50 per cent of global banks expect digital technologies to yield returns by 2020 according to the ninth annual study of Innovation in Retail Banking report prepared by Infosys Finacle, a product subsidiary of Infosys and Efma, a global not-for-profit organisation.
More than 50% of respondents expect to see a measurable RoI (return on Investment) from their investment in innovation in 1-3 years; more than 30% expect to see results in less than a year. Only 10% of respondents have a robotic process automation solution.
The technology investments for global banks in 2018 will revolve around areas such as information security, Internet of Things (IoT), blockchain, advanced analytics and open banking APIs, as opposed to ‘future-looking’ areas such as conversational AI (Artificial Intelligence), robotic process automation, the Internet of Things, AR/VR (augmented reality or virtual reality) however 70% organizations planned to support a conversational AI solution, with close to 25% having made investments in AI.
For instance, the use of customer data insights and advanced analytics may be combined with IoT technologies to allow payments directly from smart home devices. Likewise, the expanded use of conversational AI and VR devices may come together, providing methods of banking interactions only imagined in sci- movies.
According to the report, retail banks continue their thrust on innovation in all functional areas, with customer experience and channels (both at 78%) being at the forefront. Other segments that have witnessed higher spends in innovation include products (67%), process improvement (64%) and marketing (57%).
- The percentage of institutions with a clearly defined innovation strategy dropped significantly from previous years. This is attributed to the inclusion of a greater diversity in the size of the organization this year
- Organizations continue to increase investment in innovation strategies in all functional areas
- Digitizing products and services, the customer journey and security were the top three areas of focus for digital transformation
- Top innovation challenge is systems integration and legacy technology
- Organizations expect to see a measurable return from their investment in innovation in 1-3 years
- Large tech companies, challenger banks and smaller fintech startups were considered to be the biggest threat to disruption
- The greatest threat to banking products was expected to be in the areas of payments and mobile wallets
- Technology investment is being made in ‘traditional’ technology as opposed to ‘disruptive’ technologies
- Fewer than 50% of organizations had plans to deploy RPA solutions while 70% of organizations planned to support a conversational AI solution
- In terms of maturity of the financial institutions for using data driven insights, most of them are still at an early stage of using analytics for descriptive or diagnostic purpose
- The quest for expertise in advanced technology and analytics is increasing industrywide
Source: Infosys and Efma
The top three innovation challenges include systems integration, legacy technology, and the time and cost required to move from concept to reality. Small and mid-size banks are falling behind in virtually all levels of innovation, reflecting an inability to invest, the impact of competing priorities, the need to focus on cutting costs and respond to compliance requirements.
There is a vast distribution on the level of maturity within organizations leveraging data-driven insights. Nearly 37% of banks believed they were able to provide only descriptive analytics based on what had already happened. Nearly 20% of banks (usually larger firms) stated they have sound predictive capabilities and can help customers understand what will happen in the future. Interestingly, only 15% of banks were able to provide advisory or prescriptive capabilities around what the customer could do in the future given the insight known
Vincent Bastid, CEO, Efma said, “Nowadays so many new technologies are reaching maturity and a growing number of new entrants are offering alternative customer experiences and transaction interfaces. The 9th edition of the Innovation in Retail Banking study provides a roadmap to help organizations of all sizes prioritize their strategic choices and investments. We also believe the insights from this report will help incumbents strengthen their innovation initiatives and be more successful in their deployment.”
Sanat Rao, Chief Business Officer and Global Head of Finacle said, “The 9th edition of the Innovation in Retail Banking report clearly reflects the sentiment we are witnessing globally. The case for investing in digital transformation and innovation has never been stronger, with changing customer preferences, technology upsurge and competition from the non-banking sector. Finacle has proactively invested and developed capabilities across the focus areas identified in the report, to help customers stay ahead with their innovation programs. We believe that this report will help banks with their planning and technology investments.”
Jim Marous, Owner and Publisher of the Digital Banking Report and author of Study said, “As we expanded the scope of organizations included in this year’s study, we find a significant difference in the innovation maturity and commitment to technology investment between the largest and smaller organizations, with smaller firms appearing to fall further behind market leaders. We also see a continued focus on iterative innovation as opposed to disruptive innovation, limiting the potential benefits of big data, advanced analytics and digital technologies. The winners in the future will be defined by those organizations that can leverage these three pillars in the delivery of a better customer experience.”
The challenge of acquiring the right skills and expertise in innovation led areas such as AI, blockchain and digital banking is a major concern across the banking industry and this needs to be bridged at the earliest.
The research was conducted for over 300 bankers across all geographies according to Infosys and Efma.