CHAPTER 1 INTRODUCTION

1.1 MEANING

We live in a fast-changing world. We often hear that innovation is what’s needed to

address the global challenges and local issues that we’re facing, to seize new and
unexpected opportunities as they arise and to make our world a better place. A key
role of schools is to prepare students for this changing world. Skills such as creativity
and the ability to be innovative are often quoted as important for 21st century school
leavers. These skills, often difficult to teach explicitly and to assess, are important to
recognize and foster in our young people.

We have a collection of resources on Innovation for teachers to help support young

people in developing an ability to recognize how innovation happens, to understand
the value it can bring and, in doing so, to develop skills, attitudes and values that
better prepare them for contributing to our fast-changing world.

Innovation is based on contemporary stories of New Zealand innovators and

innovations. All our of our innovation content illustrate the value in having or
developing a deep knowledge base in science or technology or both – but innovation
is much more than just science or technology.
1.2 FEATURES

In the second of a two-part series, Global Finance identifies the best corporate/institutional
and consumer Internet banks globally and in six regions.

These are tough times for banks to focus on Internet banking initiatives. The global financial
crisis that wiped out several major banks has also pressured surviving bank IT budgets and
constrained long-term initiatives. However, the Internet innovators, such as the banks honored in
this issue, have developed winning web strategies that integrate the medium into everything they
do.

Leading banks such as Bank of America, Citi, Garanti, HSBC, Standard Chartered and Wells
Fargo are adding new clients from the next generation and in growing markets, building deeper
relationships with existing customers, gathering deposits, generating payment and trading
revenue, and cross-selling products through their Internet initiatives.

They are also still finding big savings from cutting processing and servicing costs. For example,
HSBC recently announced that its $6 billion global initiative to move its far-flung banking
systems, including more than 40 web banking systems, onto one global platform has paid for
itself midway through the effort, scheduled for 2011 completion. Uniting the systems has
allowed HSBC to reduce staffing costs for processing transactions among platforms.

Top online banks are adapting to changing web technology, applications, business models and
competition. They are responding to customers’ evolving, demanding expectations for
customized, data-intensive applications they can access anytime anywhere. For example, Citi—
named overall global winner and best corporate/institutional Internet bank globally and in several
regions—has integrated new mobile Internet banking applications strategically into its
international growth plans. “Citi is committed to providing our customers with solutions that
enable them to interact with their bank wherever they are and however they choose—in person,
online, while in transit or on their mobile phone,” says Deborah Hopkins, chief innovation
officer at Citi. The financial giant formed Mobile Money Ventures with SK Telecom to create a
common, global mobile financial services platform.

Citi says MMV is one of many innovative web initiatives it is launching around the world. Citi is
also introducing products and services for customers who commute via public transit, manage
their money online and are seeking a more convenient retail-branch experience.

Future Concerns
Banks are having to constantly innovate, analysts say, because standing still will lead to losing
business to other banks and non-banks that are giving today’s consumers and business users what
they seek. Many banks have much work left to do in this area. “While consumer expectations
advance at a fast pace, a gap between consumer expectations and bank delivery grows,”
according to a new report from Boston–based research firm Celent. The firm also issued a
similar report about wholesale banking last year. “Without a change in strategy, this delivery gap
will widen and threaten the bottom line,” Celent warns.

Celent defines Web 2.0 as “the tipping point in the evolution of the Internet, where consumer
behavior and its enabling technology emphasize the Internet user experience and capabilities as
engaging, interactive and collaborative.” The firm argues that Web 2.0 represents a vastly
different approach from the Internet’s traditional one-way communication and static,
unconnected data, which is where too many banks’ online initiatives still reside.

1.3 importance of innovation in banking

UK Innovation foundation Nesta recently launched its 2012 Innovation Index, which spoke of a

