When It Inhibits Innovation

The 2013 Efma-Infosys study on Innovation in Retail Banking clearly establishes that banks are increasing investments in innovation, drawing up detailed strategies to make those investments work, and defining metrics to determine if outcomes are delivering business value.

But the study also reveals that there are some significant obstacles that stand between banks and their desire to innovate their way to growth and profitability. And current legacy IT systems seem to be the most significant of them all.

Depending on the size of the institution, there can be different barriers like the traditional silos in large banks or the financial constraints of the smaller ones that can hamper large-scale innovation efforts. Including current legacy IT systems, the study ranked six such factors – culture, organization silos, regulation, management priorities and financial constraints. But across the board, for large, medium and small banks, current legacy IT systems emerged as the number one barrier to innovation.

The study drilled further down to identify more IT-influenced business conditions impacting innovation capability. The top three constraints that emerged at this stage were the inability to crank up business process speed, agility & efficiency; challenges of creating true customer-centricity; and managing the cost & complexity of running disparate systems.

Omni-channel customer experience, multichannel integration and customer insight are also factors that banks emphasize as being critical to their innovation capabilities. Both issues at the top of this list are related to channels and this is an area that banks have typically funneled a significant proportion of their innovation dollars into. Customer insight is an obviously critical capability to drive customer-focused innovation and banks stressed the need for a single customer view across channels – a feature that only 35% of them currently possess – and to deliver product personalization, something that only 21% of banks are capable of offering today.

It is important to note here that all the factors mentioned above are either customer or channel related, if not both. Given that these are the two important focal points for banking innovation, it becomes imperative to address IT-related impediments that are hampering innovations in these areas as well as in other aspects of the business.