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Delivering on Digital TransformationDriving Value with Innovation in Retail Banking

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DELIVERING ON DIGITAL TRANSFORMATION

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Introduction: Innovation Is Now an Enterprise-wide InitiativeThe retail banking industry is undergoing rapid change, driven in part by significant shifts in the payments ecosystem. New entrants, expanded value chains, and new technologies are driving almost all banks toward transformation of their strategies and business models.

The decisions banks make over the coming 24 months have the potential to reshape the competitive landscape, even if their first steps will be tactical in nature. Those organizations that continue to drive innovation from the top down should expect to fall behind more forward-thinking competitors, which approach innovation as an enterprise-wide movement.

While technology is – and will remain – an important part of the answer, it is people who truly change organizations. The banks that ally cultural change with technology leadership place themselves in the best position to thrive in the future. Those that get this wrong will risk their future position in the value chain.

To understand exactly how banks, intermediaries, merchants, and corporates are approaching – and benefitting from – innovation, ACI Worldwide and Ovum have partnered to create the Culture of Innovation Index: a genuinely global and cross-value-chain view of the factors that drive success.

This research highlights three key messages for retail banks:

01 Retail banks are rapidly accelerating towards digital transformation, and many banks are already Advanced or Trailblazers. The time to act is now to avoid being left behind.

02 Innovation in real-time payments (RTP) is already creating value for those that have invested here, and digital overlay services should be a priority in any transformation strategy.

03 A growth mindset is central to a successful innovation strategy. Trailblazing retail banks are laser-focused on delivering new services that generate new revenues.

Retail banks should pay attention to the market leaders. It pays to learn the lessons of first movers.


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ContentsThe Culture of Innovation Index .................................................................. 04

THE TWO TYPES OF DIGITAL TRANSFORMATION PROJECTS ............. 05

WHERE IS YOUR BANK ON ITS INNOVATION JOURNEY? .................... 06

RETAIL BANKING: BLAZING A TRAIL ....................................................... 07

RETAIL BANKS ARE AMONG THE MOST ADVANCED ORGANIZATIONS FROM AN INNOVATION PERSPECTIVE ................... 08

THE DIGITAL DIFFERENTIATORS FOR RETAIL BANKS .......................... 09

CLOUD AND AI TECHNOLOGIES ARE IMPORTANT INVESTMENT AREAS IN 2019/20 ........................................................................................ 10

BANKS IN ASIA-PACIFIC LEAD THE WAY ................................................ 11

THE INNOVATION GAP ................................................................................. 12

7 CHARACTERISTICS OF HIGHLY INNOVATIVE BANKS ........................ 14

Accelerating the Return on Real-Time Payments .................................. 16

RTP OVERLAY SERVICES ARE AT THE HEART OF THE INNOVATION AGENDA FOR RETAIL BANKS IN 2020 ..................................................... 16

OVERLAY SERVICES ON TOP OF REAL-TIME INFRASTRUCTURE WILL BE AT THE HEART OF PRODUCT INNOVATION IN 2019/20 ..... 17

OPENING UP TO THE BENEFITS OF OPEN BANKING ............................ 18

DON’T BREAK THE BANK – OPTIMIZE FOR GROWTH ........................... 20

NEXT STEPS – HOW TO BECOME A TRAILBLAZER ................................. 22

Methodology ....................................................................................................... 24

Appendix ............................................................................................................... 25

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The Culture of Innovation IndexThe Culture of Innovation Index is built upon a global program of research spanning players from across today’s payments ecosystem. Based on interviews with senior executives in 1,163 enterprises, we have scored each organization across a range of cultural, organizational and technology-centric factors. These span both the inputs to the process of driving innovation, as well as the outputs (in the form of new products and services).

The aim of this is simple: to identify not only the factors that separate the most innovative businesses from the laggards, but also what this means in terms of product innovation. In essence, how will today’s most innovative organizations convert their investments into future gains?

1,163 interviews16 industry sub-segments20 countries438,000 datapoints

OVUM INNOVATION INDEX

Cultural and organizational drivers of innovation

INPU

TS T

O T

HE

INN

OVA

TIO

N P

ROCE

SSO

UTP

UTS

FRO

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INN

OVA

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SS

How the organization responds to changing customer needs Intermediaries

Banks(including 239 Retail Banks)

Merchants

Corporates

The results, with a focus on payment-related services


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THE TWO TYPES OF DIGITAL TRANSFORMATION PROJECTS

The term “digital transformation” is widely used to describe a range of large-scale projects with a wide array of objectives and outcomes. In practice, these sit on a continuum between two extremes.

