What’s now and what’s next in digital modernization

Banking continues its digital makeover, both to gain efficiencies and to meet customer desires for faster, easier and more convenient.

BAI’s Debbie Bianucci and Dennis Gada from Infosys join us to discuss the trends and priorities they’re seeing in the industry’s digital transformation.

A few takeaways from the conversation:

• One of the dominant trends in digital transformation is creating end-to-end capability that ties together customer-facing elements with middle and back office operations
• Another trend is prioritizing incremental digital innovation: Smaller improvements in products and processes can get to market faster to benefit both banks and customers.
• Over the near term, other expected advances include a broadening in how AI is applied across the industry and greater focus on the growing problem of bank fraud attacks.

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INTERVIEW TRANSCRIPT

Debbie Bianucci, President and CEO at BAI, and Dennis Gada, head of financial services for North America at Infosys, welcome to the BAI Banking Strategies podcast.

BIANUCCI: Hi, Terry. It’s great to be here and, again this year, to be able to talk about innovation in financial services.

GADA: Debbie and Terry, great to be here from my side as well. Looking forward to the conversation.

Debbie, we are talking about transformation today. We’re talking about innovation. No conversation about banking-related innovation is complete without talking about the BAI Global Innovation Awards. The 2022 awards were presented in December. As in years past, you were one of the judges for those awards. What are some of your high-level takeaways from this latest innovation competition?

BIANUCCI: I would say one thing that happened this year is that we made a key change in the way that we were looking for nominations of the best innovation in the industry. That change was to not limit to specifically defined categories what the nominations needed to fit into. As a result, we had some really interesting changes in the way in which the nominations came in. There were more solutions-focused themes on things like fraud and security or diversity, equity and inclusion, ESG. Certainly there was still a lot of innovation in the traditional categories of digital and payments, but that made a big difference in the way in which we were able to see the array of innovation around the world.

Dennis, you were not a judge for the BAI innovation awards, but I know you followed the competition and you have some familiarity with the latest winners. Were there any particular trends that you noticed that really stuck out to you that may have been different than in past years?

GADA: As I reviewed that and also based on what we see more broadly in the industry, I think one of the turning points that we see is that there is a focus a lot more on really end-to-end or front-to-back transformational innovation in the industry, especially with a higher focus on middle to back office processes. While the customer-facing experiences and journeys are still important, but the desired outcomes for those experiences would not be delivered unless the back end and the backstage processes are also digitized. I think that’s what we are seeing more and more of, and that was reflected in the awards as well. For example, Bank of America won the award for digital security where it’s about providing a centralized client-friendly solution with all authentications in one place. Or TIAA won an award for their fraud prevention initiative, which actually analyzes and evaluate phone attributes to assess the risks of each call. Now, these are not awards for the best mobile app or the best website, but for core, fundamental, end-to-end transformation of a business process or a business service, which adds to client impact as well as significant efficiency gains internally in these organizations.

BIANUCCI: I think, Terry, one of the things that is an interesting observation about the awards this year is how much more frequently we are seeing the willingness to be more incremental in innovation, to be more iterative in the way in which these steps are being taken, in order to bring new capabilities to customers and communities that these financial services companies serve.

Listening to these observations, I’m getting a sense that the trend that both of you are seeing these days, innovation-wise, is toward what you call the incremental, the practical, rather than going for the giant leap forward. I’m not suggesting that smaller can’t be just as beautiful, but I am wondering, do you think that moonshots are a thing of the past?

GADA: Innovation can take multiple different forms, from incremental improvements to really game-changing moonshots, as you refer it. Both have their value to play in the long-term success of any enterprise. I feel that the focus right now is a bit more on the here and now, and financial services firms giving more practical considerations. How can you be more efficient and cost-effective? How can they be faster time-to-market and really deliver real value to customers through the innovations and transformation that they can do, really make the financial lives of their end customers, whether it’s an end consumer or a commercial bank, make it simpler? However, having said that, moonshots are also important to look at new and uncharted territories, really pushing the boundaries sometimes to think differently and think big. In most organizations, there is still a continued focus on how you can take a long-term view on certain ideas. In my view, incremental innovation is very important and it delivers the value which is needed in the short to medium term, but moonshots will continue to play a crucial role in the long-term progress. There are some trends we are seeing around those moonshots as well, whether it’s metaverse in financial services or the more recent wave of generative AI, which could have a significant impact on financial services. Some of our latest research on banking in the metaverse reveals that banks are cautiously optimistic about the opportunities there. I would just like to say, maybe a 10 years back, people thought that digital-only banks would not be possible. How can there be a bank without a branch? I feel that maybe five years from now, just banking on the metaverse and getting transactions done through generative AI may become a reality. I’m still a believer in moonshots, but I do feel that more practical, incremental innovation gives the value in the short to medium term.