‘lost decade’ in UK innovation. Investment in new products and ideas across industries was
shown to have fallen by £24bn since the 2008 recession and is not yet showing signs of recovery.
Financial services (FS) was one of the chief offenders in cutting investment in innovation
according to the Nesta report. This contrasts sharply with a McKinsey Report in 2007 that
revealed FS executives saw innovation as important to the performance of their companies and
that they expected their spending on innovation to increase.
This clearly hasn’t happened, yet given the almost continual crises in the finance sector over the
past four or five years satisfaction with banking is arguably at an all-time low and in great need
of innovation. Are these factors linked and what can banks and other FS organisations – whether
multi-national businesses or UK-focused SMEs – do to encourage innovation?
Why good ideas are so important
Amazing and inspiring ideas are all around us. From technology to business and from sport to
culture, ideas and innovation are at the very heart of almost everything we do.  Apple is a classic
example of how a company can thrive based on a simple yet ingenious idea, yet one wonders
how many similar ideas within business all over the world lay dormant – unseen, uncovered and
unloved?
Innovation is important to business for a number of reasons and is recognised as having a
significant impact on productivity and overall business performance and success.  In banking,
there is a requirement to balance funding for innovation with expected returns, either through
customer fees from customers or other means. But there is still no real reason why banks and FS
organisations cannot be more innovative in their approach. This adds immense value to
customers who would benefit from new ways of banking, different approaches, new products
and services, which in turn can have an impact on the bottom line that will always be important
in the sector.
Contactless payment capability such as Near Field Communication (NFC) has been discussed for
years in the sector and the convenience it will potentially provide to customers and businesses is
huge. Yet until recently, who was really out there pushing the message that this is a new and
innovative way of paying and highlighting the benefits to customers of a wider-scale? Doing so
could actually be a key deciding factor in someone choosing a bank.
Different levels of innovation
Not every innovation needs to be a massive game changer though – good ideas come in all
shapes and sizes. As an idea management firm we work with businesses across industries,
including a number of FS organisations, and have found that innovation can be defined in three
hierarchical levels.
1) Core innovation: In most businesses the most effort (circa 70%) in terms of time and
resource will be given over to ideas and innovation within this category. These typically deliver
more incremental improvements to products or services to optimise the delivery, return and
experience for existing customers.
2) Adjacent innovation: The level of complexity and risk involved changes as you move out
from the core. Adjacent innovation may not be possible for all FS companies, as it can be
extremely complex and failure rates can be high, especially when looking to take existing
products to new markets. The most common strategy is to seek incremental ‘value-add’ products
or services to layer on to existing core propositions. Around 20% of a company’s overall
innovation effort would typically be given over to this type of activity, which in FS would
include a company looking to exploit new markets through mobile, such as Barclays PingIt for
example.
3) Transformational innovation: Not all innovation must be new but at the transformational
level, businesses are looking for new products or markets, step change and big ticket items. This
is higher risk than other levels of innovation, so whilst an early stage business would give up to
20% of their innovation portfolio to this, a more established business would allocate 10%.

1.4 Types of Innovation In Banking

 Innovation means something new or something which had not been done before. The same
goes for banking section as well. There are many sections in banks which are going through or
have gone through innovation in recent past. They are no longer restricted to age-old
(traditional) methods. Thus, to increase the business avenues and capture the new market
banks are resorting to innovation. This term innovative banking is being in use a lot nowadays.

Innovative Banking

There are many types of banking facilities that the banks have started in recent years. These are the
following types of innovative banking used by the banks these days:

Mobile Banking
Mobile banking has been a revolution in the past few years. It has completely changed the way
banking systems are working. Thus, it is a system that allows customers to perform many types of
financial related services through a smartphone.

These include services like ATM locations, bill payment alert, inter or intrabank payments, bill
payments, and many more. So, services are available at the fingertips of every person.

Internet Banking
Internet coverage in the last few years has increased drastically. This service is online banking, web
banking, or virtual banking.

Thus, this banking service allows its users to execute and perform any financial transaction or
service with the help of the Internet. The banking facilities are provided traditionally at a local bank
outlet.

This includes bill payments, a deposit of money, borrowing of money, and other services are all
available at one place. This service happens with the use of the Internet facility. In India, ICICI
Bank was the first bank to avail it’s customers the facility of Internet banking.

Retail and Wholesale Banking

Like other businesses, the banking sector to has evolved into retail and wholesale banking and it is
also one of the parts of innovative banking.
Here, retail banking refers to the banking in which the transactions which are done daily by the
banks are executed with consumers.

Thus, this is done instead of transactions with other banks or other corporates. The services under
this are:

 Personal loans

 Savings accounts

 Checking accounts

 Debit card

 Credit card
Wholesale banking is completely the opposite of retail banking. It refers to the business being
conducted with the business and industrial entities.

Thus, in wholesale banking, trading houses, domestic companies, and multinational companies are
included. So, there are many services which are included in the wholesale banking and these
services are:

 Value-added services

 Fund based services

 Non-fund related services

 Internet banking

 Multinational and offshore banking

Multinational banking is the banks that are present in more than one country. The main services are
available in more than one country in these services. Thus, these banks are also called international
banks.

The first bank to offer its services outside India was Indian bank in 1946. Currently, Bank of Baroda
has the maximum number of the overseas franchise in India.

While under offshore banking, the banking activities are performed in the currencies that are
different than the currency of the country in which the bank account is opened.  The banking
services in these banks remain the same though. 
Narrow and Universal Banking
Narrow banking includes keeping together the higher part of deposits in risk-free assets like
government securities. In India, this is basically in performance to reduce the size of the NPAs.

While commercial, investment, insurance, and many other financial activities combine to form
universal banking. Thus, in this practice every product is available.