On banking innovation in the emerging markets


Many western financial services providers have enjoyed their market leading positions as trendsetters and standard bearers. However, it does not necessarily mean that customers in these places have the most innovative products and services available in the market. In many occasions, customers in the emerging markets, especially in those with rapidly developing ICT infrastructure such as China, Turkey, Malaysia and South Korea, have been able to use more innovative financial products and services than those living in countries like UK and France. Take the case of mobile banking, it was only recently that major UK banks have started providing mobile banking apps that enable customers to make payments and funds transfer as well as the basic services like checking balances and viewing recent transactions while customers in emerging market can use various financial services such as money remittance and paying utility bills through their mobile phones from the late 2000s. There is an indicator showing that the gap is quite significant. According to the recently published Mobile Payments Readiness Index by Master Card, 7 of the top ten countries on the ranking are in emerging markets while only three developed countries, namely US, Japan and UK have their places in the top ten. How come the customers in developed countries, where all the technologies and innovations are available and all the necessary resources to implement them, have to bear with not using faster and more convenient mobile banking services for such a long time?

One possible explanation to this trend is that the emerging economies have fewer things to undo when they adopt new technologies as their counterparts in the developed economies have too much legacy system within the organization to deal with. This means that whereas the emerging markets banks can leapfrog technology choices when serving their customers, the process for adopting new technology is much more complicated for financial services institutions in developed markets as they not only have to modify and undo some or all the existing infrastructure to implement new technologies, but also have to make significant efforts to educate their customers and lead them to discard what they have comfortably used and use a seemingly unproven technology to them. If they fail to convince customers that the new technology brings more value-added features to them, the very technology they wanted to implement to reduce costs and improve efficiency in the first place will end up costing them more than the values it generates.

Therefore, it can be said that emerging markets banks have a significant competitive advantage over the financial services institutions in developed markets when adopting new technologies, as they can truly benefit from the newly available technologies choices. However, financial institutions in the emerging markets will soon face similar challenges as their developed market peers. When they upgrade their existing technologies, they will have to consider how the new technology could be integrated into the existing business processes. They will also have to show their customers that it is not something that banks do reduce costs at the expense of customers' convenience.

The key takeaway from this is that banks must understand that adopting a new technology is not innovation: the process of implementing the technology and integrating it into existing business processes within the organization is where innovation takes place.