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INNOVATION OR INNOVATION

Introduction

The headquarters of Professional’s Bank of India (PBoI), situated in the heart of Mumbai’s

innovation district exuded the quiet confidence that was customary with one of India’s

youngest banks. In its relatively short eleven year journey, PBoI had emerged as one of the

country’s top 5 banks. Amidst turbulent global markets and slowing domestic growth, PBoI

had carved out a niche as one of the fastest growing banks in the country and a global trust

mark.

In a relatively commoditized and highly competitive market, PBoI has created a unique

differentiated positioning through Knowledge banking driven relationship oriented

strategy, focusing on the emerging sectors of economy. As a full service Commercial bank,

PBoI combines the strengths of its Relationship teams, Knowledge Bankers and Product

experts to provide customized financial solutions to its clients.

Another differentiator for the institution was the concerted focus it had placed on

Innovation and Digital Banking. Blending frugal innovations and some pioneering

initiatives the bank had created a distinct positioning in the technology led innovations

space. One of its recent initiatives to provide frugal technology solutions to the unbanked

and under-banked segment had received plaudits within and beyond the industry, as also

within the media.

Naturally, the quarterly presentation of the Innovation and Digital Banking team to the

management of the Bank was one of the most awaited presentations. Not only was it a

welcome break from the usual rigmarole of risk assessment and growth projection charts,

but also an opportunity to get a sneak preview of the exciting innovations lined up by the

Bank.

Digital Banking Presentation

The digital banking team wanted to showcase the rapidly changing landscape of banking to

the management and make a case for implementation of the Digital Banking Innovation

Roadmap. His team’s presentation today would present an in depth analysis of the effects of

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this rapidly evolving scenario. The implementation of the digital banking innovation

roadmap would be critical in maintaining PBoI’s pre-eminent position as a pioneer in

Digital Banking.

PROFESSIONAL’S BANK OF INDIA (PBoI) - BACKGROUND & PATH FORWARD

PBoI has shown impressive growth in the last eleven years. It has scaled greater heights and

now strongly positions itself amongst the top five private banks in the country. The dynamics in

the Indian Financial Services sector have been undergoing a change in the past few years.

Timely regulatory reforms in the sector have introduced new challenges as well opportunities

for the existing and new banks.

According to a report by the Internet and Mobile Association of India (IAMAI), digital

payments are expected to grow by 40% on the back of rising transactions in e-commerce, utility

bill payments and other online transactions. Statistics show that nearly 50% of e-tailing is still

cash on delivery and as that shifts towards pay on delivery or pay on order, the numbers will

only rise.

The Bank has been successful in creating a unique differentiated positioning through

knowledge banking and relationship oriented strategy. PBoI is now on the anvil to chart a

Digital Strategy for the Bank to respond to market needs and also remain above competition.

Strategic Discussions

The Head of Digital Banking leads the deliberations along with other Senior Management

personnel including Business Innovation & Strategy, Marketing & Communications, Finance

and Technology Operations. The deliberations revolve around current digital projects of the

Bank being executed and the roadmap for future, ways to implement it and the dilemma about

which route to take for introducing disruptive innovation in the digital space.

It is interesting to see that the scope for product innovation in banks has increased multi-fold

but at the same time the competition has increased as well with banks not only facing

competition from the banking sector but also from the non-banking sector. The retail consumer

segment is being catered to especially in the payments space by the non-banking sector

providing avenues to the sector for sophisticated customer engagement.

3-D Effect of Digitization: Demographic, Disruptive Technologies & De-Regulation

1. Rapidly Changing Demographics: Global Increase in Digitization

In the past 3-4 years, consumers have rapidly adopted digital technologies, with the

adoption rate of some devices like smart phones being particularly high in the Asian

markets. As per a Finacle Connect report globally 90 percent use at least one digital channel

– and globally 70 percent use 3 digital channels on an average.

