Lesson Learnt from Some Innovation in Indonesian Banks. YB Hariantono - BII Maybank

Transcription

1 Lesson Learnt from Some Innovation in Indonesian Banks YB Hariantono - BII Maybank 1

2 Innovation - Definition Innovation is the application of better solution that meet new requirements, in articulated needs, or existing market needs. This is accomplished through more effective products, processes, services, technologies, or ideas that are readily available to markets, governments and society. The term innovation can be defined as something original and, as consequence, new that "breaks in to" the market or into society. One usually associates to new phenomena that are important in some way. A definition of the term, in line with these aspects, would be the following: "An innovation is something original, new, and important - in whatever field that breaks in to (or obtains a foothold in) a market or society." Better Solutions - Original - More Effective - Breaks into 2

3 Is Innovation related to Technology? ARMONK, N.Y Jan 2013: IBM (NYSE: IBM) today announced that it received a record 6,478 patents in 2012 for inventions that will enable fundamental advancements across key domains including analytics, Big Data, cybersecurity, cloud, mobile, social networking and software defined environments, as well as industry solutions for retail, banking, healthcare, and transportation. These patented inventions also will advance a major shift in computing, known as the era of cognitive systems. IBM's record-setting 2012 patent tally was made possible by more than 8,000 IBM inventors residing in 46 different U.S. states and 35 countries. IBM inventors residing outside the U.S. contributed to nearly 30% of the company's 2012 U.S. patent output. From , IBM inventors received nearly 67,000 U.S. patents. The company's 2012 patent count exceeded the combined totals of Accenture, Amazon, Apple, EMC, HP, Intel, Oracle/SUN and Symantec. Source : It is obvious that Information Technology industry has to rely on innovations, inventions. This way of life will also influence other industry which being IT users. Adoption of new technology will drive the industry to have better business operation The basic business of banking has been established over 100years and primarily commercial banks do take funding from deposit customers and lend to loan customers. Basic principle are stay the same, but the way of delivering the service will be different with the use of Technology 3

4 Case Study of Indonesian Banks Virtual Account EDC Mini ATM Started as institution payment, then changed into Virtual Account Introduced in , and later adopted by many banks Extension on usage of EDC Introduced in , and later adopted by many banks Cardless ATM withdrawal Paperless Account Opening Cash Withdrawal on ATM without using card Introduced in , and later adopted by many banks Speed up account opening process, reducing paper use Introduced in by some banks using their own processes Innovation in banking requires time to develop into operation and may even longer time for customer adoption. Bank s Innovation is on the service and processes. 4

5 Virtual Account Problems/ Challenge: 1. Increasing number of billers connected to banks 1. Installment 2. Bill payments 3. Tuition fee 4. Insurance premium 5. Other fees 2. Limitation of ATM technology (limited screens to show Biller s name) 3. Need to do reconciliations/ identifying payer 4. Text description on passbook is not enough for certain volume of transaction, need an identifier Solution : Virtual Account Biller code Customer Code Institution Code : Assigned by bank to a specific beneficiary account Customer Code: Identifier of payer account, can be invoice #, membership #, installment #, subscriber #, belong to a specific biller/ community/ club/ insurance / paytv, school/ university/ social institution/ foundation

6 Virtual Account Transfer Dana Via ATM BII Transfer Dana Via Mobile Banking BII Transfer Dana Via ATM Bersama, Prima, ALTO Transfer Dana Via Internet Banking Bank Lain Virtual Account Customer A Virtual Account Customer B Virtual Account Pelanggan C Virtual Account Pelanggan D Rekening Penampungan A/C# : Transfer Dana Via Mobile Banking Bank Lain Virtual Account Pelanggan E - Some banks make a proprietary transfer to intrabank account, some do openly interbank transfer - Value proposition: - Customer : Helping customer/ beneficiary do reconciliations of their incoming transfer - Bank : Retain funding and increase loyalty 6

7 VA System View Transfer Dana Via Mobile Banking BII Transfer Dana Via ATM Bersama, Prima, ALTO Transfer Dana Via Internet Banking Bank Lain VA System A/C1: V/A: 78000xxxxxx xx xxxxxx xx xxxxxx xx xxxxxx xx004 A/C2: V/A: 78002xxxxxx xx xxxxxx xx xxxxxx xx xxxxxx xx004 Core Banking/ Account System AC1 : AC2 : Technically can be done as easy as just adding a table in front of account system to map the virtual accounts and real bank accounts - VA system can be developed within core banking or separate system by itself - VA functionalities can be extended with billing with partial payments, etc - It is a must have platform for every bank to compete in market. There will be more application to it in future. 7 7

8 EDC MiniATM Problems/ Challenge: 1. ATM investment & operation cost is high 2. ATM expansion is not fast enough 3. Increasing market share means also increasing distribution channels Opportunity: 1. Financial Transaction require small online system with limited screen size, and numerical pinpad 2. ATMs are connected thru interbank ATM switching system, which can be leveraged for other devices 3. EDC is much cheaper compared to ATM, both capex and opex - Extend Traditional Merchant Acquiring Business, to acquire merchants doing purchase and payments - New type of merchants specializing on payments - Use merchant to serve cash withdrawals from their cash register - Shifting of mainly fee based income generated from MDR into revenue of interest income gained from deposit account of merchants in the bank - Adoption of this EDC MiniATM spread over across banks including BPR - Deployment of EDC MiniATM to non-bank outlets

9 EDC MiniATM Traditional Banking Transaction: Balance Inquiry, Cash Withdrawal, Deposits, Fund Transfer Payment to Merchant Credit Card Payment Telco Postpaid and Prepaid Payments Financing Payment Public Utilities Payments Tickets Payment Insurance Payment - It s a bank s channel that has the equal capability as other channel to do payments and transactions - Combination with peripheral devices enable EDC to do : account opening, mobile teller, collections, loan disbursement, etc - It consist of : card reader screen keypad 9

10 Cardless ATM Withdrawals Problems/ Challenge: 1. People forget to bring ATM Card 2. Need emergency cash for someone else 3. ATM network distribution coverage is quite large already Opportunity: 1. Additional service to existing customers (mobile banking) 2. Remittance capability which enable payments to the non-bank customers 3. Extend service reach to non bank customers or non-bankable segment 4. Facilitate conversion of electronic money into physical money (Telco e-money) - Extend reach of banking service to non-banking customers by collaborating with Telco companies - There will be more e-money and virtual money in future need to be converted into physical money - More banks will be adopting this kind of mechanism, although already started in the market >10yrs 10

11 Cardless ATM Withdrawals Cardless Customer Registration at ATM Perform Cardless Customer Registration by keying: Cardless Customer HP Number and Cardless PIN 4 Cardless Customer Registration Completed Switching System Cardless DB Save Cardless Customer HP Number and Cardless PIN OTP Request from Mobile Banking Send SMS to Request for OTP containing Withdrawal Amount and Cardless Customer HP Number Telco Receive SMS containing a Cardless OTP Cardless Withdrawal at ATM Mobile Banking Server Request for Cardless OTP 6 Response a Cardless OTP Validate Cardless Customer HP Number. Cardless OTP is generated. Switching System Perform Cardless Withdrawal by keying: Cardless Custimer HP Number, Cardless PIN and OTP 6 Cardless Customer receives money from ATM equal to Withdrawal 7 Validate Cardless Customer HP Number + Cardless PIN and OTP Switching System Response Cardless Withdrawal with Withdrawal Amount 4 Cardless DB 5 Cardless DB Save Cardless OTP

12 Paperless Account Opening Problems/ Challenge: 1. Long time for account opening process 2. 2 steps of customer data input creating issues of incomplete data input or error in data input 3. Bank mission to humanizing financial services, means more personal interaction rather than people-document interactions Opportunity: 1. Network bandwidth has improved for the past few years (bandwidth size vs cost) 2. Technology availability on ECM & OCR and has been long awaited to improve process 3. Improving turnaround time: digitalizing at the first entrance point - Improving turnaround time to process account opening from 27 min to 12 min - Combined with simplification of forms, sceen & use of scanner as well as process reengineering - More personal interaction, remove back & forth processes, and completed at 1 interaction 12

13 13 Paperless Account Opening Process Flow START 04:11 Input cust s data 01:23 Cross check + update scan result 00:49 Interview + input other data 00:34 Repetition cust data 01:00 Create acc number Customer Service 05:00 01:27 Product information Copy cust ID + Prepare ATM card & passbook 05:00 00:50 Inform m-banking, other facility & cross selling Give ATM Card & passbook Deposit cash at teller + copy cust ID 10:00 END Input other cust data 00:28 00:15 Register ATM number Print cust data form 02:00 Scan cust ID 05:00 Activate ATM card at ATM machine 00:45 Swipe ATM card 01:00 Register + print passbook Customer 11:00 Fill & sign for opening acc. form Fill & sign product / fac. form* Create PIN 01:00 Sign for passbook & ATM card Sign for cust data form Head CS 01:30 Override for ATM PIN & sign for passbook 12 min!

14 It s not Technology Innovation Process to Stimulate an Innovation: 1. It s related with problems, opportunities, new technology, change on infrastructure 2. IT requirements will start with a simple basic thing. It s not necessarily started with heavy IT investment or IT transformation 3. Understanding the needs of people, process, payment mechanism or any particular area of banking services What will make innovation successful: - Is the innovation really solve the current problem - Are there alternative to the solution of the problem? - Does our solution better than other solution? Does it driven in bigger way than other solution? - Does the infrastructure to support the innovation is ready/ available? - Knowledge of business process, business model, customer need and technology capability are prerequisite for an successful innovation to happen 14

15 Source of Innovation Product Dev Customers Operation INNOVATION Consultant IT Sales Officers Other Banks Built in within Organization 1. Creative and Innovative people within organizations 2. Culture of innovation within organisation 3. Process and mechanism to nurture innovation within organization processes: - Process improvement, operational excellence - Innovation competition - Continuous improvement process (kaizen, etc) Adopt Innovation from other institutions/ countries 1. Every organization has their own innovative ideas that might be applicable to other organisation in other countries. 2. Technology gap between countries are getting lesser, and copying them is not impossible (effort & investment) 3. Huge vs small investment: majority of innovation doesn t require huge effort/ investment. 4. Self Innovation vs Fast Follower, dependency on organization environment. - IT Architecture plays important role in adapting to new innovation - Innovation may change major part or minor part of IT Infrastructure 15

16 What is a successful Innovation? What drive Innovation: - Solution fo business problem - Solution to payment problems - Solution fo operation inefficiency/ problems What will make innovation works: 1. Who will be the customer segment using it? 2. Why customers/ users willingly adapt to it 3. What is the real value proposition for the customers? Speed/ cost/ ease of use/ profit? MARKET ACCEPTANCE IT effort in Innovation: 1. Huge, long time projects, eg:crm, business analytics, MSS 2. Small, short projects: channels innovation, 3. Balance the strategic and tactical innovation - Knowledge of business process, business model, customer need and technology capability are prerequisite for an successful innovation to happen 16

17 Summary 1. Innovation needed to make us stay relevant and competitive in the business. The current innovation will be a mandatory standard requirements in future 2. Adopt the approach for the organization: in-house innovation or fast follower, or hybrid 3. It requires both combination of business and technology knowledge to drive a successful innovation 17

18 Thank You 18