Shaping the ICT-Banking Innovations for the Future_final

7/31/2019 Shaping the ICT-Banking Innovations for the Future_final

1/8

Shaping the ICT/Banking Innovations for the Future

Priam Kasturiratna

ACI-Ops, CISM, CRISK, AIB(SL), MBA(Sri J)

ABSTRACT

This paper appraises how ICT innovations have

contributed to shape the Banking in the past, and

present, eventually bonding ICT with Banking

Innovations in an inseparable manner.

Looking at different aspects in use of ICT in

Innovating Banking, locally and overseas, it

attempts to foresee and understand the challenges

that lie in present and future, with a view to make

the optimum use of ICT/Banking Innovations to a

better future for Banks, and customers.

1.0INTRODUCTION & BACKGROUNDThe recorded origins of Banking date back to

traders in Babylonia, Assyria, India and China

around 2000 BC.

The word Banking has its roots in Roman

Empire, where money lenders set up stalls within

enclosed courtyards called macella on a long

bench called a bancu, from which the words

banco and bankhave been derived. Banking in the

modern form developed in medieval and early

Renaissance Italian cities like Florence, Venice

and Genoa. The Italian Bank, Medici was set up

by Giovanni Medici in 1397. The earliest knownstate deposit Bank, Banco di San Giorgio (Bank

of St. George), was founded in 1407 at Genoa,

Italy. (Wikipedia, 2011)

The core of Banking business is built around

managing money with a view to profit. Bankers

have added product structures such as Credit

Cards, Leasing, Factoring, Wealth Management,

Treasury, Trade related Services and many other

ancillary services, so that, today, Banking denotes

a fairly complex bundle of money and wealthmanagement activities.

2.0ICT/BANKING INNOVATIONSBanking was not a service that reached the

average citizen up until the 19th

and 20th

centuries.

Industrial revolution shifted people from

traditional income sources like farming and other

self employment, to salary earnings from

employment. Personal financial patterns such as

regular salaries, savings, and money management

created opportunities for the Banks to spread their

services to both commercial and personal clients.

This required servicing an increasingly large

number of customers, recognition of the service

quality, which in turn focused on understanding

the customer needs such as value, timing,

transaction costs etc. This background led to

creation of Innovative Banking services such as

Credit cards and Automated Teller Machines

(ATM) which have become standard features of

Banking today.

Banking, in its over 600 year history, has

developed its scope from original deposit taking

and lending, into, modern trade and treasury

activities, cross border transactions, and close

integration with industries such as IT and

telecommunications. Innovations linked to

technology mostly come from post 1950 period.

Growing commercial activities and savings

created the need for more Banking Services,

thereby increasing the number of Banks. This

created competition, and created the need for

marketing to survive and achieve organisational

targets within a competitive business climate.

ICT became one of the key saviours the Banks

looked up to, in meeting these challenges.

Initially, Computers and later Communications

created drastic changes in Banking all over the

world, including Sri Lanka. These developmentspaved way for Banks to think seriously about


2/8

service innovations, faster product developments,

at last, after almost 600 years in business.

The first bank to use computers for accounting

was Bank of America. In 1959, production

systems with 32 units of ERMA Mark II computerbuilt by General Electric commenced operating as

the bank's accounting and check handling system.

ERMA computers were used into the 1970s.

(Bellis, 1997)

Next notable IT use was an experimental envelope

deposit machine called Bankograph installed

in New York in 1961 by the City Bank of New

York. However this was removed after 6 months

due to lack of customers. The first cash dispensing

device was installed in Tokyo in 1966, which is

said to have been operated with credit cards. The

first ATM was installed by Barclays

Bank in Enfield, North London, United Kingdom

in June 1967. (Wikipedia, 2011)

During the last 40 plus years, ICT and Banking

combination Innovated many areas of Banking by

expanding delivery channels, improving service

levels, creating new Banking products and re-

engineering internal processes at a steady pace.

