Innovation in Banking: Challenges and Implementation of Innovation Strategies by Barclays Bank PLC - Case Study Example

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Executive Summary

The banking sector in UK is experiencing a financial crisis due to unmanageable risk taking actions. Also, the unstable global economy has led to this crisis as the UK economy is dependent on the other economies for cash inflow. Innovation in the banking sector is one of the requirements for the banks to survive in the industry. Barclays Bank PLC, one of the leading and most influential banks in UK economy has played an important role in revolutionising the banking sector by incorporating innovative digital technology. The bank has faced challenges regarding cyber security, technological use and regulatory reforms. Barclays Bank PLC has given prime importance to innovation and implementation of the innovation. Innovation strategies implemented by the bank has helped it in dealing with these challenges.

Table of Contents

1. Introduction4

2. Shrinking Banking Sector5

3. Barclays Bank PLC6

4.Innovation Challenges faced by the company7

5.Innovation management at Barclays Bank PLC9

6. Current innovation strategies of Barclays10

7.Evaluating the impact of these strategies:11

8.Recommendation12

9.Conclusion14

Reference List15

Appendices18

• 1. Introduction

Banking sector has come a long way from people waiting in a queue to make their financial transactions; to the internet, where everything is just a click away. Innovation has completely changed the way banking is done in the recent times. Mobile banking, aggregators, digital wallet, data analytics, Bank in box etc. are innovations that have completely digitalised the core function of banks, which is borrowing, and lending of money (Deloitte, 2015). Banks and financial institutions these days, focus more on the changing technological needs of the banking sector, in order to provide more secure transaction, save time in order to increase efficiency of the banking process. Companies these days invest big in developing applications for smart devices in order to provide customers with easy, safe and secure methods of carrying out monetary transactions. This brings them the liberation on not having to stand in long queues and wait the whole day (Deloitte, 2015). The revolution in the banking sector brought about by technology and innovation, has increased the completion of retaining customers. Also, customer’s love and affection for wireless technology along with increasing competition in the banking sector, has turned it into an absolute necessity for the banks to digitalise their functions and core offerings, in order to survive in the industry.

Though it has proved to be more rewarding than not, the increasing technological evolution in the banking sector has a negative side too. It has reduced the time taken to process the banking formalities and provides the customers with efficient methods to carry out their financial transactions. Also, advancement in technology has also threatened the security of the whole process. With a number of cases related to security issues and cases of money laundering, security of customers has become one of the top priorities for banks nowadays.

In this paper, an analysis will be drawn on the innovation strategies of Barclays Bank PLC and innovation challenges that it is facing. Also, the current innovation strategies and how the deal the challenges will be understood.

• 2. Shrinking Banking Sector

The banking sector and economy have always been interdependent, where the downfall of one brings down the other as well. Considered to be the regulator of global economy, impact of any significant change in the banking sector can immediately be felt on the economy. They have been a number of financial crises in the 21st century. Banking sector usually suffers the worst impact of any financial crises due to default in loans and credits, freezing of interbank lending, businesses losing out etc (Cooper, 2008). Also, any instability in the banking sector can have a negative financial impact. Instability in the banking sector can be measured by its probability of becoming insolvent within the next quarter. It is usually accompanied by a reduced growth in the output, indicating the importance of banking stability in the growth of economy (Cooper, 2008).

A number of factors are responsible for the crises in banking sector. Low interest rates, Excess liquidity, increase in risk taking and lack of financial innovation can be considered the primary reasons for the crises (House of Commons Treasury Committee, 2009). Judging by the trend it has shown in the past, the UK banking sector is known to be a risk taker. Before the financial crises, UK had gone through a period of economic growth. During this period, while UK was experiencing non-inflation and a stable expansion, the economies around the world were becoming more vulnerable. Dependence on other economies for capital inflow changes the whole scenario. Due to the incompetency of the international monetary system, there was an imbalance in the cash flow in UK, which led to a decline in rate of interests. This in turn led to unmanageable risk taking (House of Commons Treasury Committee, 2009).

The major players in the UK banking sector are HSBC Group, Barclays Bank PLC, Royal Bank of Scotland and Lloyds Banking Group.

• 3. Barclays Bank PLC

The year 1896 saw a merger between many banks in London and English provinces, combining as Barclays and Co. The company was established by John Freame and Thomas Gould, when they started as Goldsmith banker in London (Barclays, 2016 a). The bank was renamed by James Barclay, son –in-law of Jon Freame, after he became a partner with the bank. Over the years, the bank has made many small as well as big acquisitions to expand its reach to newer markets.

Barclays bank acquired American Credit Corporation by expanding its business to include commercial credit, in the year 1980. The corporation was renamed as Barclays American Corporation. In 1981, Barclays bank and Barclays Bank International had a merger which led to the formation of Barclays Bank PLC, a group holding company. At present the business structure of the bank is divided into two domains, Barclays UK and Barclays Corporate and International. Barclays UK comprises the UK Retail banking operations, corporate banking for small businesses, the banks’ UK based wealth offerings and the UK customers' credit card business. Barclays Corporate and international handles the corporate banking franchise, having a strong growth opportunity in the international market (Barclays, 2016 c).

The company defines its purpose as helping people achieve their ambitions in the right way, by measuring them on how successfully they keep up with the values of the company, which are respect and value the people they work with, maintaining ethical conduct and transparency in the processes, keeping clients at the focus, using energy skills and resources to deliver to deliver the best and bringing innovation into their work (Barclays, 2016 b).

