet Worldwide. The amount of funding was not disclosed, but Core managing partner Arjan Schutte will join Wipit’s board.

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  • Study: Smartphones, tablets drive close to half of all online banking

 Fierce Mobile Content

Forty-three percent of all online banking activity in the U.S. now occurs on smartphones and tablets, according to the annual xAd/Telmetrics Mobile Path to Purchase Study. Millennials are driving the trend: Forty-three percent of mobile banking users are under the age of 35, and one-third indicated that smartphones are the most critical device for their personal banking needs, the study reveals. In addition, 62 percent of younger bankers have completed a purchase on a mobile device and lean heavily on those devices in all phases from initial research through conversion.

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What We’re Reading: Customer Surveys, Cloud, Big Data

Below are interesting stories the Banking.com staff has been reading over the past week. What have you been reading? Let us know in the comments section below or Tweet @bankingdotcom.

 

  • What’s new is what’s happening

ABA Banking Journal

It’s big deal when your company is named in a list of the “world’s top 100” anything, and it’s a really big deal when your company is listed on Forbes’ “World’s 100 Most Innovative Companies.” So the people at FIS—or more specifically, Fidelity National Information Services—should rightly feel pretty good about their recent placement on this very list, at the 98th spot. It’s the only U.S. financial technology provider there, which includes such other companies as Apple, at a surprisingly distant No. 79, Pepsi, at No. 58, and Google, at No. 47.

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  • Bank Fees Rankle Otherwise Satisfied Customers: Survey

American Banker 

Checking account fees may help banks pad revenue, but a new survey suggests that ATM and overdraft charges can send customers running. Over a third of Americans said they would be very or extremely likely to switch banks to avoid paying fees on their checking accounts, according to TD Bank’s inaugural survey of more than 3,000 consumers. In fact, 14% of respondents have already moved their business for those reasons. Some types of charges aggravate customers more than others; 38% of respondents said that nonbank ATM fees were the most frustrating type of charge. Another 27% awarded that dubious honor to overdraft charges. Just 13% picked minimum balance fees as the most annoying type of charge.

Read more

  • Microsoft and Nokia: What Kind of Marriage Will It Be?

Celent Banking Blog

Microsoft announced that it has purchased Nokia’s mobile phone business. According to the announcement, “Under the terms of the agreement, Microsoft will pay EUR 3.79 billion to purchase substantially all of Nokia’s Devices & Services business, and EUR 1.65 billion to license Nokia’s patents, for a total transaction price of EUR 5.44 billion in cash.” Both companies have been struggling to adapt to changes in mobile computing – Nokia has lost its leadership in handsets, and Microsoft was rather late in announcing its latest Windows mobile operating system, which remains a distant third to Apple and Android.

Read more

  • ‘Stache & Save’ Helps Kinecta Connect On Facebook

Credit Union Journal

Kinecta FCU here boosted its Facebook engagement by using mustaches and an online slot machine. Kinecta launched it “Stache & Save” campaign as a way to increase engagement on its Facebook page and grow its number of likes. To do so, it created an online slot machine, and when users pulled the digital handle, it rotated through three different mustaches. Three matches made for an instant winner of a $50 gift certificate and was entered into a drawing for a $2,500 gift certificate.

Read more

  • Big Data and Payments Drive Loyalty in Business Banking.

Finextra

In the ‘consumer edition’ of the blog it was suggested that banks can reinvigorate their payments brand and influence customer loyalty by integrating incentives and offers to their payments solutions. The premise is that banks are missing out on an opportunity to become more influential in where people shop and what they buy, rather than just how they pay. Offers can be driven by analytics into a combination of historical payments information and big data analysis of demographics, location positioning and peer group analysis. Such a strategy requires more than an offers solution, or a mobile banking app.

Read more

  • The Path to Innovation Goes Through the Cloud

Huffington Post

As cloud adoption reaches the tipping point, some sectors are seeing newer market entrants threatening to overtake legacy players mired in tradition. Gartner predicts that the worldwide cloud services market will grow 18.5 percent in 2013 to total $131 billion, up from $111 billion in 2012. Yet, many of the world’s oldest professions such as accounting, legal and banking have been slow to tap the cloud to make it rain. The flexibility of cloud computing – being able to try before you buy, scale easily and use the device that suits you – allow savvy businesses to respond quickly to market trends and demands.

Read more

  • 6 Tips for Safer Smartphone Banking

TIME.com

More than half of American adults have a smartphone today, and more of us are using them to check balances, pay bills, deposit checks and conduct other banking business. Luckily, experts say there are steps that even non-technophiles can easily take to safeguard sensitive information. Password-protect your phone. Stay off public wi-fi networks. Use the bank’s app. Don’t save your log-in data. Keep up with updates. Log off when you’re done.