In Sri Lanka, introduction of ATMs in late

1980s, Phone Banking in mid 1990s, Internet

Banking and Mobile Banking in early 2000s are

good examples. Each of these Innovations created

quite an interest in the market, as well as making

the Banking activities more convenient and

accessible to the customers.

Today, the entire commercial Banking industry is

dependent on ICT as its backbone, and if Bankswish to Innovate, ICT has to be a major part of the

Innovation. Banking Innovation has now become

a joint effort of both Bankers and ICT

professionals.

3.0WHY BANKS MUST FOCUS ONINNOVATION

Whether it is Banking or otherwise, an

organisation must continuously Innovate to

survive and grow in todays rapidly changing and

competitive business environment. Jacob Jegher,

Senior Banking and IT Analyst of Celents

Banking Group summarises why and how Banks

must innovate,

a. To remain competitive, to take aleadership position.

b. To recognize customer requirements, andstay one step ahead of them.

c. Banks need to focus on customerexperience, improve the overall customer

experience and maturity of features.

Customer experience and ease of use is

where the real challenge lies.

d. Banks must embrace online trends, notshy away from them. Banks need to keep

up with the trends. A great example is the

use of media (e.g. video, blogs) to further

knowledge and emphasize education.

(Jegher, 2009)

If Banks do not innovate, financial services are so

competitive that eventually, someone else will

Innovate and eat into the Bankers market. Hence,

there is no question about Innovation, if and when

it is not practical to provide a full service,

Banking Innovations must at least start to deliver

basic services through all stable and popularchannels, multiple technologies and devices so

that the customers, new technologies and tech-

gadgets will not be detached from their Banks.

4.0HOW INNOVATIONS AREGENERATED

Innovation can be generated with two broad

approaches,

a. Build Innovation into the organizationDNA

b. Circumvent the organization whenInnovation is required.

While the newer, smaller organisations can use

DNA building approach, larger established Banks

will usually adopt the other due to organisational

size, internal controls, compliance and other

regulations.

Industry analysts and Bankers themselves are

noticing that the speed of Innovation at Banks is
http://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/United_Kingdom


3/8

gradually becoming slower due to

organisational/social complexities and increasing

regulations that came into effect mostly during the

last decade.

Banking expert and author Brett King suggestspossible approaches to re-gain and fast track

Banking Innovations,

a. Provide 20% of employee time to workon a project or initiative of their choosing.

If the idea works, it can then be

incorporated back into the overall

business as part of a longer-term shift.

b. Once a month, or once a quarter, getdelivery channel team together for

brainstorming a new customer journey or

experience. Define prototypes of the ideas

to come up with something better for the

customer. The deep dive process is much

faster than the traditional planning.

c. Get product and channel teams, 20% oftheir time to spend on improving

customer experience. Create a multi-

channel deep dive session quarterly where

all teams, product representatives, look at

new ways of engaging the customer.Prototype the customer journey on paper.

Sketch up new web, mobile, or ATM

screen flows to show how the interaction

could be simplified and improved, or even

come up with completely new ideas based

on behavioural analytics. (King, 2010)

Kings comments are based on two insights, first,

Customer Centric Initiative is the way of

generating Innovation without breaking the Bank,

the second, the enlightened trial and error has a

better chance of success than planning of the lone

genius. His views can be seen as a summation and

integration of the customer lifestyle needs and a

practical way to face challenges the Banks face

today.

5.0MULTIFACETED DEVELOPMENTSIN LOCAL BANKING

Throughout the last two decades, Sri LankanBanking industry became more IT reliant,

developed a much stronger and technically

advanced infrastructure and became internally

efficient in many aspects. Facilities such as Image

Based Cheque Clearing, Real Time Gross

Settlement System (RTGS), same day low cost

Interbank Payments (SLIPS), online access toCredit Information Bureau (CRIB) and closer

integration with Telcos are few examples.

From a Regulatory viewpoint, regulators

tightened supervision and at the same time

developed closer interaction with the Banks.