BIANUCCI: Terry, that iterative approach sometimes does seem smaller. But over time, the cumulative effect and impact of that iterative innovation could add up to a much better, bigger moonshot. At the end of the day, I think these financial services companies continue to get better at understanding the needs of their customers, which makes it more feasible for them to be able to adapt and evolve in the innovation that they’re pursuing. This is something that is really changing not only the way in which innovation is taking place, but the pace and the volume of innovation that’s being pursued.

Dennis, I want to talk a little bit about the evolving relationship between fintech firms and traditional banks. Fintechs want to be more involved in the banking world, and banks want to have a more innovative presence on the technology side. You have a good line of sight on where we are now, but how do you see, and where do you see, the fintech bank partnership/rivalry/inspiring each other to greater heights, however you want to look at it, where do you see that going from here?

GADA: That’s a great question, Terry, and something that we clearly see evolving in the marketplace. In my view, fintechs and the traditional banks are really both seeking to benefit from each other’s trends and capabilities. In my view, the partnership going forward will only deepen. Banks are innovating faster themselves as well, but they think that getting more integrated or involved in the fintech ecosystems, either by acquiring fintechs or investing in fintech startups, it’ll help them accelerate the innovation and bring some new products, new services to their end customers. Fintechs, on the other hand, want to partner with banks so that they can get access to a larger base of customers, they can get more financial stability, and so on. There is really a very healthy environment right now for collaboration between fintechs and banks. I think one of the great examples of fintech bank partnerships is actually at Citizens Bank. Very recently, they announced an acquisition of College Raptor, which is an innovative college planning platform that matches prospective students to schools, based on both academic and financial fit. In combination with their student lending business, this would really provide the younger generation of customers with the digital support and services they would need through the financial journey. So really a great example of bringing an innovative startup into a banking organization. On the other hand, they also recently announced a partnership with MasterCard for their credit, debit, and commercial portfolios. That just shows that how banks are partnering with not just the fintechs, but other ecosystem players, to offer the best services to their end clients.

BIANUCCI: What we see in the BAI Global Innovation Award certainly is that fintech partnerships are much more prevalent than even a few years ago, but sometimes it is thought that these partnerships are mostly with very large banking organizations. The fact is that the trends that we’re seeing are that many different types and sizes of financial services companies are entering into these partnerships. In fact, we recognized a community bank, MVP Bank in West Virginia, that has put a program in place to actually help fintechs become better banking customers. So we’re seeing a lot of innovative approaches, not only in the very largest organizations, but through more mid-sized and community banks and credit unions.

One of the things I’ve noticed about the Global Innovation Awards is more entries and more winners from overseas, particularly from economically emerging nations. I want to ask both of you, what do you think might be driving the innovation spirit in those places, particularly in the countries where the banking system is not as well developed as it is in North America or Europe or Japan? Dennis, could you start with that?

GADA: Sure. I think for the emerging economies, I think they actually can benefit from the success as well as some of the challenges that have happened in the developed world, as they shape the innovation in banking. In fact, there’s a great example in the BAI Innovation Awards. Growsari.com that won the award for digital commercial financing for helping Filipino store owners build long-term sustainable models. By taking out middlemen and by using technologies, these store owners could pass on the savings that they get to the end customers. We see a lot of that happening in emerging economies. I think there are some key factors. One is there is a need to find solutions to real local problems in these emerging or developing countries, and those are very unique, and that needs to drive the development of products and services which are very specific to the needs of these local communities. There is greater access to technology. For example, in India, the number of mobile phone connections are much more than people having bank accounts. That means that people have a lot more access to data and other capabilities on their phone. There’s also a lot of great entrepreneurial spirit in many of these countries. Last but not the least, the support from the government where, in several countries, government is really helping create a digital infrastructure that would revolutionize the way banking and financial services would happen.