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With the proliferation of e-marketplaces the consumer decision journey is beginning to

move completely online from the pattern of online research and offline purchase. Digital

ads and social media are being used to build product awareness online, interest is expressed

through peer discussion on various existing social platforms as well as up and coming ones

like Snapchat. Even the buying decision is influenced by online peer discussions and price

comparison websites. However, the biggest shift has come with the eye-catching online

offers and wide variety of choices on e-market places – the purchase itself has gone

digital. The trend will only accelerate as the young and digitally savvy generation matures

as consumers. Three major shifts in consumer behavior which banks and financial

institutions need to be cognizant of are:

Increasing usage of digital media across Asia and in particular India – including

higher penetration of mobile, internet and smartphones across markets

Channel Preference Shift – Channel preference has shifted among younger and

wealthier segments toward non-branch channels. 40 percent of Asian mass-affluent

customers now prefer online or mobile banking; among those under 40 years of age this

preference rises to 50 percent1

Multichannel consumer decision journey – path towards purchase from awareness to

research, subscription and maintenance has become a multichannel journey. Banks will

be able to boost flagging customer loyalty and increase share of wallet by offering an

integrated and seamless customer experience across channels

Emerging Consumer Segments basis Trends

Given this paradigm shift, banks will now need to quickly adapt their offerings and

propositions to the digiphilic consumer. Some research reports have identified some key

emerging consumer segments who would be key influencers in the digital banking and

multichannel banking sphere:

Figure 1: Emerging Consumer Segments with greater Digitization

The Techfluent Digital Change Makers Gen Z

Digitally Savvy Extremely prosperous Well Educated Next gen/Second Gen entrepreneur or Top/Senior Management of organizations

Young go-getter Mass-Affluent Significant Disposable Income Fast rising to leadership roles

15-25 year old Financially dependent/first job Form crux of consumer base

1 2014 Digital Banking in Asia: Winning Approaches in a New Generation of Financial Services - McKinsey

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While each segment has its unique facets, across these segments the common thread is the

expectation of their complete banking needs to be addressed through digital channels.

2. Disruptive Technologies: Evolving Strategic Outlook of Banks the World Over

Banks, the world over, have taken or rather been jolted to action to embrace the digital

revolution. There have been significant investments in technology migration and updation of

web and mobile technologies, as well as definitive increase in innovation budgets.

According to research, spend on digital channels in a Bank will account for USD 10 billion in

2018. Banks around the world have added one new channel in the past five years. Mobile

friendly banking tops the list of digital channels being implemented.2

In Asia alone, more than 700 million consumers use digital banking with a significant number

of those consumers being in India and China. Financial Institutions on the other hand are

quickly adapting to tech savvy consumer segment as banks find such consumers to be more

attractive as they are more educated, have higher account balances and are very active in online

shopping.3

The questions for Banks and How they have Responded

This rapid proliferation in e-commerce and non-bank companies entering in the digital

payments sphere poses a significant question to traditional banking models. PBoI has classified

the five common strategic responses of Banks using the following Strategy matrix.

Fig 2: Strategy Matrix of Response of Banks to Growing Non-Banking Competition

2 Finacle Connect: Connecting the Banking World: Banking on Digital Channels. Infosys Limited, 2014, Vol. 8, Issue

29. 3 McKinsey & Company: Digital Banking in Asia: What do Consumers really Want, 2015

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Level of Digitization(y) vs Level of Collaboration with Non Banking Competitors (x)

The following examples further highlight the significance that banks and financial institutions

have been placing on digitization and social media banking

a. Barclays B pay band: Bpay the Barclays wallet now has a wearable payments solution. It

is a wristband that enables customers to make transactions in shops, bars, cafes as well

as public transport. This device allows customers a simpler way to pay for goods and

services by just tapping their wristband.

b. Turkcell Wallet: This is a digital wallet product that offers consumers the payment

option for both online and POS transactions based on the NFC technology. It supports

NFC with a secured layer that is built within the SIM card itself. It also allows the user to

store credit, debit cards, tickets as well as digital ID. Also allows p2p money transfers.

c. Jibun Bank: Jibun Bank which launched its App as early in 2010 now offers customers

the benefit of e-KYC and e-ID as well. The App which now has NFC payment features

has helped the bank increase deposits by 62% in FY 2013-14.

d. Banco Sabadell: Banco Sabadell of Spain this year launched an app on Google Glass.

