Infosys Finacle, part of EdgeVerve Systems, a product subsidiary of Infosys (NYSE: INFY), and Efma, a global not-for-profit organization promoting innovation in retail finance today launched the seventh annual study of ‘Innovation in retail banking’. According to the research, 84% of retail banks have increased their investments in disruptive technologies and innovative services this year to deal with a surge in new industry competitors. This comes at a time when the perceived threat of market disruption in retail banking is mounting.

According to the report, which surveyed over 100 retail banks around the world, approximately three quarters (72%) regard the threat from technology companies, start-ups, retailers and/or telecom players as high or very high. The report highlighted that start-ups introducing new technologies and business models that are counter to established retail banking practices present both challenges and opportunities for banks.

Key Findings:

·       Over two thirds (69%) of banks believe that start-ups will have a high or very high impact on innovation and can help them to develop more innovative solutions

·       Start-ups are introducing new business models such as Peer-to-Peer (P2P) banking, bypassing conventional inter-bank wire transfer mechanisms to lower costs. About 40% of respondents believe such business models will have a significant impact on the industry

·       Despite the impact of new technologies on the banking industry, 60% of banks are not upbeat about start-up challengers and partners. Concerns over regulation and security are high, with half of the banks citing these as the primary challenges of working with start-ups

·       Over two thirds (68%) of banks believe they are becoming more innovative; 84% are increasing their investments in channels; and 82% are increasing their spends on improving customer experience

·       The most important new technologies (after mobile) for banks are advanced analytics/big data where 57% of banks expect the impact to be high or very high. This is followed by open APIs (53%), and the Internet of Things (47%)

·       Mobility is the most sought after competitive solution; almost two thirds (59%) of banks expect mobile technology to have a high or very high impact on the market

The research also highlighted that multinational retailers, such as Tesco and Walmart, have launched banking products (independently and in partnership with GoBank, respectively) to compete with established financial services providers. It also explored the success of TransferWise (payments) for its P2P model that undercuts banks and legacy competitors.

Quotes:

Michael Reh, Executive Vice President and CEO (Designate), EdgeVerve:

“Digitalization continues to massively shake the business foundations of ‘brick and mortar’ banking institutions. Banks need to proactively disrupt themselves and explore working with innovative start-ups to accelerate change and develop a leading edge in a competitive market. To achieve this, a dual strategy will be critical. Banks need new capabilities to help their businesses grow in new ways. They also need to renew their existing systems, opening them up to benefits of mobility, analytics, cloud computing, and connected systems.”

Patrick Desmarès, Secretary General, Efma:

"This year's global retail banking study demonstrates that banks are eager to innovate, develop formal innovation practices, and increase their involvement with start-ups. This is a step in the right direction, but retail banks must be confident about the value of their start-up investments in order to collaborate with start-ups.”

Additional Resources:

·       The full 2015 report can be downloaded here

·       View related infographic, video and other collaterals here

·       Last year's report: Innovation in Retail Banking 2014