Innovation

in banking
 Question # 1
What is the purpose of banking?
 Main purpose of banks
1. Keep money safe for customers.
2. Offer customers interest on deposits, helping to protect against
money losing value against inflation.
3. Lend money to firms, customers and homebuyers.
4. Offer financial advice and related financial services such as
insurance.

http://www.economicshelp.org/blog/glossary/banks/
http://www.sparknotes.com/economics/macro/banking/section1.rhtml
 The purpose of banking is to simplify people's lives.

https://www.goodreads.com/review/show/2476687254
Location 2000.
 HSBC wants to help people fulfil their hopes
and dreams and realise their ambitions.

http://www.hsbc.com/about-hsbc/our-purpose
 Instead of asking "How many mortgages did we sell today?“
ask "How many people did we help to buy their dream
home today?"

https://www.goodreads.com/review/show/2476687254
Location 2750
 The ethos of Handelsbanken is that a bank should be
an asset to the community, not a liability.

https://hrmasia.com/case-study-the-immeasurable-currency-of-culture/
 Amalgamated Bank is committed to strengthening
communities in which they work.

https://www.amalgamatedbank.com/community-impact
 One of the purposes of the fintech revolution is financial
inclusion – providing financial services to the underbanked
segments in both mature and emerging markets.

https://hernaes.wordpress.com/2015/08/30/the-end-of-irans-nuclear-winter-in-financial-services/
Extracts from interview with Dan Schulman, www.paypal.com
 When we think about democratizing financial services, we also want to
democratize giving. People want to give.
 We want people to be part of their communities, to be able to donate.
 In 181 different countries, more than eight million people donated
through PayPal.

http://www.mckinsey.com/industries/financial-services/our-insights/using-fintech-to-democratize-financial-services
 Question # 2
How can banks help people to trust?
 Transparency in the reporting of financial and non-financial
information is fundamental in creating trust.

http://www.transparency.org/whatwedo/publication/incentivising_integrity_in_banks
 Open banking can be defined as a collaborative model in which banking
data is shared through application programming interfaces (APIs) between two
or more unaffiliated parties to deliver enhanced capabilities to the marketplace.
Regardless of region, the momentum toward open banking models seems clear.

The potential benefits of open banking are substantial:

 Improved customer experience,
 New revenue streams,
 A sustainable service model for traditionally underserved markets.

http://www.mckinsey.com/industries/financial-services/our-insights/data-sharing-and-open-banking
 Research shows that the most robust reason why people
would lose trust in banks relates to large bonuses.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2373084
 Fixing the culture will require creating a compensation system
that better aligns or balances shareholders’ interests
and the broader society’s interests with the individual’s
interests.

http://www.bloomberg.com/news/2010-11-08/morgan-stanley-s-gorman-says-hero-culture-needs-to-change-to-limit-risks.html
 Only by truly caring about the customer’s interests
can you build up a trustful relationship. Research shows that
working directly with money may undermine those benevolence-
driven actions and decisions.

https://hbr.org/2015/03/why-our-trust-in-banks-hasnt-been-restored
 Question # 3
How can banks reduce costs?
 To reduce costs, banks could move from fixed costs to
variable costs models, for example regarding IT infrastructure
and/or by renting instead of owning workspace.

https://www.mckinsey.com/industries/financial-services/our-insights/no-going-back-new-imperatives-for-european-banking
 Strong reduction in
fees and margins in
banking.

http://www.mckinsey.com/industries/financial-
services/our-insights/a-brave-new-world-for-global-banking
 Question # 4
How can banks help users more?
 3 examples of what banks can do to help customers?
1. Offer liquidity advice as a subscription service.
2. Create simple, affordable, guaranteed
investment products to improve retirement savings.
3. Build extended services around mortgages, for example by
helping people manage building maintenance.

https://www.mckinsey.com/industries/financial-services/our-insights/no-going-back-new-imperatives-for-european-banking
 The AI-first bank will offer propositions and experiences that are
 intelligent, i.e. recommending actions, anticipating and
automating key decisions or tasks.
 personalized, i.e. relevant, timely and based on a detailed understanding
of customers’ past behavior and context.
 seamlessly spanning the physical as well as online contexts across
multiple devices, delivering a consistent experience and blending
banking capabilities with relevant products and services beyond banking.

https://www.mckinsey.com/industries/financial-services/our-insights/ai-bank-of-the-future-can-banks-meet-the-ai-challenge
 Customer propositions need to be intelligent, tailored and go
beyond banking to address customer needs that may involve both
banking and non-banking products and services.

