Lesson Learnt from Some Innovation in Indonesian BanksYB Hariantono - BII Maybank

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Innovation is the application of that meet newrequirements, in articulated needs, or existing market needs. Thisis accomplished through products, processes,services, technologies, or ideas that are readily available tomarkets, governments and society.

Innovation - Definition

The term innovation can be defined as something original and, as consequence, new that "breaks in to" the market or into society. One usually associates to new phenomena that are important in some way.A definition of the term, in line with these aspects, would be the following: "Aninnovation is something , new, and important - in whatever field – that

(or obtains a foothold in) a market or society."

better solution

more effective

originalbreaks in to

Better Solutions - Original - More Effective - Breaks into

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ARMONK, N.Y. - 10 Jan 2013: IBM (NYSE: IBM) today announced that it received a record 6,478patents in 2012 for inventions that will enable fundamental advancements across key domains includinganalytics, Big Data, cybersecurity, cloud, mobile, social networking and software defined environments, aswell as industry solutions for retail, banking, healthcare, and transportation. These patented inventions alsowill advance a major shift in computing, known as the era of cognitive systems.

IBM's record-setting 2012 patent tally was made possible by more than 8,000 IBM inventors residing in46 different U.S. states and 35 countries. IBM inventors residing outside the U.S. contributed to nearly30% of the company's 2012 U.S. patent output.

From 1993-2012, IBM inventors received nearly 67,000 U.S. patents. The company's 2012 patent countexceeded the combined totals of Accenture, Amazon, Apple, EMC, HP, Intel, Oracle/SUN and Symantec.

Source : http://www-03.ibm.com/press/us/en/pressrelease/40070.wss

Is Innovation related to Technology?

It is obvious that Information Technology industry has to rely on innovations, inventions. “This way of life” will also influence other industry which being IT users. Adoption of new technology will drive the industry to have better business operation The basic business of banking has been established over 100years and primarily commercial banks do take funding from deposit customers and lend to loan customers. Basic principle are stay the same, but the way of delivering the service will be different with the use of Technology

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Case Study of Indonesian Banks

Virtual Account

EDC Mini ATM

Paperless Account Opening

Cardless ATM withdrawal

Started as institution payment, then changed into Virtual AccountIntroduced in 2002-2003, and later adopted by many banks

Extension on usage of EDCIntroduced in 2002-2003, and later adopted by many banks

Cash Withdrawal on ATM without using cardIntroduced in 2002-2003, and later adopted by many banks

Speed up account opening process, reducing paper useIntroduced in 2012-2013 by some banks using their own processes

Innovation in banking requires time to develop into operation and may even longer time for customer adoption . Bank’s Innovation is on the service and processes.

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Virtual Account

Problems/ Challenge: 1. Increasing number of billers connected to banks

1. Installment2. Bill payments3. Tuition fee4. Insurance premium5. Other fees

2. Limitation of ATM technology (limited screens to show Biller’s name)3. Need to do reconciliations/ identifying payer4. Text description on passbook is not enough for certain volume of transaction, need an identifier

78000 –12345678901 Virtual AccountBiller code

CustomerCode

Customer Code: Identifier of payer account, can be invoice #, membership #, installment #, subscriber #, belong to a specific biller/ community/ club/ insurance / payTV, school/ university/ social institution/ foundation

Institution Code : Assigned by bank to a specific beneficiary account

Solution :

Virtual Account

RekeningPenampungan

Virtual Account

Virtual Account

Virtual Account

Virtual Account

Virtual Account

A/C# : 1122334455

7800012345678901Customer A

7800012345678902Customer B

7800012345678903Pelanggan C

7800012345678904Pelanggan D

7800012345678905Pelanggan E

Transfer Dana

Transfer Dana

Transfer Dana

Transfer Dana

Transfer Dana

Via ATM BII

Via Mobile Banking BII

Via ATM Bersama, Prima, ALTO

Via Internet Banking Bank Lain

Via Mobile Banking Bank Lain

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- Some banks make a proprietary transfer to intrabank account, some do openly interbank transfer- Value proposition:

- Customer : Helping customer/ beneficiary do reconciliations of their incoming transfer- Bank : Retain funding and increase loyalty

VA – System View

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Transfer Dana

Transfer Dana

Transfer Dana

Via Mobile Banking BII

Via ATM Bersama, Prima, ALTO

Via Internet Banking Bank Lain

A/C1: 1122334455V/A: 78000xxxxxx…xx001

78000xxxxxx…xx00278000xxxxxx…xx00378000xxxxxx…xx004

A/C2: 6677889900V/A: 78002xxxxxx…xx001

78002xxxxxx…xx00278002xxxxxx…xx00378002xxxxxx…xx004

Core Banking/Account System

VA System

AC1 : 1122334455AC2 : 6677889900

- Technically can be done as easy as just adding a table in front of account system to map the virtual accounts

and real bank accounts- VA system can be developed within core banking or separate system by itself- VA functionalities can be extended with billing with partial payments, etc- It is a must have platform for every bank to compete in market. There will be more application to it in future.

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EDC MiniATM

Problems/ Challenge: 1. ATM investment & operation cost is high2. ATM expansion is not fast enough3. Increasing market share means also increasing distribution channels

Opportunity: 1. Financial Transaction require small online system with limited screen size, and numerical

pinpad2. ATMs are connected thru interbank ATM switching system, which can be leveraged for other

devices3. EDC is much cheaper compared to ATM, both capex and opex

- Extend Traditional Merchant Acquiring Business, to acquire merchants doing purchase and payments- New type of “merchants” specializing on payments- Use merchant to serve “cash withdrawals” from their cash register

- Shifting of mainly fee based income generated from MDR into revenue of interest income gained from deposit

account of merchants in the bank- Adoption of this “EDC MiniATM” spread over across banks including BPR- Deployment of EDC MiniATM to non-bank outlets

Traditional Banking Transaction: Balance Inquiry, Cash Withdrawal, Deposits, Fund Transfer

Payment to Merchant

Credit Card Payment

Telco Postpaid and Prepaid Payments

Public Utilities Payments

Tickets Payment

Financing Payment

Insurance Payment

EDC MiniATM

- It’s a bank’s channel that has the “equal” capability as other channel to do payments and transactions- Combination with peripheral devices enable EDC to do : account opening, mobile teller, collections, loan disbursement, etc- It consist of : card reader – screen – keypad

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Cardless ATM Withdrawals

Problems/ Challenge: 1. People forget to bring ATM Card2. Need emergency cash for someone else3. ATM network distribution coverage is quite large already

Opportunity: 1. Additional service to existing customers (mobile banking)2. Remittance capability which enable payments to the non-bank customers3. Extend service reach to non bank customers or non-bankable segment4. Facilitate conversion of electronic money into physical money (Telco e-money)

- Extend reach of banking service to non-banking customers by collaborating with Telco companies- There will be more e-money and virtual money in future need to be converted into physical money- More banks will be adopting this kind of mechanism, although already started in the market >10yrs

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OTP Request from Mobile Banking

TelcoMobile Banking Server

SwitchingSystem

Cardless DB

Send SMS to Request for OTP containing Withdrawal Amount

and Cardless Customer HP Number

Request for Cardless OTP

Validate CardlessCustomer HP Number.

Cardless OTP is generated.

Response a Cardless OTPReceive SMS

containing a CardlessOTP

Cardless Withdrawal at ATM

1 2 3 4

5678

SwitchingSystem

Cardless DB

Perform Cardless Withdrawal by keying: Cardless Custimer HP

Number, Cardless PIN and OTP Validate Cardless Customer HP

Number + Cardless PIN and OTP

Response Cardless Withdrawal with Withdrawal Amount

Cardless Customer receives money from ATM equal to Withdrawal

Amount

Cardless Customer Registration at ATM

SwitchingSystem

Cardless DB

Save Cardless Customer HP Number and Cardless PIN

Cardless Customer Registration Completed

Perform Cardless Customer Registration by keying: Cardless

Customer HP Number and CardlessPIN

Save Cardless OTP

1 2 3

444

1 2 3

456

Cardless ATM Withdrawals

Paperless Account Opening

Problems/ Challenge: 1. Long time for account opening process2. 2 steps of customer data input creating issues of incomplete data input or error in data input3. Bank mission to humanizing financial services, means more personal interaction rather than

people-document interactions

Opportunity: 1. Network bandwidth has improved for the past few years (bandwidth size vs cost)2. Technology availability on ECM & OCR and has been long awaited to improve process3. Improving turnaround time: digitalizing at the first entrance point