BIANUCCI: Another perspective that is interesting to reflect on is that, in the early days of the BAI Global Innovation Awards, 10, 12 years ago, most of the innovation that we saw from these emerging nations focused on payments and, in particular, the use of mobile devices, which at that time was actually advanced over many other regions in the world. What’s happened, though, and for many of the reasons that Dennis said, is that we’re seeing many other types of innovation that are coming to market in these markets, above and beyond what you might have started with in terms of payments and mobile banking. Some of that is, I think, in fact, a result of the types of partnerships that many organizations have been able to enter into. That collaborative approach has not only increased the level of innovation, but it’s certainly broadened the types of innovative solutions that are being brought to the market.

Much of what banks and credit unions are trying to do in their digital banking initiatives overall is pursue personalization, that more customized experience for the customer via the digital channels. Dennis, where do you think U.S. banks are now in terms of achieving their desired level of personalization, and what do you think it will take for them to get to where they really want to get?

GADA: People talk about personalization. I always use this analogy, that the North Star of hyper-personalized experiences is to really have Apple-like experience, Google-like targeting, and Amazon-like fulfillment and customer service. That’s bringing the best of all together to really deliver very strong end-to-end personalized experiences. I think from a U.S. bank’s perspective, there is a lot of progress that has been made over the last few years, whether it’s for virtual chat assistance, whether it’s personalized lending offers, cards offers, whether it’s providing very personalized wealth and advice solutions. The needle has moved significantly. A lot of that is due to the use of technology – AI, machine learning techniques – to really analyze customer data, provide personalized recommendations, and so on. Now, having said all of this, while trying to make experiences very personalized, there are still a couple of challenges that need to be dealt with. There is always the issue around data privacy concerns, and mechanisms need to be set up, how to get the right level of data and consent from customers to be able to use their data to do the kind of personalized analytics that is expected. Many banks still have significant legacy platforms and technology debt, which they need to modernize to be able to provide real-time and personalized experiences. So that’s work in progress, but still a lot of change has already happened to provide more personalized experiences to clients in banking in the U.S.

Let’s wrap things up with some short-term future gazing. What do you see as a banking-related trend that’s going to emerge with more energy and more focus in the next 12 months? Debbie, let me ask you to start.

BIANUCCI: Terry, I have two. I think the interest in pursuing AI in a variety of different ways will continue as we go into the next year. But the second one is an increasing interest in finding new and different ways to address fraud. Fraud is growing. It’s more complex. All types of fraud are just so much more complicated and expensive every year. The costs associated with fraud and the impact on customer experience for financial services companies just continues to grow. It’s a very real resource drain. So I believe that that will be something that continues to be important, but may even rise to a higher level of investment in innovation to help address the problems that so many companies, individuals, and certainly these financial services providers face.

GADA: I think if I have to add another one, I would say we’ve been hearing about this for several years, the whole focus around ESG, but I feel that it’s going to be much more front and center as a business priority for financial services firms. Instead of just the narrative to the market and long-term goals, we are seeing a lot more short-term focus on actions and changes in systems and business processes, in lending practices to support ESG initiatives. I was at the World Economic Forum at Davos in January, and it was very clear that the broader ESG agenda, and even within that, diversity and inclusion, are no longer on the fringes, but they’re very core to the business, and banks feel that their long-term growth will also depend upon how quickly they support and adapt to the requirements related to ESG, not just for themselves, but for the environment in which they operate in. I think we saw that in many of the finalists this year at the BAI Global Innovation Awards, and it’s really exciting to see how this space will continue to go.

Debbie Bianucci, president and CEO at BAI, and Dennis Gada, head of financial services for North America at Infosys, many thanks again for being with us on the BAI Banking Strategies podcast.

BIANUCCI: Thank you, Terry. It’s been a pleasure.

GADA: Thanks, Debbie and Terry. Really enjoyed the conversation, as always.