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

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

https://hrmasia.com/case-study-the-immeasurable-currency-of-culture/

The ethos of Handelsbanken is that a bank should be an asset to the community, not a liability.

Amalgamated

https://www.amalgamatedbank.com/community-impact

Bank is committed to strengthening communities in which they work.

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?

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

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2373084

Research shows that the most robust reason why people would lose trust in banks relates to large bonuses.

http://www.bloomberg.com/news/2010-11-08/morgan-stanley-s-gorman-says-hero-culture-needs-to-change-to-limit-risks.html

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

https://hbr.org/2015/03/why-our-trust-in-banks-hasnt-been-restored

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 benevolencedriven actions and decisions.

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/financialservices/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 smallbusiness 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

http://edgeperspectives.typepad.com/edge_perspectives/2015/03/disruption-by-trusted-advisors.html

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.

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?

http://www.joics.org/gallery/ics-2697.pdf

http://www.mckinsey.com/Insights/Business_Technology/The_rise_of_the_digital_bank

Among the digital opportunities for European banks are integration with social media

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