Read more

Three Ways Banks can Support Innovation in Their Markets

Why did Willie Sutton, famous bank robber from the 1920′s to 1950′s, rob banks? “Because that’s where the money is.” Sutton, by the way, denied the quote. But we can’t deny it’s true. Financial institutions remain the place to go for money.

So why do FIs opt for the sideline in participating more fully in innovation? I recently wrote on these pages that FIs should develop Shark Tank like processes to get early stage equity capital into the hands of nearby entrepreneurs to fuel growth in local markets.

But bankers generally don’t like to be at the tip of the spear in product and service offerings. In many cases, it’s far too risky to undertake a strategic direction that has been untested. The potential for failure is greater. So we opt for making incremental improvements to business as usual. But in my opinion, business as usual is a riskier course. Better to innovate and go out swinging, than to remain mired in the past and go out with a whimper.

But there are some leading edge bankers to use as your guidepost. Take Silicon Valley Bank in Santa Clara, California. Here is a bank that nurtures start-ups from the garage to global distribution (see picture from their investor presentation). Through their Accelerator Solutions, they package products, expertise, and connections into one business unit to improve the likelihood of start-up success. The bank has maintained an ROA at or near 1% throughout the financial and economic doldrums.

SVB 3Q12 Investor Pres Niche Slide

I understand SVB’s location allows them to specialize in serving tech start-ups and venture capital firms. But innovation need not start in northern California. In fact, I would put to you that this region benefits tremendously by having nearby support systems that foster innovation. Your markets can too. And why can’t it start with your FI?

Here are three things I think your FI can do to foster greater innovation in your markets that can drive economic prosperity, and therefore your success, for generations:

1.  Develop specialized expertise within your FI to help entrepreneurs get their businesses off of the ground;

2.  Create flexible product packages to make banking simple for early stage companies;

3.  Find creative means to get capital in the hands of promising companies. This can be done through equity funding similar to what I proposed in my Shark Tank post, partnerships with various VC firms and institutions such as nearby insurance companies, factoring firms, etc., or outright balance sheet lending so long as you put a wall around the risk.

Should we continue to lament about our local economies or should we do something about it?

P.S. Subsequent to this post, Inc. Magazine published an article It Might Be Time to Break Up With Your Bank describing great alternatives to bank financing for small businesses. Why can’t we either do this lending or develop relationships with reputable lenders, as determined by our due diligence, and serve as brokers to this financing and advisers to our client?

*This blog was originally posted on Jeff for Banks

About Jeffrey Marsico: Mr. Marsico specializes in strategic planning, process improvement, performance measurement, and financial advisory. He has over nineteen years of financial industry experience, including: IT, Trust operations, retail branch management, strategic planning, financial institution M&A, consulting, and capital formation. He served seven years in the US Navy, earning three Navy Achievement Medals and other various commendations. He received a B.A. from the University of Hawaii and an MBA from Lebanon Valley College and serves on the faculties of the Pennsylvania and North Carolina Schools of Banking, and the ABA School of Bank Marketing Management.

Jeff can be found on his blog at: Jeff for Banks or the The Kafafian Group

 

Stability, Meet Innovation

Think financial services and technology—the two industries have so much to do with each other, yet in some ways they couldn’t be further apart.

To see that strange level of symbiosis, you need look no further that the testimony offered by Paul Volcker, former chairman of the U.S. Federal Reserve, to a British parliamentary commission recently. In sum, Mr. Volcker is distinctly unimpressed by much of the “innovative financial engineering” found in capital markets these days. He believes that unless things change, financial institutions will commingle their accounts with the retail side of the business, and that will cause broad-scale problems.

Long lionized as an elder statesman of the industry, the former Fed chairman is widely credited with holding down inflation during his long tenure, and in that time earned praise (and some criticism for his regulatory stance) from both sides of the political aisle. Even in his ’80s, he led what was then called the Economic Recovery Advisory Board (now known as the President’s Council on Jobs and Competitiveness). Most famously, he is the force behind the Volcker Rule, a section of broader regulation that restricts U.S. banks from making certain investments that don’t benefit their customers.

So why is someone so visionary opposed to “innovative financial engineering?” This is perhaps where the chasm between technology and financial services is widest.

Think about it: Every corner of the technology industry thrives on innovation, and it is always understood that there’s a price tag attached. The new inevitably replaces the old, whether it’s a smartphone upgrade or an entire platform shift. In fact, ‘old’ is a relative term, since there’s always a next big thing or a new/new thing just around the corner. And we all want it that way; this is an industry where ‘disruptive’ technologies get complimented and bankrolled.