Regulations were developed to be in line with the

developed financial centres, Regulatory Reporting

was set-up online, Banking Ombudsman position

was established, compliance with Basel

Regulatory Framework commenced, defences

against Money Laundering and Terrorist

Financing were developed, concepts such as

Whistle Blowing, Risk Management and

Corporate Governance were introduced to

qualitatively enhance the Banking Industry.

At the same time, almost all local Banks became

more profitable, and paid higher dividends to their

shareholders. The fact that local Commercial

Banks have opened 48 new branches and installed91 ATMs in 2010 indicates how the Banking

industry performs in the country now.

6.0ARE WE ON THE CORRECTTRACK IN CUSTOMER INSPIRING

BANKINGINNOVATIONS?

Despite all the good and worthy developments in

infrastructure, technology use, regulations, service

quality, geographical coverage, the question still

remains whether these developments brought

forth sufficient Banking Innovations to generate

visibly significant customer inspiration towards

Banks?; are the Banks running their own race

with themselves, and in the process gradually

loosing the focus on customer?

Whilst not underestimating the efforts and

creativity that went into introduction of Banking

Innovations, lets list some of the key customer

visible ICT Innovations by Banks during the post2000 era.


4/8

a. Virtual Bankingb. Internet Payment Gatewaysc. Internet Bill Payment Portalsd. Electronic Bulk Payment Processing

(Inter/Intra Bank)

e. Investment options over Internetf. Inter-bank Payments and Credit Card

Settlement over Internet/Phone Banking

g. Letters of Credit Opening/Amendmentsover Internet

h. Cheque Image View over Interneti. E-Statements

j. Mobile Phone Top-upk. Outward Remittances, Local/Foreign

The first two innovations, Virtual Banking and

Bill Payment Portal that were launched in early

part of 2000s created a notable impact due to

their ability to cater to significantly large market

needs/segments preferring to get their Banking

done without a visit to the Bank. Electronic Bulk

Payments Processing, Internet Payment Gateway

and Letters of Credit Opening/Amendments over

the Internet are valuable innovations, but they are

mainly used by the business organizations, thus,

may not have created a visibly significant impact

among masses. All other innovations listed here

involve integration among two or more systems,

or tweaking existing features/services to create a

new product or a service.

Do these Innovations provide an answer to the

question whether they have been able to create a

visibly significant positive customer impact? are

these Innovations individually or together create a

customer inspiration?

Looking back towards ATMs to Mobile Banking

era (late 1980s to early 2000s), one can possibly

raise the argument that, despite all the very

important developments in the Banking Industry,

the Banking/ICT Innovations that came out lately

did not create visibly significant and lasting

impact in inspiring the customers, nor that they

created a significant advantage for an Innovative

Bank to gain a notable Marketing advantage over

its competitors.

Sri Lankan Banking is not isolated in this grey

area. Debbie Bianucci, CEO of Bank

Administration Institute in US points out that the

recent turbulent times have resulted in shifts in the

Banking landscape as well as priorities and key

initiatives of financial institutions. Innovation willplay a key role as the financial services industry

focuses on efforts to rebuild consumer trust and

confidence, drive growth, reduce costs and

enhance the customer experience.

(www.finextra.com, 2009)

7.0RISKS OF DECLINE INICT/BANKING INNOVATIONS

A Bank may have a well built infrastructure, very

good internal procedures, but none of them would

guarantee achievement of business goals and long

term sustainability, unless correct strategic

decisions are taken by the top management. Since

none of the Banks are enjoying a monopoly

condition, they need to compete among

themselves, and at the same time, will have to

compete with small scale Innovators trying to eat

into the Banking Market Share. Thats where

ICT/Banking Innovations come handy and

essential for survival in the long run. How does

this happen?

An Innovation can serve two basic purposes, it

can improve internal efficiency, or it can serve a

customer need today, or in future.

If Innovation improves internal efficiency, then

the Bank will become more profitable, and short

term increased profits are assured. It may assure

long term profits too.

If Innovation serves a customer need, then the

Bank will attract more customers, and/or generate

more loyalty among existing customers. The more

futuristic and long lasting the Innovation (and

resulting customer inspiration) is, the effect of

Innovation will benefit the Bank longer.

Truly great Innovations will be rich in both these

aspects, and will lead to significant customer

inspiration and internal efficiency advantage over


5/8

the competitors. They would eventually set new

trends and benchmarks in the industry.

What are the possible impacts of Banks not being

capable of Innovating to generate a visibly

significant customer inspiration?

a. Although there are entry restrictions(regulations) to enter into Banking,

individuals and organisations looking for

a way-in will find it over a period of time.

b. Banks being large and bureaucratic tosome extent, and thus slow in Innovating,

start-ups and non regulated enterprises

can innovate very fast and cheap

compared to Banks. The only way out for

Banks is continuous innovation,

preferably, fast track it.

c. In a world where almost all others arechanging and Innovating, why should

customers stick to an un-innovative

Bank? When Banks are not Innovative,

their systems would no longer be capable

of making full use of capabilities of latest

tech-gadgets such as smart phones, that

are continuously integrating with

customer lives.d. Customers expect highest service quality,

which, to a large extent, relative to what

prevails in the environment, locally and

globally. Fifteen years back, no one

would have expected a SMS confirmation

when they pay their mobile phone bill

over Internet or Phone Banking, but

today, if the customer does not get a SMS

confirmation within a few minutes,

customer will certainly feel that the Bankis lacking something important.

The signs of Banks loosing the race are already

apparent; Jeremy Quittner of Business Week

Magazine says, Many small-business owners in

search of online banking and cash management

services are turning to third-party vendors, which

are innovating in those areas faster than banks.

(Quittner, 2011).

Sri Lankan Mobile operators entering thetraditional Banking business of accepting deposits

is a good example of Banks being outsmarted in

Innovation. Over a period of time, this opening

can facilitate a series of other Banking like

services for the rural or other untapped market

sectors that have not yet been approached by the

Banks.

8.0POSSIBLE CAUSES FOR DECLINEIN ICT/BANKING INNOVATIONS

Industry Analysts agree that there are few

important categories of reasons contributing to

low-key ICT Innovation among Banks.

8.1Organizational InertiaOrganizational inertia has been widely discussedas a key reason for Banks being not Innovative.

Large organizations like Banks usually take

comparatively longer time for projects.

Management and other approvals such as

Risk/Compliance, allocation of development

resources, policy requirements, poorly performing

staff, testing delays and other internal

inefficiencies make it difficult to Innovate fast,

thereby depriving customers from getting the best

service they deserve. The result; customers maypositively consider shifting to those non Banking

service providers who provide Innovative

services.

Brett King says that most banks are too big to

Innovate and as a result, lots of 3rd parties like

Square, PayPal, Facebook, and others coming in

over the next 10 years are going to capture the

hearts and minds of customers. Banks will end up

just being the back-end transaction hubs that

enable those 3rd parties. (King, 2010)

8.2Strategic Blind SideIn a survey conducted jointly by European

Financial Management & Marketing Association

and Infosys Technologies Ltd among senior

managers from 89 Banks in 26 European

countries, it was revealed that over three quarters

of those polled think that the importance of

Innovation is high or very high for both growth

and efficiency, yet just 37% say they have a clear

strategy. In Western Europe, less than 15% (of the
http://www.americanbanker.com/authors/862.htmlhttp://finextra.com/Community/profile.aspx?memberid=49607http://finextra.com/Community/profile.aspx?memberid=49607http://www.americanbanker.com/authors/862.html


6/8

Banks included in the survey) have a department

responsible for coordinating innovation.

(www.finextra.com, 2009).

This result alone shows that many Banks, despite

being in such highly developed EU region, do notmake a conscious effort to Innovate. This state of

affairs suggests that many Banks lack a clear

focus on their own future success, which amounts

to failure in both Strategic and Corporate

Governance aspects.

