Albert Einstein once said that ‘problems cannot be solved by the same level of thinking that created them’. In that case, the crisis and thereafter must indeed be fertile breeding ground for better ideas and innovation. We decided to test this premise in our recent research on banking innovation.
The results were mixed.
Just about half the respondents in the Europe, Middle East and Africa survey believed that the banking industry had become more innovative in the past 2 years, with the remainder split equally in thinking that it had become less innovative or had stayed the same. But what’s significant is that many of those who said the industry was now less innovative thought the crisis was to blame!
Asian banks, on the other hand, were almost unanimous in their belief that the industry had become more innovative in the last 2 years; certainly, the crisis increased innovation especially in products and channels. Not surprisingly, almost 2 out of 3 banks had stepped up innovation related investment in this period. More banks said that they were innovating for growth than efficiency.
While there’s been enough noise about channel versus product and growth versus efficiency as the target of innovation, the crisis has forced a quiet but significant change to the retail banking business model in many countries. There’s a move to use low-cost discount and direct banking models to tap the inclusion segments. The mobile phone is tipped to drive innovation in developed and developing nations, but in different ways, with the low cost angle being more relevant to the latter. Kenya’s M-PESA mobile money transfer service, which hit 9.5 million users in March 2010, and has supposedly inspired over a hundred such initiatives the world over and Bank Inter’s mobile enabled applications which range from banking to ‘augmented reality’, and is used by 30% of their customers, illustrate this point.
Universal banking is making way for smaller, distinctive businesses under the parent umbrella, focusing on specific market segments. This is being driven both by the need to have differentiated cost models for various lines of business as well as the acquisition of select assets of Western banks hit hard by the crisis. ANZ’s takeover of RBS’ retail, wealth and commercial businesses in several Asian countries and OCBC’s buyout of ING’s Asia private banking franchise are two examples of this.
Although Asian banks are innovating more, it’s not across the board. Large, mature institutions have been very circumspect about entering new businesses and markets. Also, heavy attrition at the top level in retail banks has pegged back innovation.
All in all, it seems like a fractured verdict. But now that the storm clouds have passed and the focus is back on growth, do you think we will see more aggressive innovation intent? Or will it actually slide back?