Banking on Innovation

To innovate successfully in the financial services landscape a strong, profitable business case is an imperative.  In these uncertain economic times, banks will look more than ever for business models that have already proven their initial success and have the potential to be developed further when combined with the bank's unique assets and competencies.  Virtual prepaid is one such innovation and is increasingly viewed as a future star in the payments space.

Regulation can be considered both as an obstacle to and an opportunity for innovation in banking.  Complying with new standards and stricter enforcement of existing laws at a national and international level will undoubtedly be a challenge for banks in 2009 and beyond.  However, regulatory changes can be a catalyst that will encourage banks to adapt their operating structures.

The Payment Services Directive (PSD), due to become part of national law by 1 November 2009 at the latest, will encourage pan-European competition and the emergence of new types of Payment Service Providers (PSPs) in Europe.  As a result, banks that are currently faced with consumer mistrust will need to develop their positioning and customer services to cope with the increased level of competition.  This will in turn drive the need for retail banks to consider more innovative services and solutions in order to maintain their current advantageous position.

Further driving the need for banks to innovate are initiatives such as SEPA, which attempt to solve cross-border payment problems.  Such initiatives are gaining varying degrees of success, however SWIFT is often still the default for cross-border (in particular non-European) transactions.  SWIFT is targeted at high value payments over £1,000 and does not cater for high frequency, low value transactions.  Prepaid can provide a viable option for smaller cross-border payments, thereby complementing banks' existing services.

In the difficult economic climate, banks may be tempted to act cautiously in order to minimise their reputational risk, however to echo Apple founder Steve Jobs, 'innovation distinguishes between a leader and a follower'.  In fact, innovation based on a solid business case is essential to maintain a strong competitive position in light of upcoming challenges, and those who mark themselves as early leaders will be well-placed to reap the rewards.