The role of technology in banking innovation

Ask a dozen bankers about the relationship between technology and innovation, and the answer will either be ‘inseparable friendship’ or ‘uneasy truce’.... or something to that effect. I have observed, and research confirms, that this polarised viewpoint is linked to market maturity. Almost without exception, banks around the world agree that IT is important to innovation; it is on whether their existing systems help or hinder innovation that they differ.

Mature markets of Western Europe and North Asia are realising the hard truth that their legacy systems can only serve them for so long, and are being leapfrogged in innovativeness by banks from emerging countries running on fresh legs of modern technology. Hence, in recent surveys, nearly 2 out of 3 banks in West Europe said that their inflexible systems were hampering innovation, but in the emerging markets of Asia, less than 1 in 3 felt that way. This is also reflected in their innovation self-esteem. As many as 70% of South Asian banks and 57% of their South Eastern counterparts said they were innovation leaders versus only 35% of banks in West Europe. On a positive note, most technology laggards are in the process of upgrading their systems.

Tech-agnostics may say that by imposing form and structure, technology runs counter to the free-spirit of innovation. Some others have a more nuanced opinion, which is that technology may soon go from being a driver to an enabler of innovation. While I understand what they’re saying, I cannot visualise any serious innovation without technology, at least not in the banking domain. Of course, what is needed is a flexible platform that can cope with the uncertain and emergent nature of innovation by making ready allowances for change and course correction. It follows from this that the role of technology in innovation is dynamic, and is shaped and reshaped by the dictates of the banking environment and its customers – this explains why innovation priorities of Asian banks have shifted from data analysis and CRM in 2008 to core banking in 2009.

And who knows what new demands technology will face in the coming years? Are there any ideas out there?