Innovation: An Effective Strategy for Banks to Grow


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Innovation is fundamental to the success of any financial institution in an age where banks have to adhere to stricter regulatory requirements from central banks and also keep their customers and shareholders happy. Banks over a period of time have developed business models which depend crucially upon offering standardized products / services and coupled with systems which are silo-ed and legacy in nature.

There is a greater need to understand customer expectations and also what the competition has to offer and come out with products and services which attract attention and help in better customer experience and profitability resulting in building a culture of innovation amongst the employees. Some of the areas on which institutions can work upon in this endeavor are not difficult to implement and will help in building an innovation led organization.

Existing employees
Some of the best suggestions and ideas come from own employees. On account of their constant interaction with customers and knowledge of what the competition has to offer, employees are the best people who understand the pulse of the market. Employees should be encouraged to come out with ideas which will help in creating innovative products and benefit the institution as a whole. It will come by empowering the team and giving them freedom to work. Contests and role plays within the teams will also help in nurturing ideas in building innovative products. It is important to have a good rewards and recognition system to ensure that people within the organization are credited for any innovative idea/suggestion.

A new bank in Africa wanted to increase its brand visibility and market share which resulted in inviting suggestions from its employees. Added to it the bank also announced great reward and recognition schemes for best suggestions/ideas. One of the recognition was actually having lunch with the CEO at a top class restaurant. The response to this internal initiative resulted in an outpouring of innovative thoughts and suggestions which when actually implemented helped the bank to be known better thereby reaching a much larger segment of population. The bank met its objective of increasing its brand visibility and was able to give larger banks run for their money. Culture of innovation needs to be imbibed in every employee and they need to be given opportunity to train/retrain themselves to stimulate in them the thinking capacity.

Banks should start building a knowledge pool by recruiting the brightest and most qualified people available in the market. Just by hiring a person is not enough, the new hires need to be provided with continuous learning opportunities. Encourage out-of-the-box thinking in people hired and this should be emphasized very early in the recruitment process to ensure that only people with creative ability are hired. The hiring process needs to be carefully calibrated to see that only the best are hired.

A small bank in Asia has multiple layers of interview/tests process before they actually hire an employee. Candidates are put through situations which test their logical and creative bent of mind. The end result is that they have been able to attract the right kind of people resulting in increasing their market share by constantly coming out with innovative schemes and services. Hiring is an exhaustive process and multiple levels of screening along with peer reviews help in this regard. The newly hired employees need to be provided a conducive atmosphere to encourage creativity and learning.

Innovation labs
The innovation lab concept is popular one in IT companies and the same can be replicated in banks. The brightest of the employees can be designated to work in these labs and full freedom be given to those to come out with innovative products and services. These labs will have the capabilities to test market the prototypes and also come out with innovative processes which will help banks in launching a great product/service. Any innovation is going to be time consuming and banks need to have the patience and also be prepared to invest large sums of monies. The investments need to be looked from a long term perspective and banks need to have the staying power to see both ups and down in this area. Short sighted approach is not going to help and one needs to have long term commitment in the setup. Innovation is all about taking risks and banks need to be prepared for the same.

Based on customer feedback and competition data/research, Banks need to have clarity on the Products and Services being offered to a particular segment of its Customer base. A proper framework needs to be developed by Bank which analyses the Product Life Cycle along with Customer Profiling. For example, if a Bank needs to know how to get a particular Customer segment to open an account with them, then extensive research and study need to be carried out to gauge how the end consumer will behave and where they invest the money etc. Just getting to develop a product/service without any background is going to fail miserably. So it makes sense to have a framework, build a prototype and test market it before a public launch along with cost benefit analysis. A well known bank in India launched a card product which enabled it to tap into some unknown territory. The bank went and built the prototype based on the principles that the components could be reused once the test launch was successful. The product was test marketed to a select group of people and based on the response and using the original structure went for a full fledged launch of the product. The launch helped the bank in creating a new product as well as increasing its market share. It is important to know that the competition is always one step ahead and banks need to be constantly innovating to suit customer requirements.

For any innovation to be successful genuine commitment from top management is crucial. Each and every person at the top should commit a certain percentage of his/her time on developing and sustaining innovation, and making it clear that it is fundamental to the success of the company. People need to share the same vision and it is the responsibility of the management to provide resources, financial aid and finally empowerment. The best example of leadership support was the launch and success of m-pesa in Africa. The top management of Safaricom which launched this was fully behind it and also involved in the whole process. This concept is now being tried and used across the globe.

It is important for Banks to, listen to their people, hire the best and provide them all the training and facilities in order to see that innovative products/services are created. It is important to weave innovation into the very fabric of the company. This will go a long way in creating a customer centric organization and also one which can see good top line/ bottom-line results. Innovation is also a successful competitive advantage, if successfully harnessed banks can create new revenue channels with better profitability margins and have the advantage of an early entrant.

Disclosure: The opinions expressed herein are my own and do not reflect those of the company

Girish P B
Girish is a Consultant with expertise in Retail Banking(Cards & Loans) and has extensively worked in the areas of People Management, Operational Management , Contact Centre Management-Voice & Non-Voice, Client Servicing and Relationship Management.


  1. Some good thoughts, especially tapping into the employee pool of talent. Having the right type of people in the first place is critical, but I think that there needs to be a drive and time allocation to get the ideas from the employees.
    Thanks, thought provoking!


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