Necessity is the mother of innovation! This tired old cliché was proved right by an Infosys-Asian Banker joint research study of 59 banks from 14 countries in the Asia Pacific region, which revealed that banks innovate mainly to beat severe market and regulatory challenges. However, the similarity ends there. The study highlighted that banks in different stages of market maturity go through distinct stages of innovation - starting with product, then sales and market share, and finally customer service innovation. I’ll run you through them:

Developing banking markets with large unbanked populations like Bangladesh, Vietnam and Sri Lanka are responding to regulatory easing by launching new, vanilla products. This also applies to the rural parts of China and India.

Southeast Asian countries such as Thailand, Indonesia and Philippines, and India in South Asia are reaping the benefits of process innovation by way of shorter turnaround times, lower cost and streamlined operations. Pricing innovation as a means to quick market share is still popular in these parts. This trend is exacerbated into a full-fledged pricing war in more mature markets, which are riding on cheaper, accessible and convenient forms of distribution to  hold on to their competitive position. Since banks in these countries are already highly efficient, their innovation efforts are focused on growing market share.

The most advanced APAC markets are in a stage of customer service and experience innovation, and are exploring new business models, innovative fee-based lending and network and franchise building. This trend is also observed in the countries of West Europe, where a start-up like Metro Bank of U.K. and an incumbent such as Denmark’s Jyske Bank are trying to bring fundamental change to customer experience by styling it like its counterpart in retailing.

It is interesting that developed and emerging markets are also innovating quite differently within the same space. Take payments innovation for example, an area that has seen much activity in recent years.  Although there is unanimous agreement on the importance of mobile banking and payments, developed and developing markets have seen fit to pursue this opportunity in different ways. Kenya is the best example of how mobile payments can be used as a tool of inclusion to bring the teeming unbanked millions into the financial net. In contrast, developed markets have but a few successes and that too in SMS-based banking services.  

What I’d like to know is whether the less developed markets which are still doing product or process innovation will leapfrog some stages to transform customer service and experience, given that these are the biggest demands of their Gen Y customers.  Or will they necessarily have to go through the entire drill?