The bank’s Google Glass app will allow users to connect to the internet and carry out all

kinds of operations via voice commands. Other features being built in is looking at a

cheque and depositing it with voice commands.

Direct Competition

Incorporating digital advancements into banking model

Co-Creating Disruption

Collaborate with the competitor and co-creating a game-changing

offering

Dogged Defense

Sticking to core strengths and improving them to attract

consumers

Traditional Collaboration

Collaborating to improve traditional banking models

Balanced Approach

Collaboratingto improve some functionalities while maintaining rivalry

in others

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e. Commonwealth Bank of Australia offers a mobile app that uses “augmented reality”

technology to help with home-buying. House hunters simply point their smartphone

camera at a residence to bring up extensive property detail, alongside monthly payment

estimates on mortgages and insurance.

The entry of Non- Banks: Challenge or Opportunity? In addition, banks increasingly realize

that to succeed with digital, they must adopt the habits and culture of digitally native

companies who have also fast established themselves as strong competitors in the sphere. Some

technologies which present a significant threat as well an opportunity for banks are:

a. Alipay: Alipay.com is a third party online payment site, which does not have any

transaction fees. Launched in 2004 in China, Alipay today has the biggest market share

in payments in China with 300 million users and controls almost half of China’s online

payment market.

b. Moven: Moven is the world's first real-time mobile money tool. It's a revolutionary

service that lets you spend money from your mobile device and provides instant

feedback on your transactions and spending patterns. They also help in budgeting and

linking all banking accounts, as also a track of nearby stores and geo-location.

c. Square: Square changed the game in the micro-merchant segment (merchants with

electronic sales volume below USD 250 million) through innovative “self-service”

distribution and seamless wireless connectivity.

d. Mswipe: M-Swipe has given an alternative solution to POS machines given by banks,

thus increasing the reach of digital payment to traditionally cash-only transaction-based

services (such as barber shops, kirana stores, etc.)

3. Deregulation in India: Entry of Non–Banks

Payment Banks: Growing Challenge or New Opportunities: In August 2015, the Reserve

Bank of India made good of its promise to give out payment banking licenses. From telecom

players like Airtel to wallets like PayTM – the central bank gave the nod to 11 applicants.

While the primary objective of these banks will be to increase financial inclusion by providing

small savings accounts, payment/remittance services by enabling high volume-low value

transactions in deposits and payments/remittance services in a secured technology-driven

environment, they will be a significant player in the evolving financial ecosystem.

Digital Innovations by PBoI

Banking today is fast moving from the traditional model of brick and mortar to digital devices.

An interesting combination of human and technology support is creating waves in how we

engage with our clients. In light of the changing consumer demographics, there is an urgent

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need to modify the banking channels. PBoI has cautiously responded to consumers’ needs and

demands from time to time and successfully have improved customer satisfaction.

All digital initiatives of PBoI are built on the partnership model- based on its philosophy of “co-

creation and co-operation”. The partnership model reflects the Bank’s core ethos of relationship

banking coupled with knowledge driven banking.

1. E-Comm Smart helps e-commerce companies to build in efficiencies in the COD

transactions by making available a smart box at strategic locations that are accessible

24/7. Through this product companies can also accept payments trough cards using

PBoI merchant acquiring solutions embedded within the smart box.

2. Get Smart: technology of SIM sleeve is used to enable P2P payments across smart and

feature phones whereby users are prompted for inputs to conduct the transactions

through an app which is triggered by the sleeve. The Bank has focused on digital

inclusion of non-smart phone users through this unique technology.

