Banks are embracing innovation both internally and through third-parties such as the start-up community, as they attempt to improve customer service and compete in an increasingly digital landscape.

The finance sector has typically been conservative with regards to investing in IT to support business change, with 'keeping the lights on' and servicing legacy systems often priority in the past. However, in recent years banks have been forced to move quickly to meet demand for digital services such as mobile banking, while the prospect of competition from online firms such as Amazon and Google sets the bar for customer service even higher. 

“We need to deliver customer service through innovation and technology, but we also need to be where the customer is going to be - that is our challenge. The world is changing dramatically, and we are trying to meet their expectations,” said Mark Culleton, head of channels at Allied Irish Bank, speaking at Efma and Accenture’s award ceremony in Barcelona last week.

“We decided that our core competence has to be innovation and technology, and to create a culture of this across our organisations."

For AIB, part of its strategy to support innovation within its company has been the launch of The Lab – a concept bank branch in Dublin. Developed alongside Accenture and Cisco, the aim of the pop-up 'digital store' is to both educate customers in how to use its range of online services, and allow the bank to showcase and trial its latest technologies, such as telepresence.

The Lab has helped the bank deliver a number of new customer-facing applications and services, including mobile banking apps and a person to person payments system.

“We test everything there first, so it is a very safe environment. We try and encourage all areas of our business to try out services there first, whether it is digital or any innovation,” explained Culleton.

Innovation at the core of the bank

Many banks are now moving away from reliance on a central innovation units to support development and adoption of new technologies, encouraging staff to embrace innovation throughout their business.

“We have a central department, but innovation culture is disseminated in all the business units of the organisation,” said Francesca Nieddu, head of CRM at Italy’s second largest bank, Intesa Sanpaolo.

“The innovation team coordinates and helps different units in developing research and exchanging ideas and so on. They support and they give a single view of innovation.”

For Barclays, which won the Best Sales Effectiveness Innovation prize at the Efma for its Digital Eagles initiative, its digital strategy involves engaging not only with IT and lines of business, but ensuring its branch and contact centre staff have adequate knowledge of digital services to pass on to its customers. 

While it has launched a number of services, such as payments platform Pingit and cloud storage system Cloud It, the bank is aware that it needs to educate all its customers and staff to make the transition from branch to online and mobile banking.

From an internal perspective this involved the development of its MyZone app, an employee portal used to access and share information via their mobile device, such as the ability to upload videos to share across its workforce, as well as providing access to information on the bank's systems. 

“We noticed that we had all of these technologies and all of these applications, but the people on the floor and on phones didn’t know how to use it,” said Barclays ‎Interactive Help manager, Neil Williams.

"They didn’t know what was out there, so we had to find a way of showing them and teaching them, which is where the Digital Eagles came in.

He added: "It is all about the people - you can have the most amazing solutions in the world - the best mobile banking app and best website - but if people don't believe in it they are not giong to pass it on to your customers."


Start-up mentality

However, banks are not only looking within their own business to innovate. In recent years, many have started to engage with financial technology start-ups, essentially outsourcing innovation to these smaller and more agile companies.

“More and more banks are starting to rely on the ecosystem of start-ups, open innovation companies, universities and researchers to be more open and to access more quickly the talent that they wouldn’t be able to accumulate internally,” said Juan Pedro Moreno, managing director of Accenture's global banking industry. 

There are many examples of banks either setting up their own start-up accelerators or partnering with the likes of Startup Bootcamp, as well as creating their own fintech venture capital funds, or making acquisitions, such as Spanish bank BBVA’s buy out of Simple earlier this year.

According to Paul Steenkamp, head of innovation capability at South African lender Standard Bank, the company has tended to lag its competitors in the past in terms of embracing technology innovation, and has sought to partner with start-ups to help modernise its business.

“We have been on an interesting learning curve on this journey, and the agility it offers is fantastic," he said, but warned that banks need to be aware of the differences in culture between their large organisation and fintech start-ups.

"It is like choreographing a dance between a hippopotamus and a small, nimble mouse in a way that mouse doesn’t get squashed. But it is mutually rewarding.

“What we have found more recently is that our team’s ability to drip feed some legislative insights into the start-up that we have been working with on a particular innovation has helped them compete with others that were tackling the same challenge.”

Outsourcing innovation

According to Accenture’s Moreno, the trend to rely on outside innovation will continue, with banks outsourcing more services to vendors of all sizes, allowing them to concentrate more on products and services as a competitive advantage rather than technology systems.

“In future, banks will operate as assemblers of products and service, in the technology space they will bring from the market rather than building and managing internally,” he said.

He predicts that in the future banks will also become more open to partnering with the likes of Google and sharing data rather than seeing them as a potential rival. This will ultimately allow them to provide more personalised services that benefit customers, rather than just selling to them.

“Technology is changing completely the way that banks can operate and it is also changing the behaviour of customers,” he said.

“Banks mostly think that the new entrants are a threat or a menace, but in future we will see that this is a big opportunity as the digital world removes the boundaries in industries. This is the opportunity for the banks: rather than asking the customers to come to the bank – which is the old mindset - it is about making them go where the customers are.”