The difference between projects that are focused on digitizing existing products and processes and those that are aimed at creating a truly digital business may seem a small one in some ways, but it is central to the gap emerging in the market between those organizations that are truly forward-looking and those that continue to operate with a more traditional approach to product and service innovation.

Too many banks are focused on immediate technology decisions related to quick-fix compliance projects.

The Index shows the need to think strategically about technology investments, particularly to drive new value from innovation. However, too many banks are taking a quick-fix approach to compliance projects in particular. Technology should enable the bank’s business plans, whether they are to enter new markets, launch new services, or move into new areas such as platform banking ecosystems.

Optimize the existing business

SHORT TERM/TACTICAL:Driving improvement in the current business and model

Enhance the customer experience and core product

Efficiency and improvement in the core product

New digital-led products, services and business models

LONGER TERM/STRATEGIC:Becoming a fully

digital-led business

Agile in the face of competitive, customer and

wider market change

Creation of net-new sources of revenue


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WHERE IS YOUR BANK ON ITS INNOVATION JOURNEY?

The Culture of Innovation Index identifies five types of organization as defined by their approach to innovation and business transformation.

EMERGING• Strong cultural and structural emphasis on innovation• Clearly articulated technology strategy and focus on

business transformation

• Behind the market in terms of execution and delivery

LAGGARDS• Behind the curve in both culture and technology, often with a

preference for outsourcing services

• Generally aware of the challenges they face but not actively responding

• Falling behind the market when it comes to innovation in the customer experience

ADVANCED• Strong focus on the importance of ensuring innovation is an

enterprise-wide activity

• Clear strategy and roadmaps around technology adoption and product innovation

• Among the leaders in product development

TRAILBLAZERS• Digital-led, or strongly digital organizations• Business is structured around driving innovation• Leaders in the adoption of technology and delivering new

products/services

TECH-LED• Weak when it comes to an enterprise-wide approach to

innovation

• Strong focus on investing in technology, but rarely market leaders in product innovation

• Ideas and technology strategy tend to be centrally driven


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RETAIL BANKING: BLAZING A TRAIL

Among the leading sectors when it comes to innovation

Retail banking is one of the most advanced industries in terms of both the cultural drivers and the outputs from innovation, despite the technology challenges facing many institutions. There is wide understanding (and indeed a sense of urgency) of the need to change, particularly in response to the entry into the value chain of neobanks, fintech players, and the big internet players.

Interestingly, retail banking comes second only to fintech in terms of the inputs to the innovation process. This serves to highlight how seriously many banks are taking the threat of this challenge, as well as the degree to which many have already changed their team and management structures to facilitate innovation. A growing emphasis in many banks on creating digital innovation teams and structures, alongside steps to drive collaboration across the organization, has been very important here.

Retail banks are the third-highest-ranked industry by innovation outputs. This also demonstrates the degree to which many banks have invested heavily to replace or otherwise work around legacy systems. At the same time, a greater emphasis on structured experimentation

and piloting of innovative services has been important for many banks in looking to bring new products to market.

Retail and corporate banking sit close together in the Index, reflecting both the impact of whole-of-bank transformation projects in universal banks and the opportunities that payments industry changes are presenting for both retail and corporate banking services.

Interestingly, all of the verticals in the Emerging, Laggard, and Tech-led groups are consumers of banking services. Banks should view this as an opportunity to deliver services – and potentially support – to customers looking to drive innovation in their own organizations.

0.61When it comes to the Index scores for the outputs from the innovation process, retail banks are the third-highest-ranked industry, scoring 0.61, compared to 0.63 for each of the fintech and telecoms sectors.


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QUANTIFYING THE DRIVERS AND OUTPUTS OF INNOVATION

Innovation, by its nature, is highly subjective. However, by comparing enterprise attitudes, behaviors and outputs across a number of areas relating to the process of innovation and enterprise transformation, we have been able to provide a comparative view on where each sector is today.

Each enterprise has been scored across a number of individual input and output factors, with “best practice” delivering the highest score. These have then been combined to provide a blended total for overall inputs and outputs, both with a maximum score of 1.0.

Healthcare services

Hospitality

Digital goods

Insurance

Government

Higher education

Consumer finance

PSP

Merchant acquirer

Payment processor

Fintech

Average

Corporate banking

Retail banking

Retail

Utilities

Telecoms

EMERGING

LAGGARDS

ADVANCED

TECH-LED

ADOPTION OF TECHNOLOGY TO ADDRESS BUSINESS CHALLENGES (OUTPUTS)

CULT

URAL

AN

D OR

GAN

IZAT

ION

AL E

NAB

LERS

(IN

PUTS

)

45% 50% 55% 60% 65%30%

35%

40%

45%

50%

55%

RETAIL BANKS ARE AMONG THE MOST ADVANCED ORGANIZATIONS FROM AN INNOVATION PERSPECTIVE


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THE DIGITAL DIFFERENTIATORS FOR RETAIL BANKS

A strong focus on investing in areas such as cloud and artificial intelligence (AI) technologies is important in explaining the difference between retail banking and many other sectors in the Culture of Innovation Index.

A GROWING EMPHASIS ON LEVERAGING CLOUDRetail banks are among the sectors planning to take further advantage of cloud and AI technologies in 2019/20. At a global level, 89% of retail banks reported that they plan to move mission-critical workloads into public cloud infrastructure in the coming year.

A growing focus on cloud-native technologies in areas such as application development and testing is also important here, as well as the growing focus on SaaS as the default option for new software procurement.

INVESTMENT IN MACHINE LEARNING AND OTHER AI TECHNOLOGIESRetail banking is behind many other sectors when it comes to concrete plans for the greater adoption of AI technologies, with utilities and PSPs leading the market in this respect. Nevertheless, many banks have already made significant investments in these areas (and have

been leveraging machine learning since before the term “AI” became popular). Capitalizing further on these existing investments and this experience is an untapped opportunity.

PAYMENTS MODERNIZATIONIn practice, what these results reflect is the activity that many banks have undertaken to invest across their technology stack, including in modern payment architectures and solutions. In a growing proportion of cases, these investments are made with the aim of creating the platforms for future innovation. Indeed, enabling future payments transformation is at the heart of a growing proportion of business cases.

30%30% of retail banks plan to invest further in their use of cloud technologies, putting them ahead of corporate banking (24%) and all merchant sectors.

89%89% of retail banks plan to move critical workloads into public cloud infrastructure in 2019/20. This is ahead of corporate banks and fintech.


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0% 10% 20% 30% 40% 50% 60%

Merchant acquirer

Retail bank

Corporate bank

Merchant average

Corporate average

Fintech

Payment processor

PSP

46%24%

21%

20%

20%

17%31%

43%

44%

38%

50%56%

33%33%

30%43%

WHAT ARE YOUR PLANS TO USE THESE DIGITAL ENABLING TECHNOLOGIES OVER THE NEXT 12 MONTHS? (THOSE PLANNING FURTHER INVESTMENTS)

SOURCE: OVUM CULTURE OF INNOVATION INDEX

Cloud technologies (e.g.; containers, microservices, and serverless computing Artificial Intelligence technologies (including machine learning and bots)

CLOUD AND AI TECHNOLOGIES ARE IMPORTANT INVESTMENT AREAS IN 2019/20


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BANKS IN ASIA-PACIFIC LEAD THE WAY

While retail banking is one of the more advanced verticals when it comes to both driving and delivering innovation, there are some important differences at the regional level.

Banks in Asia-Pacific are ahead of their peers in Europe and the Americas when it comes to outputs from the innovation process. In many cases, this is influenced by a greater emphasis on both cloud and AI technologies. For example, 96% of banks in Asia-Pacific report that they have a cloud-first strategy for new software procurement, compared to 89% in the Americas and 88% in Europe. At the same time, 96% of banks in Asia-Pacific plan to move more of their mission-critical workloads to the public cloud in 2019/20, compared to 88% in the rest of the world.

However, while banks in Asia-Pacific are ahead of their peers in some of these areas, they face a greater challenge from the fintech ecosystem. Fintechs in Asia-Pacific score more highly in terms of outputs from the innovation process than those in other regions, and are comfortably ahead of banks in that region. As has been proven over time, the more mature markets in Asia-Pacific in particular will be key ones to watch for future product and service innovation.

AMERICAS

RETAIL BANKING FINTECH

ASIA-PACIFICEUROPE

AMERICASASIA-PACIFIC

EUROPE

0.620.660.64

0.590.770.67

CULTURE OF INNOVATION INDEX OUTPUT SCORES (TECHNOLOGY STRATEGY, DEPLOYMENT, AND DELIVERY OF NEW SERVICES)


Retail banks must identify the areas of growth that serve the entire organization. This requires a convergence of technology and payment types in a real-time hub. The challenge for most banks is that their business units remain siloed, without an enterprise innovation mandate to capitalize on these kinds of innovations. The danger is that this results in further technology fragmentation.


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THE INNOVATION GAP

While retail banking is a high-performing sector overall, this masks a lot of variability in the IT and innovation strategies of individual institutions. Indeed, there are many that risk – and are already – falling behind their more innovative peers.

Retail banking has a greater proportion of banks in the Advanced and Trailblazer categories than in other verticals, with 33% in these two groups combined compared to 25% across all verticals, and 13% in the Trailblazer category compared to 10% for all industries.

As a result, we should expect to see more rapid innovation in retail banking than in other sectors, something that is perhaps unsurprising given the level of investment in new digital banking services, RTP, and open banking regulation.

The split between those that are actively innovating and those that are moving more slowly will manifest itself in growing competitive differentiation in the near future. Indeed, those in the Laggard or Tech-led categories should urgently consider the long-term viability of these approaches.

33%Retail banking has a greater proportion of banks in the Advanced and Trailblazer categories than other verticals, with 33% in this combined group compared to 25% across all verticals.

22%In the Americas, 22% of banks are classified as Laggards, compared to 17% globally. In contrast, banks in Asia-Pacific are highly focused on technology: 27% are Tech-led, while 38% are Advanced.

Retail banks cannot afford to rest on their digital transformation journey. Despite the overall innovation “leadership” shown by retail banking as an industry, the number of Trailblazers shows that the sector is not advancing at the same rate. The majority have yet to embrace true innovation strategies.

The response to compliance is a clear differentiator. Trailblazers seek to capitalize on the opportunity presented by regulatory change, compared to those considering compliance as nothing but a cost to the business. This attitude to change is what sets the Trailblazers apart.


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ADOPTION OF TECHNOLOGY TO ADDRESS BUSINESS CHALLENGES (OUTPUTS)

CULT

URAL

AN

D OR

GAN

IZAT

ION

AL E

NAB

LERS

(IN

PUTS

)

� AMERICAS � ASIA-PACIFIC � EUROPE

-0.6 -0.4 -0.2 0.2 0.4 0.6 0.8 1.0

-0.2

0.0

0.2

0.4

0.6

0.8

1.0 EMERGING (14%) ADVANCED (33%)

LAGGARDS (17%) TECH-LED (23%)

TRAILBLAZERS (13%)

THERE IS A CLEAR SPLIT BETWEEN INDIVIDUAL BANKS WHEN IT COMES TO THEIR STRATEGY AROUND INNOVATION


0%

20%

40%

60%

80%

100%

Americas

EMERGIN

GLAGGARD

TECH-LEDADVAN

CEDTRAILBLAZER

Asia-Pacific

Europe

15% 16%

9%

27%

38%

11% 15%

35%

22%

17%

11%

22%

21%

28%

14%


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7 CHARACTERISTICS OF HIGHLY INNOVATIVE BANKS

While there is no single formula for driving innovation within an organization, there are some emerging examples of best practice. For retail banks there are seven characteristics of the Trailblazer group – the most innovative enterprises – that stand out from the rest of the market.

In practice, the degree to which banks realize digital transformation will rest upon putting the right cultural and organizational pillars in place.

01: A STRONG CENTRAL FUNCTION TASKED WITH DRIVING INNOVATIONThe presence of central innovation and/or digital teams with the resourcing, responsibility, and senior sponsorship to co-ordinate and support innovation is becoming increasingly important to any large organization.

Arrow-circle-left 77% of Trailblazers report that there are teams in their bank directly responsible for leading the innovation process, compared to 51% across all banks.

02: A CULTURE THAT ENCOURAGES INDIVIDUAL TEAMS TO BE INNOVATIVEIdeation and the wider innovation process should not be restricted to single teams or external parties. Individuals across the whole organization must feel they have the space and opportunity to participate.

Arrow-circle-left 70% of Trailblazers strongly agree that this situation describes the approach taken by their bank, compared to 48% for the rest of the market.

03: TAKING ADVANTAGE OF EMERGING TECHNOLOGIES IS A HIGH PRIORITYThe most innovative banks invest resources in exploring and experimenting with new technologies to identify opportunities to enhance products and services.

Arrow-circle-left 88% of Trailblazer banks report that this is given a high degree of importance by their institution, compared to 51% for the rest.

48%70%

51%88%

51%77%


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04: BRINGING INNOVATIVE PRODUCTS AND SERVICES TO MARKET IS A HIGH PRIORITYDelivering new products and services is seen as an important company focus, be that through external messaging and investment in these areas or softer measures such as internal promotion.

Arrow-circle-left 88% report that this is a core business objective, compared to 58% on average.

05: EMPLOYEES ARE TRAINED TO SUPPORT NEW PRODUCT/SERVICE DEVELOPMENTThere is a strong emphasis placed on giving employees the opportunity to be trained and involved in the process of identifying product/service gaps, as well as being able to actively engage in the process.

Arrow-circle-left 70% educate their employees to support innovation, compared to 47% on average.

06: CLEARLY ARTICULATED CLOUD STRATEGY The bank has stated plans – both internal and external – around the use of cloud technologies, including the use of cloud for mission-critical workloads.

Arrow-circle-left All Trailblazers have a clearly defined cloud strategy (compared to 90% on average), and 94% plan to move mission-critical workloads to the public cloud in 2019/20. This compares to 89% of all banks on average.

07: FOCUSING INVESTMENT ON THE CUSTOMER EXPERIENCEThe degree to which the bank’s budgets for investing in “change the bank” priorities are targeted at directly driving improvements in the customer experience.

Arrow-circle-left Investing in improvements to the customer experience is the top driver of investment in payments technology for 63% of Trailblazer banks (vs. 48%).

58%88%

89%94%

48%63%

47%70%


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Accelerating the Return on Real-Time PaymentsRTP OVERLAY SERVICES ARE AT THE HEART OF THE INNOVATION AGENDA FOR RETAIL BANKS IN 2020

The majority of institutions plan to leverage their investments in real-time payments (RTP) to bring new products and services to market in 2019 and 2020. Indeed, 96% of banks report that they will develop new and innovative services on top of the investment in RTP in 2019/20.

In many cases, the emergence of new domestic RTP infrastructures has required investment in payment orchestration and hub technologies, which have created a strong foundation for innovation in new customer-facing propositions. Indeed, the degree to which many institutions are focusing on product innovation, and/or have already invested in their internal payment processing capabilities in order to support RTP, is reflected in the relatively low priority assigned to payment hub and orchestration for investment this year.

At a global level, 47% report that RTP overlay services are a top three product investment priority, and 27% rank this as their biggest single priority area. Other leading areas are open banking (33%), leveraging

transaction data to improve services (43%), and removing friction from the payment authentication process (48%). In each case, RTP infrastructure is either a direct enabler or closely linked with some of the new services and propositions that these investments may create.

At a global level, 92% of banks expect to grow revenue from RTP, highlighting the importance of new customer-facing services that leverage this infrastructure. This figure has increased from 83% in 2018, reflecting the degree to which RTP is being seen as underpinning a new wave of product innovation and revenue opportunities.

96% 96% of banks report that they will develop new and innovative services on top of the investment in RTP in 2019/20.


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0% 50%40%30%20%10%PROPORTION OF RESPONDENTS

Developing new services around real-time payments

Leveraging transaction data to improve the customer experience and loyalty/rewards

Improving the customer authorization process for seamless/in-app payments

Supporting third-party wallets and related digital payment types for merchant acquiring

Optimizing security and fraud prevention including for real-time payments

Supporting micro transactions from connected devices (IoT)

Upgrades/improvements to card management system

Upgrades/improvements to payment hub/orchestration platform

Supporting our API/open banking strategy

2%

3%

3%

12%

12%

12%

12%

13%

9%

13%

13%

15%

15%

10%

10%

10% 10%

5%

10%

8% 13%

�1% 6%

21%

18%

18%

27%

SOURCE: OVUM PAYMENT INNOVATION SURVEY

Top Second Third

THINKING ABOUT YOUR INVESTMENT PLANS AROUND NEW PAYMENT SERVICES, WHAT ARE YOUR HIGHEST PRIORITY AREAS OVER THE NEXT 12 MONTHS?

OVERLAY SERVICES ON TOP OF REAL-TIME INFRASTRUCTURE WILL BE AT THE HEART OF PRODUCT INNOVATION IN 2019/20

It is notable that relatively few retail banks appear to connect the need to optimize fraud prevention or payment orchestration with the need to innovate. It’s possible that this indicates the continued fragmentation of innovation and payment types within banks. When considering an open banking strategy, and how to drive value from that strategy, it is critical to consider how the bank will connect and protect its customer and partners in this new ecosystem.

RTP is a key driver of payments innovation, but often requires investment in order to enable new services to be delivered. To innovate in RTP requires more sophisticated data aggregation, improved data services, enterprise payment authorization processes, enterprise fraud prevention, and more. To capitalize on RTP and drive growth and innovation, Trailblazing banks are cognizant of the need to move toward enterprise payment hubs and orchestration.


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OPENING UP TO THE BENEFITS OF OPEN BANKING

Open banking has been an important catalyst for innovation and new thinking in many retail banks. The change has been both technical and in terms of mindset, to the point where 95% of banks report that open banking has helped change the way they approach delivering new products and services.

FROM COMPLIANCE TO STRATEGIC OPPORTUNITY Attitudes have steadily shifted from open banking being a compliance-led activity to being a more fundamental strategic objective. The requirement to be able to respond quickly to changing future requirements has led to a greater emphasis in the market for solutions that can bring far greater flexibility. This includes both investments to optimize and work around legacy systems and large-scale transformation projects.

For many banks, the necessity to support RTP and open banking initiatives has led to – or enhanced – the business cases for broader investment in the payment infrastructure of the institution. At the same time, the investments made to facilitate open banking will drive new products and solutions. Just over 92% of institutions believe that open banking will make it easier for them to leverage

the fintech ecosystem, demonstrating the degree to which open banking has already changed the way that banks are approaching product innovation.

PLATFORM STRATEGIES ARE EMERGINGWe are yet to see the scale of the impact that open banking will have on the value chain, but 63% of retail banks believe that pursuing some form of platform strategy – in which they would look to maintain the customer relationship and distribute a combination of their own products and those of third parties – will leave them in a stronger competitive position in five years’ time. This shines an important light on where the industry will focus its efforts around open banking.

Nevertheless, the majority of banks still see open banking as a compliance issue. This is particularly notable in Asia-Pacific, where 91% hold this view. In large part this reflects the reality of open banking being a regulation-driven activity in most markets. Banks will always look to meet their compliance requirements, but what should not be overlooked is the shift in mindset toward innovation and the future business model this will drive.


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In 2018, 72% of banks said that they planned to actively encourage developers to use their APIs to build new services. This figure has risen to 90% in the Americas and 85% in Europe and Asia-Pacific (87% average).

95%95% of banks report that open banking has helped change the way they approach delivering new products and services.

75%

95%

90%92%


My organization views open banking/APIs largely as a compliance issue (75%)

We are actively exploring a platform strategy, that will see third parties to distribute their products alongside our own (90%)

Open banking will make it easier for us to leverage the “fintech” ecosystem (92%)

The move to open banking has helped change the way we approach delivering new products and services (95%)

OPEN BANKING HAS BEEN RESPONSIBLE FOR CHANGING ATTITUDES AMONG BANKS AS WELL AS ENABLING INNOVATION

Please indicate your level of agreement with each statement

201872%

201987%

The approach to open banking is a great indicator of the culture around innovation in the bank.

For those that do look to capitalize on open banking, it’s critical they consider the modernization of their underlying payment infrastructure. By beginning with a future-proofing mentality, retail banks will automatically make delivering new products and services more operationally efficient. The ability to solve integration issues around hard code, and evolving to an API-enabled platform, will also free retail banks from legacy technology shackles and release resources for innovation.


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DON’T BREAK THE BANK – OPTIMIZE FOR GROWTH

The Culture of Innovation Index highlights clearly how the differences in approach toward innovation drive equally different product and service outcomes in practice.

The most innovative banks in the market have put or are putting in place the building blocks for continuous improvement in the products and services they deliver to customers. At the same time, these institutions tend to be the most forward-looking.

What stands out are the Trailblazer banks, for which RTP overlay services are the focus area for 72% in the coming year, compared to 46% across the industry overall. While many in the market are investing in new services to leverage RTP, it is unsurprising to see that those banks with the strongest overall approach to delivering innovation are focusing here.

However, this isn’t just about delivering new services; the most successful organizations are the ones that create and leverage a strong foundation for sustainable innovation. Indeed, as well as focusing on overlay services, banks in the Trailblazer category are more heavily focused on enhancements to the security and fraud systems that can

support new propositions leveraging RTP. Among the Trailblazer banks, 47% cite this as a top three priority for 2019/20, compared to 40% for the market overall.

It is in these areas that we will see the most innovative retail banks begin to open up competitive differentiators in the coming 24 months. Ultimately, this is the outcome of approaching the process of product and service innovation in the right way; the combination of the right cultural and organizational inputs and the right technology capabilities and strategy is what will enable these banks to move ahead of the market with new products and services.

The results of the Culture of Innovation Index clearly demonstrate that highly innovative organizations carefully consider both the business case and the impact on the bank when driving innovation into production.

It’s tempting to focus innovation budgets on headline grabbing announcements, new services must add value to customers. Also, when delivered by a bank, there are high expectations around availability and security. Well-designed value-added services can drive growth from your existing customer base, as well as new customer acquisition.


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72%The Trailblazer banks stand out when it comes to innovation around real-time payments. RTP overlay services are the focus area for 72% in 2019/20, compared to 46% across the industry overall.

47%Close to half of all Trailblazers are prioritizing security around RTP, demonstrating the crucial role this plays in enabling innovative services to be delivered over these rails.

0% 80%60%50% 70%40%30%20%10%PROPORTION OF RESPONDENTS

Developing new services around real-time payments

Leveraging transaction data to improve the customer experience and loyalty/rewards

Improving customer authorization process for seamless/in-app payments

Supporting third party wallets and related digital payment types for merchant acquiring

Optimizing security and fraud prevention including for real-time payments

Supporting our API/open banking strategy

28%57%

72%41%

38%41%

42%

40%33%

33%

33%37%

25%

39%34%

47%

46%

49%


Trailblazers Tech-led Average

THE BANKS THAT GET THEIR APPROACH TO INNOVATION RIGHT WILL SEE THE BENEFITS OVER THE MEDIUM TERM

Thinking about your investment plans around new payment services, what are your highest priority areas over the next 12 months? (Retail banks)


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NEXT STEPS – HOW TO BECOME A TRAILBLAZER

While many organizations feel that they do not have the necessary technology and/or financial resources to become a market leader, product innovation is now far less about IT investment than it used to be.

For those that see the opportunity in innovation (and understand the danger in lagging behind), there are some important steps that need to be taken in order to become a Trailblazer.

Payments underpin many other revenue-generating services for retail banks. The full gamut of potential payment services, and the technology needed to realize them, should be considered as part of an enterprise innovation strategy. RTP and the adoption of new services are a great starting point for banks looking to build their digital transformation roadmap. Ultimately, all retail banks need to follow the example set by the Trailblazers if they want to retain market share and grow revenues. The speed at which those trailing behind close the gap will be critical to their future.


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23

LAGGARDS EMERGING TECH-LED ADVANCED TRAILBLAZER

CHALLENGEBanks in this category are behind the curve and risk losing their market position as more innovative competitors, fintechs, and neobanks offer superior products and services.

ACTIONS• Take steps to determine your

future strategy and business model.• Consider whether your senior

product and IT management resources have the skills and appetite to drive real change in the organization.• View your IT function as a

potential enabler and driver of innovation, rather than a cost center.

CHALLENGEThose in the Emerging group typically have a strong foundation in terms of organizational culture but are yet to deliver meaningful outputs.

ACTIONS• Ensure full alignment

between IT, product, and central innovation functions, restructuring the IT function if necessary.• Encourage active collaboration

across the whole organization, with strong executive sponsorship.• Consider partnering with vendors

or consultancies to test and launch new concepts.

CHALLENGEFor those in the Tech-led group, IT investment is typically driven either by the IT group entirely or centrally, with relatively little cross-company collaboration or input.

ACTIONS• Build or enhance the internal

functions that shape and co-ordinate the process of product and service innovation.• Ensure that activities around

product development and opportunity identification are truly cross-organization, and that employees are given the opportunity to participate and receive training where necessary.• Bring together stakeholders

from across the business to collaboratively shape a clear product strategy.

CHALLENGEThose in the Advanced group perform more strongly than many in the market but are still beginning to fall behind the most innovative competitors and some new entrants.

ACTIONS• Invest time and resources in

setting the right culture around innovation, to ensure that all employees are encouraged to participate in the process.• Continue to empower IT groups

to experiment with new ideas and technologies.• Take risks with new products and

do not be afraid to fail. Learning from mistakes is essential to becoming truly innovative.

Discover use cases for innovation on real-time rails and open banking at every stage of the payments value chain.

Download the whitepaper “Get More From Real-Time Payments”.

file-pdf

https://ovum.informa.comhttps://www.aciworldwide.com/-/media/files/collateral/trends/get-more-from-real-time-payments.pdf?utm_source=web&utm_medium=infographic&utm_campaign=pp-2019-rltr&utm_term=payments-innovation&utm_content=ovum-ebook-retail-banking

AN OVUM EBOOK


24

MethodologyThe purpose of Ovum’s Culture of Innovation Index is to investigate how enterprises today consider the concept of innovation and how each organization is responding to the opportunities and challenges in today’s market.

The research is based upon a global survey of 1,163 enterprises, which was conducted in 2Q19. These interviews covered a range of topics relating to two broad themes.

01: INPUTS TO THE INNOVATION PROCESS

The cultural and organizational drivers of innovation, particularly the way that the organization is structured with respect to identifying changing customer needs, competitive challenges, and new market opportunities.

02: OUTPUTS FROM THE INNOVATION PROCESS

The outcomes from the process, in terms of factors such as the adoption of and investment in emerging technologies as well as specific product innovation relating to the business area in question.

THE CULTURE OF INNOVATION INDEXAcross the study, the responses to over 100 individual questions were scored and weighted to produce combined scores for each of the Input and Output categories. While the Input scores are fully comparable across each sector, the Output group includes a dedicated focus on product innovation relative to the specific business area.

Interviews: 239 were senior payments and payment strategy directors in retail banks or retail banking functions within universal banks.

COUNTRY COVERAGE

AMERICAS 95

Argentina 6

Brazil 20

Canada 16

Columbia 7

Mexico 6

United States 40

ASIA-PACIFIC 56

Australia 8

China 16

India 25

Malaysia 2

Singapore 3

Thailand 2

EUROPE 88

Belgium 4

France 17

Germany 16

Italy 20

Luxemburg 5

Netherlands 2

Spain 12

United Kingdom 12

ASSETS IN $

>$200bn 30

$100bn-200bn 59

$50bn-100bn 58

$10bn-50bn 92


Appendix

25

OVUM CONSULTING

Ovum is a market-leading data, research, and consulting business focused on helping digital service providers, technology companies, and enterprise decision-makers thrive in the connected digital economy.

Through our 150 analysts worldwide, we offer expert analysis and strategic insight across the IT, telecoms, and media industries.

We create business advantage for our customers by providing actionable insight to support business planning, product development, and go-to-market initiatives. Our unique combination of authoritative data, market analysis, and vertical industry expertise is designed to empower decision-making, helping our clients to profit from new technologies and capitalize on evolving business models.

Ovum is part of Informa Tech, a B2B information services business serving the technology, media, and telecoms sector. The Informa group is listed on the London Stock Exchange.

We hope that this analysis will help you make informed and imaginative business decisions. If you have further requirements, Ovum’s consulting team may be able to help your company identify future trends and opportunities.

AUTHOR

Kieran HinesHead of Industries [email protected]

Kieran Hines is Head of Industries at Ovum, leading the technology research and portfolio development across its three pillars: financial services (retail banking, corporate banking, payments, and insurance), public sector (government and education), and telecoms & media technology.

He also leads the Financial Services Technology team. Within this, his personal research area is payments, particularly bank technology strategy around areas including real-time payments, open banking and digital commerce.


26

ACI WORLDWIDE

ACI Worldwide®, the Universal Payments® (UP®) company, powers electronic payments for more than 5,300 organizations around the world. More than 1,000 of the largest financial institutions and intermediaries, as well as thousands of global merchants, rely on ACI® to execute $14 trillion each day in payments and securities. In addition, myriad organizations utilize our electronic bill presentment and payment services. Through our comprehensive suite of software solutions delivered on customers’ premises or through ACI’s private cloud, we provide real-time, immediate payments capabilities and enable the industry’s most complete omni-channel payments experience.

ACI WORLDWIDEE [email protected] W www.aciworldwide.com

TWITTER-SQUARE aci_worldwide linkedin aci-worldwide

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COPYRIGHT NOTICE AND DISCLAIMERThe contents of this product are protected by international copyright laws, database rights and other intellectual property rights. The owner of these rights is Informa Telecoms and Media Limited, our affiliates or other third party licensors. All product and company names and logos contained within or appearing on this product are the trademarks, service marks or trading names of their respective owners, including Informa Telecoms and Media Limited. This product may not be copied, reproduced, distributed or transmitted in any form or by any means without the prior permission of Informa Telecoms and Media Limited. Whilst reasonable efforts have been made to ensure that the information and content of this product was correct as at the date of first publication, neither Informa Telecoms and Media Limited nor any person engaged or employed by Informa Telecoms and Media Limited accepts any liability for any errors, omissions or other inaccuracies. Readers should independently verify any facts and figures as no liability can be accepted in this regard – readers assume full responsibility and risk accordingly for their use of such information and content. Any views and/or opinions expressed in this product by individual authors or contributors are their personal views and/or opinions and do not necessarily reflect the views and/or opinions of Informa Telecoms and Media Limited.

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