Strategic Innovation: A Must Have Or Nice To?
Poland’s FM Bank was established to provide financial services to SMEs, a segment neglected by a strong and innovative banking sector which chooses to go after corporate accounts. The Bank is hopeful of exploiting the micro and small business white space to acquire more than 40,000 customers by end 2010.
BOKU, an innovative payments service launched in 2009 enables cellphone users without a credit card or bank account to make online purchases, which are simply charged to their mobile phone bill. Currently, the service is available in over 50 countries.
In 1997, U.K.’s largest retailer Tesco stepped into financial services in partnership with RBS, whose stake it bought out earlier this year. It is now setting up infrastructure to launch its own bank, which will offer current accounts, savings and mortgage products. Given Tesco’s reach and reputation, this move is perceived as a reasonable threat by other banks in the U.K.
Although strategic innovation, defined by its significance to the business model and ability to create lasting competitive advantage is rare in banking thanks to customer inertia and regulatory restrictions, certain potentially disruptive innovators, like those in the examples above, could emerge as serious competitors in future. In Asia, the markets in the North with their mix of openness and dynamism are more vulnerable to innovative and non-banking entrants than those in the South or South East.
But overall, Asia’s banking industry is mainly focused on incremental innovation which adds up over time to create greater impact. Only HSBC has repeatedly innovated strategically, the latest instance being the readjustment of its wealth management business model in Hong Kong. When the industry was hit by various incidents of mis-selling, despite not being involved, the Bank launched a concerted drive to revive flagging customer trust. For instance, it educated investors typically inclined towards short-term equity on the benefits of diversification, and backed it up by proposing diversified core investments offering stable risk-adjusted returns. It also offered a first of its kind service pledge whereby dissatisfied customers could terminate their policies within 30 days and recover the premium paid in full.
In Europe, Turkish banks have earned a reputation for their (at times disruptive) innovativeness. Many offer ‘instant’ loans via SMS or ATMs and Kiosks, wherein customers can collect the money from a branch or even a kiosk as soon as they submit the required documentation. This is convenient for customers and cost effective for banks, and although regulatory barriers in other countries may prevent their banks from following suit, there’s no denying the innovativeness of the idea.
We observe that strategic innovation is almost always the preserve of few pioneering banks, with the majority taking a wait and watch approach. Successful strategic innovators have created a culture of experimentation and learning, which gives them a head start while anticipating and reacting to major trends. In the current climate of change and intense competition, do you think more banks should be innovating strategically?
