- The external environment and complex regulatory requirements of the industry—such as compliance of privacy laws, debt security guidelines, and fair lending practices—inhibit the development of innovative products and services in the banking industry.
- The structure of the industry also may be partly responsible for limited innovations in the banking industry.
The federal law states that no bank can hold deposits exceeding 10% of total U.S. deposits. With the mergers, many of the top 20 banks are close to this limit. Therefore, it is not feasible for the banks to acquire new customers. This has aggravated the situation. This also means that the banks can grow in the domestic market only by offering new products and services to current customers. Therefore, it is imperative for banks to design innovative ways of serving the existing customers.
The internal structure of the banking industry also restricts innovations in serving its customers. The departments within the banks generally work in isolation from each other, and inter-departmental teamwork is seldom encouraged. Dividing the people who want technical innovations from those capable of developing them destroys the impetus to bring any change about.
A study carried out by IBM "Banking 2015: Defining the Future of Banking" reveals what the global banking industry will look like in 2015. IBM's market research Institute of Business Value identifies the key trends and innovations that will be prevalent in global banking industry.
The study highlights five key components which will dominate the market place and determine success in 2015. These five determinants, according to the study, will be:
- Powerful customers, interested only in those service providers who fulfill their specific individual needs.
- Specialized niche competitors, competing with large banks. The large banks will grow bigger with consolidation but will collaborate with niche competitors who provide specific services.
- A new workforce, comfortable with and educated in technology, will be in demand due to their higher productivity and efficiency. The competition to attract and retain talent will intensify.
- Regulated transparency through integrated, enterprise-wide systems and processes. This will help to comply with global standards of transparency and accountability.
- Technology, with rapid, accurate decision-support systems, will provide greater operational flexibility and efficiency.
The IBM study further lists a number of products and other options that will serve the business interests of the banks. They are mortgages—the origination costs of which will be lower due to automation—and radio frequency identification (RFID) cards, which will be the leader in payment technology. Bundling products and services will drive growth. This will increase the possibility of cross-selling products and services offered by the bank and reduce the cost and risk associated with the customer. This will lead to integration of the customers' accounts, including savings, mortgage, and other lines of credit.
The study further categorizes modern customers as being more demanding. They will seek specialized services rather than settling for the local branch bank. Thus, innovation in products, processes, relationships, and business models will be crucial determinants of growth.