3. Bank Statement Analyzer: Relationship managers can analyze all the bank statements

provided by the customers to avail SME products and arrive at key ratios/parameters to

build a credit score card. Technology deployment through this tool has improvised the

Bank’s operational efficiency.

4. Partnerships: Several strategic partnerships with e-commerce companies have been

executed to issue co-branded prepaid cards to their wallet users. The partnerships have

been undertaken to maximize spend campaigns to increase usage of digital channels of

the Bank.

Way forward & Strategic Outlook

The Bank has gained significant momentum in introducing various digital channels. However,

with proliferation of social media and competition from non-banks in the payments space, the

Bank needs to introduce disruptive innovation in customer acquisition and engagement

category. As more and more digitization will take place, customer engagement will be

paramount for the Bank to stay ahead of the competition curve.

The Strategy team of the bank had laid out the framework with the Innovations team for

evaluation and implementation of the new digital banking roadmap.

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Figure 3: Digital Banking and Innovation Roadmap – Strategic Framework

Business Outcome

S

ph

ere

of

Inn

ov

ati

on

Heightened Customer

Engagement

Quantum leap in

Customer Acquisition

Brand Buzz

Payments

Innovation

Comprehensive

M-banking

Social Media

Banking

Data Analytics and Predictive Models

Several ideas have been tossed around in the meeting. One of the teams voiced its opinion that

the innovation roadmap should be structured around the core competencies of the bank as a

digital banking leader, while another felt that market attractiveness in terms of size, profitability

and the existing competition should define the roadmap.

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Expectations from You

As the Chief Innovation Officer of the bank and the leader of the Digital Banking and

Innovation team, you will have to guide the team by:

1. Conducting a comprehensive research with your team on:

a. Breakthrough innovations in banks and non banks globally and in India

b. Force-rank these innovations basis their business success

c. Benchmarking of Indian and top foreign banks strategy in digital banking space

for customer engagement

d. Possible challenges or opportunities for PBoI in the digital banking segment from

banks and non-banks

2. Basis your research and the framework shared by the Strategy team create the innovation roadmap for PBoI. Your may choose to concentrate on any one or all of the spheres of innovation with any or all of the target business outcomes. Naturally you will have to support your strategic route/s with business justifications (size of target market, strategic fit with competencies) as well as broad budget allocations.

Note: Answers should be within 1000 words in Book Antiqua font size 12. For details please check submission guidelines. Also enclose a 200 word Executive Summary (exclusive of the above). Your submission should not exceed 10 pages.

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Exhibits

162 224 304

386 467

550 625 388

389 364

332 291

243 195

FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20

Exhibit 1 Opportunity for Banks: Growing number of

smartphone users

Number of smartphone users Number of non-smartphone users

Source: Digital Banking: BCG Analysis

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Uber

Google

Apple Ebay

Amazon

Exhibit 2

Consumers’ experience with non-bank

digital companies increasing expectations

from banking sector

Source: Digital Banking, BCG Analysis

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>90%

< 10%

Exhibit 3 Composition of transactions in Indian

Economy

Cash and cheque transactions Electronic transactions

Source: RBI, Ministry of Finance, Government of India, Planning Commission, PwC analysis

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33%

60%

3% 5%

21%

54%

12% 12%

Branch/Telephone ATMs Smartphone Internet Banking

Exhibit 4 Consumer shift in Emerging Asia: Use of

Digital Channels

2011 2014

Source: Digital Banking in Asia, What Consumers Really Want; March 2015

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Exhibit 5

Account opening process at Jibun Bank

using smart phone

Take photo of the driver’s

license with smart phone

camera

Also take photo of

backside of the driver’s

license with smart phone

camera

Enter additional

information and send to

Jibun Bank

With OCR function on

dedicated application,

information on license can

be captured

After sending the

necessary information,

ATM card is sent within

several days

Source: Finnacle Connect: Banking on Digital Channels