What Banks Are Actually Doing To Innovate

You cannot read a finance publication for too long without reading the phrase “ripe for disruption.” 

By now the rhetoric is well understood, banks must innovate in order to maintain their market leading positions and gain the trust and business of the next generation. What you hear less of is what banks are actually doing to become more innovative. 

We took a look at four different banks and examples of the strategies that they are employing. thumbnailimage.jpg#asset:217

BNY Mellon

BNY Mellon understands the importance of fostering an innovation culture, challenging employees to adopt a flexible mindset that encourages new ways of thinking and an openness to doing things differently.

BNY Mellon actively mines its employees for innovative ideas and seeks out exceptional talent internally. This focus on ‘intrapreneurship’ is seen through its annual internal innovation competition, A.C.E. This challenges employees to develop innovative ideas, rewarding winners with resources and funding to be incubated in one of the bank’s innovation centers, located in Palo Alto, Pittsburgh, London, New Jersey, Pune and Chennai. Innovation training further helps employees develop ideation skills, whilst a social collaboration platform allows employees to discuss new ideas they are working on and collaborate. 

BNY Mellon’s focus on a cultural shift in mindset has begun to manifest itself in real technological innovation and competence. The bank’s IT departments have adopted agile development practices involving small teams that take a continuous delivery approach to development, rolling out frequent production updates and reducing delivery time.

Further encouraging an innovative culture, the IT department has increased its ability to collaborate by sharing resources and knowledge across the entire organization. The NEXEN Digital Ecosystem was developed by the bank as way to increase the speed of delivery and value to clients. NEXEN is an open sourced cloud based architecture that includes a methodology for developing API’s with one language and documentation. These API’s are available to the company’s developers and consumers through an API store where they can utilize the platform’s library to create new applications.

Previously, developers would create applications in their own language and with separate micro-code monitoring. Now they are able to quickly tie together applications via API and manage them in one cloud based management system. Because monitoring is built into the NEXEN system, all applications can be tracked and monitored in unison, allowing for greater data insights and more intelligent decision making.

This platform was made possible due to the Bank’s commitment to encouraging a mindset of innovation by directly addressing the breadth of change required at every level of the organization and getting strong sponsorship from executive levels.

bbva-open-talent-ganadores-europa-2016_0

BBVA

BBVA’s Strategy and Innovation unit was created in 2007, as part of the Technology and Operations department, whose key objective was to integrate emerging technologies into the banking industry, resulting in projects such as ABIL, the first smart ATM.

BBVA has turned to open innovation models in order to overcome existing challenges and attract the best talent. BBVA has opened Innovation Centers, such as those in Madrid (Spain) and Bogota (Colombia), and focused on developing a knowledge network around these. This approach depends upon ecosystems for innovation and talent worldwide and seeks to foster a culture of collaboration with entrepreneurs, startups and developers.

The Innovation Centers generate ideas and accelerates these through a process of experimentation and prototyping. The value of this approach was demonstrated in 2008 when BBVA became one of the first banks in Europe to introduce online money management (PFM).

The Innovation Centers form hubs, points from which to engage with the wider FinTech ecosystem. BBVA has established an innovation network comprised of partners, such as tech giants Google, IBM, Cisco and Microsoft, as well as academic institutions, like the Massachusetts Institute of Technology (MIT) and Stanford, commercial organizations, like Gartner and Continuum, and startups. This sharing of knowledge and ideas encourages cross-pollination and helps generate innovation for BBVA.  

In addition, BBVA hosts the Open Talent Challenge, now in its 8###sup/sup### cycle. This global startup competition focuses on attracting innovative startups that are transforming financial services, offering the winner a place on a two-week Immersion and Interaction program.  

Most recently, in February 2016 BBVA announced the closure of its in-house venture arm, BBVA Ventures. Instead, BBVA Venture’s portfolio, the $100 million allotted fund, and an additional $150 million, is being put into a new VC – Propel Venture Partners - based in San Francisco and London. BBVA has become a limited partner in Propel and will focus on payments, credit, insurance, wealth management, e-commerce, and security & compliance. The move reflects BBVA’s belief that their increased capital, and Propel’s independence and London presence, will attract the best FinTech startups.

20151112_130526.jpg#asset:220Santander

Santander engages in a wide range of complementary innovation activities. Most notably, Santander has launched Openbank, a fully digital bank, several Digital Labs, and InnoVentures, the bank’s venture capital arm with a FinTech focused fund of over $100 million.

InnoVentures invests in FinTech startups that the fund believes can add value to the bank’s customers. This is wide ranging, covering everything from payments, alternative lending and personal finance management. The fund also selects investments based on the value that the bank can bring to the startup by introducing customers, helping to establish a strong position within the FinTech ecosystem. In addition to acting as an investment vehicle, InnoVentures serves as a funnel for startups and new technologies into Santander’s other innovation initiatives. Even if InnoVentures does not invest in a startup there is the opportunity to partner with them to explore new technology or specific use cases, through running pilots or proof of concepts.

Openbank is another example of Santander’s multi layered approach. Serving the Spanish market, Openbank is a completely digital bank that operates under its own brand but is supported by Santander. As a completely digital bank, the venture offers a unique proposition to customers and is a standalone business. Openbank is not reliant on Santander’s central processes and legacy IT infrastructure creating additional value as an innovation initiative as startups’ technologies can be integrated much faster than with Santander itself. Citibank_Chinatown.jpg#asset:222

Citi

Citi has developed a portfolio of initiatives; engaging both the external innovation ecosystem and creating internal initiatives to encourage new mindsets and ways of working.

Citi Ventures oversees a global network of labs and, in 2013, established an internal Acceleration Fund to encourage rapid experimentation and discovery. The labs allow Citi to pilot new solutions rapidly, search for disruptive business models and focus on emerging technologies, such as blockchain technology and crytpocurrencies. Citi prioritized these labs early on: in 2009 Citi’s Global Transaction Services business opened it global Research, Development, Innovation and Learning Centre in Dublin. At this time Citi announced an investment of $24 million for the development of a next generation intelligent payments solution bringing Citi’s total investment in research and development in Ireland to $100 million at that time. Citi has subsequently opened other centers in San Francisco, Israel and Singapore.

These labs play an important role in allowing Citi to connect its innovation teams with clients, employees and, industry experts. Through showcasing innovation initiatives and solutions, senior management, different business lines, and individuals are engaged with, and exposed to, innovative processes, solutions and mindsets. This is also seen with the Citi Ventures Catalyst program which engages Citi executives to share industry expertise, open conversations, and align strategic interests to help drive the company’s innovation agenda.

Citi runs multiple accelerator programs in order to engage with startups. Their FinTech accelerator was launched in Tel Aviv in 2013 as part of the Citi Innovation Lab TLV, within Citi’s global network of innovation centers. Since then, Citi have partnered with Plug and Play to further expand their accelerator programs and engage with FinTech startups.

In addition, Citi’s venture capital arm has grown their Investment portfolio to 23 active startups. Through aligning their investment focus with the core business’ needs: Big Data and Analytics, Commerce Payments, Financial Technology, Marketing and Customer Experience, and Security and Enterprise IT, Citi seeks to invest in cutting edge and highly relevant startups to drive innovation.  

By Colin Allison

Manager at Rainmaking

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