Innovation in Banking and Financial Services
Mitika Bajpai
Great Lakes Institute of Management A brief history of banks When the Gods in Rome in early 2000 BC started lending and depositing money they never thought that this would someday become so big an industry that will keep shaking the word from time to time. Banking has evolved over the years and changed radically after European renaissance in 14th century. “Banca Monte dei Paschi di Siena” was the first the bank setup in this era in Italy and which is in existence till date. After that in 1656 when European Bank issued the first banknotes and rapidly started changing the face of the industry. From latter half of 18th century and to the end of 19th century, more banks were opened In the region of North America specially United States. Some of the major banks of today the likes of Bank of America, RothSchield, Citibank,Deutsch Bank,JP Morgan etc… were incepted in this era only. And as per allbanks.org the total number of operating banks in the world are more that 1200 at present. Banking industry now has become very competitive. And innovation in various aspects of banking is much needed to not only grow but to survive as well. Modern Banking and Innovation After the end of World War II Banking industry saw more modernization. As per an article published in Wharton today on “The history of modern banking” the banking as we see it today started from 1960 when Charles Sanford joined Bankers Trust in United States of America. The most important innovation that is attributed to Sanford is ‘originate-todistribute’ model of lending. By writing and then repackaging loans for sale to other market participants, Bankers Trust established a secondary market for loans. This freed up capital from loan originators’ balance sheets, which could then be used to generate even greater volume of finance. A perspective on Innovation in last decade Mckinsey did a global survey around 3-4 years back and what they found out was most executives saw innovation as a key driver of growth however most of them were of the view that Innovation is more challenging in financial services institution than for companies in other sectors. Similarly a survey done 35
jointly by Infosys and European Financial Management Association of European retail banks reflects that Corporate and Retail Banks are facing stiff competition in the market from new entrants and innovative business model. Survey results showed that every 4 out 5 respondent s said that innovation was extremely important for achieving growth and efficiency. Albeit the importance of innovation is clear another study done by Infosys and Asian Banker Research shows that only 18%. Percentage Respondents
banks in Asia have a formalized innovation strategy. Generally an innovation is perceived as a breakthrough product or