It’s not that the issue of regulation doesn’t come up occasionally—the government has certainly kept Microsoft’s lawyers busy for a long time with antitrust concerns, among other examples—but by and large new companies emerge by dint of merit and proudly take on a leadership position. That’s how it was with Microsoft, Google, Facebook, Apple and many others. Even the industry’s brightest minds have no idea what the next name in that pantheon will be; but you can bet that whatever technologies it offers will be not just innovative but disruptive. They’ll prompt (even force) everyone else to change, and that’s a good thing.

The one constant in all this change is that somehow, while the new gadgets and capabilities are always better and faster, they’re also cheaper. New companies and new technologies—all innovative, many disruptive—emerging on a regular basis, radically enhancing the entire landscape while cutting costs: How many other industries can we say that about? Financial services?

Well, these upstart start-ups couldn’t exist without financing, as the fine folks on Sand Hill Road in Menlo Park, the Flatiron district in New York and other hubs of venture capital can attest. There’s also tremendous risk involved; for every one Facebook that generates billions and changes the world, there are many that go nowhere. But still, the stark difference is the way the two industries operate (and are judged)—innovation and disruption is great in one and perilous in the other.

While there’s plenty of action at lower levels, most of the names at the top of the financial services industry pyramid have remained unchanged for decades. The only changes come when some conglomerate merge, or venerable companies go under through too many bad investments. For the most part, what we see now is what we’ve seen for a long time.

Mr. Volcker surely has a point about innovative financial engineering gone bad, but are there alternatives? Will stability in the financial services industry always mean essentially the same set of companies making cautious moves, while the technology side exercises rampant creativity to shift the paradigm regularly? Or can each industry learn more from each other?

 

What do you think? Let us know by tweeting at @bankingdotcom or posting in the comments below.

Malcolm Gladwell and Banking: 3 Key Ingredients for Mass Market Innovations

Malcolm Gladwell, author of Blink, The Tipping Point and Outliers, presented at the Intuit Financial Services National Conference this week in Los Angeles. In the session, Gladwell challenged the audience’s thinking around innovation with case studies from Israel’s Bekaa Valley air battle in 1982, to the development of the Mac computer, to NCI’s cancer research breakthroughs in 1965, to the creation of Facebook.

Gladwell highlighted three key ingredients for successful mass market innovations:

1) Being a tweaker instead of an inventor. The most brilliant inventors often don’t know how to put ideas into practice. Tweakers, on the other hand, are highly effective at taking an existing idea and working collaboratively to make it better for the masses.

2) Lack of material advantage is often an impetus for innovation forcing you to be creative on how you approach a problem.

3) Being third to market is actually an advantage over being first. Wait to see where the market is going and then jump in with your innovation that improves on what is already out there.

For financial institutions that don’t have the same budgets as a large corporation to develop new technologies and services for customers, Gladwell’s advice can be heeded as they tap into the latest innovations on the market.

What is your experience with bringing new products to market? Does your FI have “key ingredients” to tapping the latest innovations? Let us know in the comments section below.

Fueling Innovation and Growth in the Cloud

How does a company transition from strictly desktop software to one that today generates about 60 percent of its revenue in connected services?

Delivering a keynote at All About the Cloud, Intuit CIO Ginny Lee talked about Intuit’s journey from desktop to anytime, anywhere access on any device and how the company is fueling innovation and growth in the cloud.

Whether you’re running a cloud business or transitioning to one, Lee stressed the importance of:

Mindset – IT plays a critical role in enabling growth and a great customer experience. Therefore, put customers at the heart of everything you do. Think business first, tech second.  Be explicit about roles and hold everyone accountable.

Innovation – Break down the barriers to innovation by creating tools that foster rapid prototyping and innovation both inside and outside of your company. Tap into the vast ecosystem of external developers at the ready to help create great offerings.

Data – The nature of data is maturing and how you use it can be a competitive advantage. Intuit embraces data driven innovation and looks beyond basic reporting to data driven actions and insights.

Check out her presentation below.

*originally posted on the Intuit Network

About Holly Perez:

Holly loves sharing stories about Intuit’s connected services and growth. When she’s not tweeting from @IntuitInc, you can find her chasing after good bargains and her two boys.

Inside the Innovation Gallery Walk

Intuit recently held an Innovation Gallery Walk in New York City, where the company walked the media through hands-on demonstrations of new products and services. Former CNN reporter Bill Tucker takes a look inside: