Innovation in Retail Banking

September 2012, 4th Annual Edition

Growth of Channel Innovation

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InnovAtIon In REtAIl BAnkIng 2012

Contents

Preface..........................................................................................................................3..

Executive.summary..........................................................................................................4..

Introduction....................................................................................................................7

Innovation.and.strategy.................................................................................................13.

Innovation.performance.................................................................................................21

Focus.on.channel.innovation..........................................................................................27....

Innovation.in.financial.inclusion......................................................................................49....

A.global.and.regional.channel.innovation.summary..........................................................53.......

Innovation.case.studies..................................................................................................56......

How.to.become.more.innovative.....................................................................................62....

Conclusion...................................................................................................................63

About.the.research........................................................................................................66

About.us......................................................................................................................70....

List.of.Participants.........................................................................................................71

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Preface

Efma.and.Finacle.from.Infosys.are.proud.to.present.the.fourth.annual.study.of.innovation.in.retail.banking..We.are.pleased.to.say.that.the.study.is.now.carried.out.on.a.global.basis.and.hence.this.report.has.valuable.perspectives.from.all.regions.of.the.world.covering.Europe,.Middle.East,.Africa,.Asia.Pacific.and.the.Americas.

Amid.the.immediate.and.conflicting.priorities.that.bankers.face.today,.it.is.good.to.see.that.the.most.innovative.banks.are.committed.to.the.cause.of.innovation.with.increased.investment..It.is.also.worth.noting.that.the.interest.and.approach.to.innovation.transcends.the.internal.boundaries.of.business.lines.and.distribution.channels.within.banks......Banks.tell.us.that.innovation.in.delivering.a.superior.customer.service.and.experience.is.increasingly.important..However,.they.say.that.channel.innovation.is.equally.important.and.banks.have.been.investing.more.and.more.in.digital.channel.innovation..From.mobile.payments.of.different.kinds.to.online.personal.financial.management.services,.the.rate.of.deployment.of.new.channel.innovations.is.increasing..Hence.the.focus.of.our.study.this.year.is.channel.innovation.

There.are.many.common.innovation.themes.from.across.the.regions.and.countries.of.the.world,.but.clearly.there.are.always.important.differences.as.well..One.in.particular.relates.to.financial.inclusion.because.many.low.income.countries.have.a.large.proportion.of.the.population.who.are.not.currently.using.formal.banking.services.and.we.highlight.some.relevant.innovation.examples.in.the.study.

Our.study.has.attracted.enthusiastic.participation.from.across.the.world.and.we.are.pleased.to.present.this.report.that.captures.the.perspectives.of.over.300.bankers.from.66.different.countries.who.responded.to.an.online.survey..In.addition.to.the.valuable.insights.that.we.extracted.from.the.survey,.we.have.also.highlighted.many.different.channel.innovation.case.examples.in.the.report.and.we.hope.you.find.it.both.fascinating.and.useful.

Patrick Desmarès.Secretary.General..Efma.

Haragopal MGlobal.Head.–.Finacle.Infosys Limited

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InnovAtIon In REtAIl BAnkIng 2012

Executive summary

The most innovative banks recognise innovation is a key management priority

Innovation.often.ranks.behind.risk.management,.balance.sheet.management.and.cost.management.as.a.priority,.but.the.most.innovative.banks.are.still.able.to.make.sure.it.is.very.high.on.the.management.agenda.and.their.senior.management.demonstrate.strong.commitment.to.innovation.as.a.differentiator.and.driver.of.long-term.growth.

Increasing innovation investment, particularly in channels and customer service/experience

On.a.global.basis.73%.of.banks.say.they.are.increasing.their.investment.in.innovation.in.2012.compared.to.2011,.showing.a.growing.recognition.of.the.importance.of.innovation.even.in.difficult.economic.times..Investment.growth.is.particularly.strong.in.the.areas.of.channels.and.customer.service.or.customer.experience.

Key innovation drivers are attracting new customers and growing revenues, not costs and compliance

The.key.innovation.drivers.for.most.banks.are.attracting.new.customers.and.growing.revenues,.even.in.mature.economies,.while.cost.management.and.regulatory.compliance.are.not.believed.to.be.as.important.

Less than half of the banks are measuring their innovation performance

The.use.of.innovation.metrics.to.measure.innovation.performance.is.relatively.weak,.with.only.41%.of.banks.having.clear.metrics.in.place..The.most.common.metrics.are.revenue.growth.from.new.products.and.services.and.changes.in.customer.satisfaction.

Innovation performance is strongest in channels and weakest in processes

The.self-assessment.of.banks.of.their.own.innovation.performance.shows.this.is.strongest.in.channels.and.weakest.in.processes..In.fact,.56%.of.banks.rate.their.innovation.performance.in.channels.as.high.or.very.high..These.findings.are.broadly.consistent.across.regions,.although.in.the.Americas.innovation.in.customer.service.and.experience.is.stronger.than.innovation.in.channels..Innovation.in.channels.is.particularly.strong.in.the.Middle.East.&.Africa.

Banks feel they are becoming more innovative but there are mixed signals

70%.of.banks.say.they.are.becoming.more.innovative.and.this.has.been.a.consistent.finding.in.the.last.few.years..However,.the.innovation.self-assessment.scores.in.Europe.have.not.been.improving.since.our.survey.began.four.years.ago,.so.there.are.some.mixed.signals.on.whether.there.really.is.an.improving.trend.

Innovation performance strongest in Middle East & Africa compared to other regions

There.is.not.a.large.difference.between.regions.in.the.innovation.self-assessment.scores.though.banks.in.the.Middle.East.&.Africa.on.average.believe.they.are.doing.slightly.better.than.banks.in.other.regions..For.individual.countries.where.there.is.a.reasonable.sample.of.banks.in.the.survey.we.notice.strong.performance.scores.in.India,.Turkey.and.the.United.Arab.Emirates.

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Online and mobile are the most important channels for innovation, not branches

There.is.a.consistent.view.across.regions.that.online.and.mobile.are.the.most.important.channels.for.innovation.in.the.next.few.years,.and.branches.are.seen.to.be.much.less.important..Banks.in.Asia.Pacific.say.that.innovation.in.the.online.channel.is.slightly.more.important.than.innovation.in.the.mobile.channel,.whereas.in.the.other.regions.innovation.in.the.mobile.channel.is.more.important..Innovation.performance.is.also.strongest.in.these.two.channels.–.63%.of.banks.say.their.innovation.performance.is.high.or.very.high.in.the.online.channel,.and.the.figure.for.the.mobile.channel.is.56%.

IT is important for channel innovation and branches get more technology investment

87%.of.banks.say.that.IT.is.important.or.very.important.for.channel.innovation..The.IT.investment.mix.is.still.biased.toward.branches.(27%).as.the.most.significant.channel,.but.across.the.four.regions.online.(25%).and.mobile.(20%).combined.now.exceeds.the.branch.channel..In.Europe.and.the.Americas,.IT.investment.in.the.online.channel.alone.is.already.greater.than.IT.investment.in.the.branch.channel.

The survey shows the status of innovation deployment in mobile, online and branch channels

Mobile: Advanced.visualisation.(augmented.reality).for.locating.branches.and.ATMs.(38%.of.banks),.and.mobile.payments.(35%.of.banks).are.currently.the.most.frequently.deployed.mobile.innovations..Following.these.is.tablet.applications,.an.area.that.will.get.significant.further.investment.in.the.next.few.years..Personalised.location-based.offers.are.not.very.common.yet,.but.banks.also.expect.a.rapid.growth.in.deployment.of.innovation.in.this.area.

Online:.Personal.financial.management.tools.are.the.most.common.innovation.currently.deployed.(29%.of.banks),.followed.by.integration.with.social.media.(24%.of.banks),.and.web.chat.or.click.to.call.(21%.of.banks)..A.big.area.of.focus.for.the.next.few.years.will.be.improvements.in.the.online.account.opening.process.and.most.banks.expect.to.have.fully.automated.account.origination.for.complex.products.within.three.years..The.self-configuration.of.products.has.not.yet.seen.a.significant.deployment.but.this.appears.to.be.in.the.plans.for.many.banks.

Branches:.Deployment.of.innovations.in.the.branch.channel.shows.a.wider.divergence.of.views.than.in.online.and.mobile..For.example,.cashless.branches.have.been.adopted.by.17%.of.banks.but.51%.of.banks.say.they.have.no.plans.to.go.down.this.route..There.is.a.similar.divergence.of.views.on.the.sale.of.non-financial.products.and.services.in.branches..Videoconferencing.in.branches.has.been.possible.now.for.a.few.years.but.deployment.is.low.and.not.high.on.the.agenda.for.many.banks.

Channel innovation deployment is still very low in most banks but accelerating

We.surveyed.twenty.two.channel.innovations.and.found.that.58%.of.banks.had.deployed.less.than.20%.of.these.innovations.(i.e..four.or.less)..However,.taking.into.account.the.stated.plans.for.the.next.twelve.months,.the.pace.of.deployment.is.accelerating.and.we.expect.47%.of.banks.to.have.soon.deployed.at.least.nine.of.these.innovations.

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InnovAtIon In REtAIl BAnkIng 2012

Multi-channel integration, not just innovation, a very important part of channel strategy

Not.to.be.forgotten,.there.are.other.very.important.factors.in.channel.strategy.and.not.just.innovation..86%.of.banks.say.that.multi-channel.integration.is.important.or.very.important..For.the.single.customer.view.the.proportion.is.81%.and.for.multi-channel.analytics.the.proportion.is.72%.

Innovation in financial inclusion is important in low income, developing markets

The.challenges.of.innovation.in.developing.markets.–.especially.in.the.lowest.income.countries.where.financial.inclusion.is.low.–.are.quite.different.than.for.retail.banks.in.mature.markets..Nevertheless,.many.innovations.are.taking.place,.for.example.in.micro.savings,.and.channel.innovation.using.mobile.and.agents.has.an.important.role.to.play..Key.to.the.innovation.is.often.the.adoption.of.a.very.different.business.model.from.traditional.banking.

Leading banks show how to become more innovative

For.banks.to.become.more.innovative,.they.need.to.look.at.how.to.make.sure.innovation.is.on.the.strategic.agenda,.dedicate.resources.to.innovation,.develop.an.approach.to.“open.innovation”,.embed.customer.insight.into.the.innovation.process,.and.design.the.right.processes.from.idea.generation,.through.selection,.prototyping.and.launch.

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As.a.global.not-for-profit.organisation,.Efma.brings.together.more.than.3,300.retail.financial.services.companies.from.over.130.countries..With.membership.from.almost.a.third.of.all.large.retail.banks.worldwide,.Efma.has.proven.to.be.a.valuable.resource.for.the.global.industry,.offering.members.exclusive.access.to.a.multitude.of.resources,.databases,.studies,.articles,.news.feeds.and.publications..Efma.also.provides.numerous.networking.opportunities.through.work.groups,.online.communities.and.international.meetings..

For.more.information:.www.efma.com

Finacle.from.Infosys.partners.with.banks.to.transform.process,.product.and.customer.experience,.arming.them.with.‘accelerated.innovation’.that.is.key.to.building.tomorrow’s.bank..Today.Finacle.is.the.choice.of.165.banks.across.78.countries.and.powers.operations.across.49,618.branches.globally..Our.solutions.address.the.core.banking,.e-banking,.mobile.banking,.CRM,.wealth.management,.treasury,.and.islamic.banking.requirements.of.retail,.corporate.and.universal.banks.worldwide..Keeping.up.with.global.trends,.Finacle.also.offers.new-age.solutions.like.digital.commerce.for.enabling.cashless.transactions.and.financial.inclusion.for.banking.the.un-banked..With.these.offerings.Finacle.enables.banks.to.stay.ahead.of.changing.customer.demands,.competition.and.mounting.global.regulations.as.they.transform.into.tomorrow’s.banks.

For.more.information:.www.infosys.com/finacle

About the Author

Michael.Pearson.is.a.strategy.and.corporate.development.expert.with.25.years’.experience.working.for.and.advising.financial.institutions.worldwide,.developing.new.ventures,.and.investing.in.start-ups..Michael.founded.Clarus.Investments.in.2006.to.invest.in.early.stage.ventures,.with.a.particular.focus.on.financial.services.and.then.set.up.Clarus.Insight.to.report.on.trends.and.developments.in.financial.services.and.strategic.management..Michael.is.also.the.author.of.the.Efma.report.“Innovation.in.Retail.Banking”.and.provides.advice.on.strategy.to.entrepreneurs.and.financial.services.firms.in.developed.and.emerging.markets..Michael.has.an.MBA.from.Harvard.Business.School.

About us

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Europe ABN.Amro.Bank. NetherlandsAllied.Irish.Bank. IrelandAkbank. TurkeyAktia.Bank. FinlandAktif.Bank. TurkeyAlfa.Bank. RussiaAlior.Bank. PolandAlpha.Bank.Romania. RomaniaArion.Bank. IcelandAXA.Bank. BelgiumBanca.Monte.dei.Paschi.di.Siena. ItalyBanca.Popolare.di.Lodi. ItalyBanco.Espirito.Santo. PortugalBanco.Sabadell. SpainBank.Millennium. PolandBank.of.Baroda. United.KingdomBank.of.Ireland. IrelandBank.Zachodni.WBK. PolandBankia. SpainBankinter. SpainBanque.Internationale.à.Luxembourg. LuxembourgBarclays. United.KingdomBawag.PSK. AustriaBanca.Comerciala.Romana. RomaniaBNL. ItalyBNP.Paribas. FranceBNP.Paribas.Fortis. BelgiumBosna.Bank.International. Bosnia.Herz.Crédito.Agricola. PortugalCentea. BelgiumCeskoslovenska.Obchodni.Banka. Czech.RepublicCaixa.Geral.de.Depósitos. PortugalCentral-European.International.Bank. ItalyCIB. HungaryCiti. United.KingdomCitibank.Turkey. TurkeyCommerzbank. GermanyCredem. ItalyCrédit.Agricole. FranceDanske.Bank. SwedenDekaBank.Deutsche.Girozentrale. Germany

Delta.Lloyd.Bank. BelgiumDeutsche.Bank. GermanyDeutsche.Bank.Italy. ItalyDNB. NorwayEqua.Bank. Czech.RepublicErste.Group.Bank. AustriaEurobank.EFG. GreeceFBBANK. GreeceFondsdepot.Bank. GermanyGeniki.Bank. GreeceGetin.Holding. PolandHalkbank. TurkeyHSBC. United.KingdomIbercaja.Banco. SpainING. NetherlandsING.Luxembourg. LuxembourgIntesa.Sanpaolo. ItalyIsbank. TurkeyK&H.Bank. HungaryKBC. BelgiumKomercni.Banka. Czech.RepublicLån.&.Spar.Bank. DenmarkLloyds.Banking.Group. United.KingdomMazerik. SlovakiaMillennium.bcp. PortugalMontepio. PortugalMunicipalbank. BulgariaNational.Australia.Group.Europe. United.KingdomNational.Bank.of.Greece. GreeceNova.Ljubljanska.Banka. SloveniaNLB.Montenegrobanka. MontenegroNordea.Denmark. DenmarkNordea.Estonia. EstoniaNordea.Finland. FinlandNordea.Norway. NorwayNordea.Sweden. SwedenOP-Pohjola. FinlandOTP.Bank. HungaryOTP.Bank.Romania. RomaniaPiraeus.Bank. GreecePiraeus.Bank.Romania. RomaniaProcredit.Bank. Serbia

List of participants

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Promsvyazbank. RussiaRabobank.Nederland. NetherlandsRaiffeisen.Bank.Czech.Republic. Czech.RepublicRaiffeisen.Bank.Romania. RomaniaSandnes.Sparebank. NorwaySberbank.Russia. RussiaSEB.Estonia. EstoniaSEB.Lithuania. LithuaniaSKB. SloveniaSlovenska.Sporitelna. SlovakiaSociete.Generale.Montenegro. MontenegroSparkasse.Bank.dd.Sarajevo. Bosnia.Herz.Swedbank. SwedenTEB. TurkeyThe.Co-operative.Bank. United.KingdomTriodos.Bank. GermanyUniCredit. ItalyUniCredit.Bank.Austria. AustriaUniCredit.Banka.Slovenija. SloveniaUnicredit.Business.Integrated.Solutions. ItalyUniCredit.Consumer.Finance. ItalyUSB. RussiaVolksbank.International. AustriaVUB. SlovakiaZao.Citibank. RussiaZuno.Bank. Slovakia

Middle East and Africa.ABSA. South.AfricaAbu.Dhabi.Commercial.Bank. United.Arab.EmiratesAl.Hilal.Bank. United.Arab.EmiratesAl.Rajhi.Bank. Saudi.ArabiaAmen.Bank. TunisiaArab.African.International.Bank. EgyptArab.National.Bank. Saudi.ArabiaBancABC. South.AfricaBank.Muscat. OmanBarclays.Botswana. BotswanaCentenary.Bank. UgandaDiamond.Bank. NigeriaEmirates.NBD. United.Arab.EmiratesFamily.Bank. KenyaFirst.Bank.of.Nigeria. NigeriaFirst.National.Bank. South.AfricaGulf.International.Bank. BahrainI&M.Bank. KenyaIsrael.Discount.Bank. IsraelIthmaar.Bank. BahrainJordan.Ahli.Bank. JordanKakawa.Discount.House. NigeriaMashreq. United.Arab.EmiratesNedbank. South.AfricaNIC.Bank. KenyaNMB.Bank.Limited. ZimbabweRAK.Bank. United.Arab.EmiratesStandard.Bank. South.AfricaStandard.Chartered.UAE. United.Arab.EmiratesThe.National.Commercial.Bank. Saudi.ArabiaUnion.Bank.of.Nigeria. Nigeria

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Asia Pacific.Alliance.Bank. MalaysiaANZ. New.ZealandASB. New.ZealandAxis.Bank. IndiaBangkok.Bank. ThailandBank.of.Ayudhya. ThailandBank.of.Communications. ChinaBank.of.Communications.Hong.Kong. Hong.KongBank.Rakyat.Indonesia. IndonesiaBank.Sohar. IndiaBIDV. VietnamBNI. IndonesiaCIMB. MalaysiaDanamon. IndonesiaFullerton.Financial.Holdings. SingaporeHana.Bank. South.KoreaICICI. IndiaIndusInd.Bank. IndiaKarnataka.Bank. IndiaKiatnakin.Bank. ThailandMaybank. MalaysiaMauritius.Commercial.Bank. MauritiusMPCB. MauritiusOCBC.Bank. MalaysiaOCBC.NISP. IndonesiaBank.ANZ.Indonesia. IndonesiaBank.Negara.Indonesia. IndonesiaRizal.Commercial.Banking.Corporation. PhilippinesSecurity.Bank.Corporation. PhilippinesSouth.Indian.Bank. IndiaStandard.Chartered.Korea. South.KoreaStandard.Chartered.Singapore. SingaporeState.Bank.of.India. IndiaState.Bank.of.Mauritius. MauritiusUBank. Australia

The Americas.1st.Source.Bank. United.StatesAffinity.Federal.Credit.Union. United.StatesAltra.Federal.Credit.Union. United.StatesAmeriCU.Credit.Union. United.StatesAssociated.Bank. United.StatesATB.Financial. United.StatesBanco.Galicia. ArgentinaBanco.Intermedium. BrazilBancolombia. ColombiaBanesco. VenezuelaBank.of.America. United.StatesBanco.do.Brasil. BrazilBanorte. MexicoCape.Cod.Five.Cents.Savings.Bank. United.StatesCIBC. CanadaCIBC.FirstCaribbean.International.Bank. Saint.KittsE&A.Credit.Union. United.StatesEli.Lilly.Federal.Credit.Union. United.StatesExtraco.Banks. United.StatesFedChoice.Federal.Credit.Union. United.StatesFifth.Third.Bancorp. United.StatesFirst.National.Bank.of.Griffin. United.StatesFirst.State.Bank.of.St.Robert. United.StatesFirst.United.Bank. United.StatesFreedom.Financial.Bank. United.StatesGrupo.Aval. ColombiaIberiabank. United.StatesKey.Corp. United.StatesLake.Trust.Credit.Union. United.StatesMB.Financial.Bank. United.StatesMediterranean.Bank. United.StatesMeriwest. United.StatesNorth.Shore.Bank. United.StatesPeoples.State.Bank. United.StatesPurdue.Federal.Credit.Union. United.StatesRockland.Trust. United.StatesRoyal.Bank.of.Canada. CanadaSantander.Mexico. MexicoScotiabank. CanadaSSFCU. United.States

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St..Kitts-Nevis-Anguilla..National.Bank. Saint.KittsSun.National.Bank. United.StatesSusquehanna.Bancshares. United.StatesTCF.Bank. United.StatesTexas.Capital.Bank. United.StatesThe.Palmetto.Bank. United.StatesTowneBank. United.StatesU.S..Bank. United.StatesUmpqua.Bank. United.StatesWestminster.Savings.CU. United.StatesWSFS.Bank. United.StatesZions.Bank. United.States

©.2012.Efma.and.Infosys.Limited.

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used.herein.with.no.intention.of.trademark.infringement..No.part.of.this.document.may.be.reproduced.or.copied.in.any.form.or.by.any.means.without.written.permission.from.Efma.and.Infosys.Limited.

Disclaimer

The.information.contained.herein.is.general.in.nature.and.is.not.intended,.and.should.not.be.construed,.as.professional.advice.or.opinion.provided.to.the.user..This.document.does.not.purport

to.be.a.complete.statement.of.the.approaches.or.steps,.which.may.vary.accordingly.to.individual.factors.and.circumstances,.necessary.for.a.business.to.accomplish.any.particular.business.goal.

This.document.is.provided.for.informational.purposes.only;.it.is.meant.solely.to.provide.helpful.information.to.the.user..This.document.is.not.a.recommendation.of.any.particular.approach.and

should.not.be.relied.upon.to.address.or.solve.any.particular.matter..The.information.provided.herein.is.on.an.“as-is”.basis..Infosys.and.Efma.disclaim.any.and.all.warranties.of.any.kind.

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For.more.information,.please.contactEfma:.patrick@efma.com

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Innovation in Retail Banking

September 2012