How many Sri Lankan Banks do have a R&D

unit; budget or targets? Therefore, lack of proper

Corporate Governance and Strategic Risk

Management, or in simpler terms, being blind to

the need to Strategise, could be another

contributor to lack of Innovation.

Banks and their IT professionals must beware of

Myopic situations similar to those described by

Theodore Levitt in his famous Harvard Business

Review article Marketing Myopia, where he

argues that, to continue growing, companies must

ascertain and act on their customers needs and

desires, and not depend on the presumptive

longevity of their existing products andinnovations (Levitt, 1975). Levitt boldly points

out that this is not because of saturated or

declining markets, but a result of a management

failure.

8.3Leadership CharacteristicsLeadership Characteristics of the top management

is a key factor in deciding whether a Bank takes a

completely Innovative path, whether it will

market simple old products Innovatively to earnhigher profits, or do nothing and perish.

Karen Bantel, President of Cyber Michigan Public

Policy and Advocacy Group, and Professor Susan

E. Jackson of State University of New Jerseys

joint research examined the relationship between

the social composition of top management teams

and Innovation adoption in a sample of 199 US

Banks. Top management teams characteristics

studied are, average age, average tenure in the

firm, education level, and heterogeneity with

respect to age, tenure, educational background,

and functional background. In addition, the effects

of Bank size, location (state of operation), and

team size were assessed. Results indicated that

more Innovative Banks are managed by more

educated teams who are diverse with respect to

their functional areas of expertise. Theserelationships remain significant when

organizational size, team size, and location are

controlled for. (Bantel & Jackson, 1989)

The study found that Innovations get more

support from the top level Banking management

when they possess the following qualities,

a. Diverse capabilities backed by hightechnical and educational expertise

b. Courage to take on challengesc. Openness to emulate new technologyd. Technology savvy in individual

capacity

8.4Simple But Important Other CausesA Service Innovation becomes a success only

when customer needs are fulfilled, and as a result,

customers get satisfied and inspired. Therefore,

logically, the Innovation process should have a

holistic view of customer needs.

Many good Innovations may have gone down the

drain due to incorrect positioning, inappropriate or

lack of focussed marketing, and not addressing

the initial drawbacks in a timely manner. For

example, the ATM networks in Sri Lanka were

experiencing high downtime levels mainly due to

poor communications infrastructure of the country

in late 1980s up to late 1990s. Nevertheless,

ATMs were fulfilling a major customerrequirement. Despite the initial problems,

consistent attention, continuous improvements

and persistence by the Banks, and developments

that took place in the countrys communications

infrastructure contributed to maintaining ATM

services in the best possible manner, and today,

ATMs are a good customer Inspiration. From

another perspective, ATMs survived all problems

because they are providing a significant customer

Inspiration, and the Banks were continuouslymonitoring and addressing the issues; just imagine


7/8

Banking without ATMs to understand the facts,

and to learn from history.

Another very significant requirement for

Innovation is keeping IT/Banking Innovators

within the Bank, and then, inspiring them toInnovate. The Innovators may have their own

egoistic and other needs such as due recognition

and rewards to fulfil, sometimes, Innovators do

not blend with the organizational culture and

eventually get branded as mismatches because

they are too good at Innovating. As a result,

Innovative Bank employees may move to start-

ups that can provide opportunities to make use of

their Innovation talents.

These unfortunate events can be avoided if

Bankers (or any organisation in that matter)

understand the strategic requirement to retain the

Innovators, and foster an Innovation friendly and

mutually supportive cross functional environment

where Innovators can work in harmony with other

internal functions such as Marketing, Banking

operations, Risk/Compliance, Finance, Legal,

Audit etc. Providing an Innovation conducive

working atmosphere is the key to inspire

Innovators to make use of their talents.

9.0UNUTILISED OPPORTUNITIES THE WAY FORWARD

In a topic area like Innovation, both the problem

description and the solution may not come from

the same source. Nevertheless, listing a few

unutilised possibilities for Banking/ICT

Innovations is a worthwhile attempt to ignite

thinking Innovation.

a. Smart Phones Such as iPhone andAndroid applications for Banking and

Financial Service products

b. Next Levels of Internet Banking andInteractive Voice Response (IVR) based

services

c. Online Share, Bills/Bonds Trading forBanking clients

d. Next Level Customer Service Innovationsthat looks at addressing holistic needs ofthe customer.

e. Improved Online presence (such as use ofSocial Media and online channels as an

engagement platform - Blogging,

Facebook, Twitter for Banking

information distribution, marketing and

recruitment)

As much as adding new Innovations to the list, it

is important to develop the ability to categorise

and bundle many smaller Innovations in a way

that customers understand them, accept them in a

significantly Inspiring context; that makes a

whole lot of meaning to the customers than the

smaller components; and, in a way that visibly

addresses significant customer needs.

10.0 CONCLUSIONInnovations in Banking in todays context is

synonymous with ICT/Banking Innovations.

Future of Banking relies on Visibly Significant

Customer Inspiring Innovations, which, in turn

depends on a number of technical, managerial and

human factors. It is also very important to

recognise the fact that being Innovative today will

never be a final success destination, but just a

status in a continuous mechanism oforganisational success.

The degree of realisation of the significance of

continuous ICT/Banking Innovations, fostering an

Innovation conducive organisational culture and

policies, identifying possible areas for Innovations

and building on them to provide the best

advantage to the Banks and best value to

customers will map the future of Banking. The

more the Bankers develop this ability and

continue to do so, the understanding and the

ability to provide better value to customers is

gained, thus becoming more successful in

providing Visibly Significant Customer Inspiring

Innovations, which is a must for successful

Banking business.

11.0 REFERENCES & BIBLIOGRAPHYBantel, K. A., & Jackson, S. E. (1989). Top

management and innovations in banking: Does

the composition of the top team make a


8/8

difference? Strategic Management Journal;

Summer 1989 , 107124.

Bellis, M. (1997). Inventors of the Modern

Computer. Retrieved May 10, 2011, from

http://inventors.about.com/library/inventors/bl_ERMA_Computer.htm

Jegher, J. (2009, September 18). Peeking Out

From Under The Hood - Next Generation Online

Cash Management. Retrieved May 10, 2011, from

www.celent.com:

http://bankingblog.celent.com/?p=921

King, B. (2010, May 31). Analysis: Lack of

innovation is killing bank valuation. Retrieved

May 2, 2011, from www.finextra.com:http://www.finextra.com/community/fullblog.aspx

?blogid=4124

Levitt, T. (1975). Marketing Myopia. Harward

Business Review .

ONeil, E. (2011). USAAs Star-Spangled New

Online Banking Features. Retrieved May 15,

2011, from about.com:

http://banking.about.com/od/bankaccountreview1/

a/Usaas-Star-Spangled-New-Online-Banking-Features.htm

Quittner, J. (2011, April 8). Nonbanks Leapfrog

Banks in Small-Business Cash Management and

Treasury. Retrieved April 30, 2011, from

www.americanbanker.com:

http://www.americanbanker.com/issues/176_68/n

onbanks-leapfrog-banks-small-biz-software-

1035670-1.html

Wikipedia. (2011). Automated teller machine.

Retrieved May 2, 2011, from Wikipedia:

http://en.wikipedia.org/wiki/Automated_teller_ma

chine

Wikipedia. (2011). History of Banking. Retrieved

May 10, 2011, from Wikipedia:

http://en.wikipedia.org/wiki/History_of_banking

www.finextra.com. (2009, November 6).

Inflexible IT top barrier to bank innovation.

Retrieved May 5, 2011, from www.finextra.com:

http://www.finextra.com/news/fullstory.aspx?new

sitemid=20707

Shaping the ICT-Banking Innovations for the Future_final

Documents

Transcript of Shaping the ICT-Banking Innovations for the Future_final