- Improving turnaround time to process account opening from 27 min to 12 min- Combined with simplification of forms, sceen & use of scanner as well as process reengineering- More personal interaction, remove back & forth processes, and completed at 1 interaction

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Cust

omer

Ser

vice

START

Product information

Sign for passbook

& ATM cardCreate PIN

Override for ATM PIN &

sign forpassbook

Swipe ATM card

Give ATM Card

& passbook

Cust

omer

Hea

d CS

05:0

0

00:1

5

01:0

0

00:5

0

00:4

5

01:3

0

Informm-banking,

other facility& cross selling

05:0

0

00:3

4

00:4

9

END

Depositcash at teller +

copy cust ID

ActivateATM card

at ATM machine

05:0

0

RegisterATM number

Create acc number

Register +print

passbook

01:0

000

:28

01:0

0

Copy cust ID+ Prepare ATM card

& passbook

01:2

7

01:2

3

Input othercust data10

:00

Fill & signfor opening

acc. form11:0

0

Input cust’s data04

:11 Interview +

input other data

Repetitioncust data

Cross check+ update

scan result

Fill & signproduct

/ fac. form*

Scan cust ID

02:0

0

Sign forcust data

form

Print custdata form

Paperless Account Opening – Process Flow

12 min !

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It’s not Technology Innovation

What will make innovation successful:- Is the innovation really solve the current problem- Are there alternative to the solution of the problem?- Does our solution better than other solution? Does it driven in bigger way than other

solution? - Does the infrastructure to support the innovation is ready/ available?

- Knowledge of business process, business model, customer need and technology capability are prerequisite for an successful innovation to happen

Process to Stimulate an Innovation:1. It’s related with problems, opportunities, new technology, change on infrastructure2. IT requirements will start with a simple basic thing. It’s not necessarily started with heavy IT

investment or IT transformation3. Understanding the needs of people, process , payment mechanism or any particular area of

banking services

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Source of Innovation

Built in within Organization1. “Creative and Innovative” people within

organizations2. Culture of innovation within organisation3. Process and mechanism to nurture innovation within

organization processes:- Process improvement, operational excellence- Innovation competition- Continuous improvement process (kaizen, etc)

Adopt Innovation from other institutions/ countries1. Every organization has their own innovative ideas that might be applicable to other organisation

in other countries.2. Technology gap between countries are getting lesser, and copying them is not impossible (effort

& investment)3. Huge vs small investment: majority of innovation doesn’t require huge effort/ investment. 4. Self Innovation vs Fast Follower , dependency on organization environment.

- IT Architecture plays important role in adapting to new innovation- Innovation may change major part or minor part of IT Infrastructure

OperationIT

Consultant Sales Officers

Other Banks

Customers

Product Dev

INNOVATION

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What is a successful Innovation?

What drive Innovation:- Solution fo business problem- Solution to payment problems- Solution fo operation inefficiency/ problems

What will make innovation works:1. Who will be the customer segment using it?2. Why customers/ users willingly adapt to it3. What is the real value proposition for the customers?

Speed/ cost/ ease of use/ profit?

- Knowledge of business process, business model, customer need and technology capability are prerequisite for an successful innovation to happen

IT effort in Innovation:1. Huge, long time projects, eg:CRM, business analytics,

MSS2. Small, short projects: channels innovation,3. Balance the strategic and tactical innovation

MARKETACCEPTANCE

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Summary

1. Innovation needed to make us stay relevant and competitive in the business. The current innovation will be a mandatory standard requirements in future

2. Adopt the approach for the organization: in-house innovation or fast follower, or hybrid

3. It requires both combination of business and technology knowledge to drive a successful innovation

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Thank You

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