Example:
Deniz Den, a platform initiative by Deniz Bank for agricultural
consulting and financial services, supports farmers with timely
information about agricultural best practices and advice on small-
business finance and investments.

https://www.mckinsey.com/industries/financial-services/our-insights/reimagining-customer-engagement-for-the-ai-bank-of-the-future
Use of AI technologies to improve customer experiences

https://www.mckinsey.com/industries/financial-services/our-insights/ai-bank-of-the-future-can-banks-meet-the-ai-challenge
 One of the most effective way to be helpful to customers is by mobilizing
a large number of third parties who have complementary
products and services that can help the customer get
more value from your own products and services.

http://edgeperspectives.typepad.com/edge_perspectives/2015/03/disruption-by-trusted-advisors.html
4 benefits of electronic transactions
# 1: Convenience
Reduces the need for customers and merchants to carry cash.

# 2 Efficiency
Reduces the cash management costs for businesses and financial institutions.

# 3: Traceability
Enables a greater degree of visibility into the flow of money for financial institutions
and regulators, facilitating taxation, transparency, and information gathering.

# 4: Protection
Protects customers and merchants from fraud and theft by documenting transaction
records and reducing the need to hold cash.

http://www3.weforum.org/docs/WEF_The_future__of_financial_services.pdf
 More than a billion people in emerging and developing markets
have mobile phones but no bank accounts.

http://mckinseyonsociety.com/downloads/reports/Economic-Development/Mobile-money-Getting%20to-scale-in-emerging-markets.pdf
 www.barclays.com is developing mobile technology and digitized
records to better understand and serve the needs of unbanked people.

Since 2009, Barclays has provided savings accounts and financial

education to 513,000 previously unbanked individuals who live on less
than USD 2 per day.

http://sharedvalue.org/resources/banking-shared-value
 In Belkuchi, Bangladesh, the vast majority of the population was involved in
creating lungis, traditional men’s garments.

By understanding the supply chain of this cluster, http://dhakabankltd.com/

was able to create shared value by helping with
 agricultural loans timed to the local growing seasons for farmers,
 capital equipment loans for weavers, and
 working capital for traders.

http://sharedvalue.org/resources/banking-shared-value
 Question # 5
How can banks invite users and
other partners to partipate?
 Banking platforms are becoming interactive.

http://www.joics.org/gallery/ics-2697.pdf
 Among the digital opportunities for European banks
are integration with social media.

http://www.mckinsey.com/Insights/Business_Technology/The_rise_of_the_digital_bank
 People, who work for banks, could write blogs - enabling
discussions of specific economic developments, new services,
or the latest research of interest to target customers.

http://www.strategy-business.com/article/11202?pg=all
 Banks increasingly realize that to succeed with digital, they must
adopt the habits and culture of digitally native companies. Examples:
 Opening up the banks’ application programming interfaces.
 Pursuing agile development.
 Hosting hackathons to foster intensive digital collaboration.

http://www.mckinsey.com/insights/financial_services/Strategic_choices_for_banks_in_the_digital_age
 When designing / developing new products, for example mobile
payment products, it will be particularly important to engage younger
consumers (ages 18–34), who are more smartphone-savvy.

They can, for example, beta test product prototypes.

http://dupress.com/articles/mpayments-mobile-POS-system-in-retail/
 20% of Europe’s energy must be derived from renewable sources by 2020, a
European Union policy directive said. While http://www.ing.com/ saw this as a
huge opportunity for the bank to finance renewable projects and support its
clients, it also recognized the need to engage others to manage such a vast
undertaking effectively.

In the Netherlands, for example, ING collaborated with other banks, project
developers, and Dutch regulators to collectively develop the Energie Akkoord, a
set of guidelines for energy projects, policies, subsidies, and financing
mechanisms to support the financing of enough deals to meet the 2020 goals.

http://sharedvalue.org/resources/banking-shared-value
 DBS Bank from Singapore transformed itself from a bank to a platform
company and technology integrator. Its CEO Piyush Gupta was convinced
that cross-industry ecosystems would be the business model of the
future and that organizational structures needed to evolve, as data and
inter-departmental collaborations would be pivotal to succeed.

The company embarked on a major digital transformation of its core

banking processes, insourced most technology services, established a
data first culture, formed platform teams of business and technology
functions, and launched the world’s largest banking API platform.

https://bcghendersoninstitute.com/are-you-ready-to-become-an-ecosystem-player-ca466b360e34