Having a history of over 300 years, the bank is considered to one of the most powerful banks in UK, shaping the economy (Barclays Capital, 2011; Barclays, 2016 a). The bank has its presence in 50 countries and employs around 147,500 people around the world (Barclays Capital, 2011).

• Innovation Challenges faced by the company

Barclays has always known to be incorporating innovation into its processes. In spite of having a strong network and an efficient structure for innovation, the bank has faced challenges regarding technology and regulations. Innovation challenges faced by Barclays Bank PLC:

• Dealing with the increase in cyber crime: With development of technology, the company faces challenges in dealing with cases like money laundering using technology. This is a challenge that all the banks are facing (Banking Technology, 2015). Barclays Bank PLC was found to be involved in money laundering by getting information out of wire transfers (Finch, G., 2016).
• Changing technological demands: With increased technological demands, the bank is facing more and more challenges to incorporate newer technology and innovation into its processes, in order to cope up with the increasing competition.
• Dealing with increased regulatory inspection: Increased regulations and legalities have caused a lot of financial trouble to Barclays Bank PLC. In the past few years, various reforms have been taken to regulate the banking sector, in order to prevent major financial crises (Scott, 2012).. The investigation was later extended to 2013, Barclays-Qatar deal.

The bank had been functional in Africa for more than a century. In spite of being a familiar market, the company decided to pull out of Africa. The following were the reason of Barclays in failing in Africa (Mbele, L., 2016):

• Slow in grabbing opportunities that were present for over a decade :

Barclays was not as fast in grabbing the opportunities in Africa as its counterparts, even after having its presence in the Africa market for nearly a century. Its competitors such as Standard Bank, Ecobank or GT Bank, were much faster in grabbing the opportunity that Africa had to offer.

• Got stuck due to internal bureaucracy of tying up all assets in a single merger with ABSA: All the assets were stuck in the merger, a process which started in 2005 and is still on. Both the banks have remained separated till date.
• Volatility in global markets: The volatile global market has posed itself as unstable to Barclays Bank PLC, which has further challenged its decision to continue its operations in Africa.
• Fall in the commodity prices: The falling price of commodities causes in stability in the currency, which again raised concern for the bank for functioning in Africa.
• Slowdown of Chinese economy: Africa economy has a close relationship with China. Which has led to the fear that a slowdown in the Chinese economy will show its effect on Africa,
• Depreciating African currency: The African currency was depreciating constantly, which did not make the African market look that appealing to the bank. There was a fall of almost 40% in the South African Rand, in 2015, which made the situation even worse.
• Unfavourable unemployment figures: The unemployment figure in Africa was another reason for the Bank to withdraw from the market. Unemployment level in Africa stated that enough jobs were not being created for people to have personal and business accounts.
• Innovation management at Barclays Bank PLC

The need for innovation, when it comes to banking sector, is to enable a safe and secure transaction, which is also user friendly and time saving. With many cases of money laundering in the recent times, the banks have become particularly conscious about constantly updating their technologies and making the experience of banking safe for the customers.

Barclays Bank PLC has always been known for implementing innovation into its banking services. Known to introduce the first ATM machine to the world and the first credit card to UK, it has revolutionised personal banking by incorporating innovation. There are various models that businesses use for innovation purposes.

Barclays Bank PLC follows Market pull innovation model. According to this model, a market need is first realised and then a solution is generated. At Barclays, effort is taken to understand the financial advice and support that the customers need, and then providing them with innovative products and ideas (Barclays, 2013).

The structure of the company consists of six functional divisions. Each of these divisions handle their respective departments which brings much efficiency in the process of the bank (Refer appendix 1).

Barclays Bank PLC considers delivery of technology is equally important, as the technology process itself. The company has collaboration Laboratories, at some of its locations, where experimentation, designing and making technological changes go hand in hand (Refer appendix 2).

• 6. Current innovation strategies of Barclays

The following are the strategies for innovation of Barclays Bank PLC:

• Plugging into the entrepreneurial network to work with the most innovative products and services: The bank regularly conducts events like The Barclays Open Innovation, where the entrepreneurs pitch for their ideas to the technological team of Barclays. Collaborating with start-ups that function in the field of technology and innovation will help Barclays Bank PLC to incorporate new ideas and innovation into its functions.
• To implement developed, convenient and time saving banking innovations for the customers: Barclays Bank PLC has always been known to spend considerable amount of resources in order to develop and implement innovative technology. A recent example of Barclays Bank PLC successful implementation of innovation is the launch of the first contactless card in the year, 2007.
• Securing the banking process to gain back the trust of people in the banking sector: With the development of technology, the banks are becoming more and more conscious about the matter of cyber security (Vater et al., 2012). At Barclays Bank PLC, it has been a top priority to secure the transactions for customers. In the year 2014, the bank had passed independent tests, making it the first big company to achieve government’s cyber security certificate for digital banking services.

The following are a few examples of innovation implemented by the company in order to make banking a simple and easier task for their regular customers (Rossi, B., 2014).

Apple watch app: It was launched in Africa by Barclays Bank PLC which was the first bank to do so.

Barclays Live: This is to keep the clients and colleagues updated.

bPay: bPay, is a contactless payment device that allows people of every age group to make payments just by having a prepaid account.

Pingit: It is a UK based app that allows payment through mobile phones and needs just a phone number to carry its functions. This is one of the most efficient payment applications available today. The company has dedicated technology teams that keep the app updated. New features as well as customer feedbacks can be updated in this app.

Barclays.net: It is an online banking site specifically designed for the corporate clients. It is customisable, secure and time saving.

Isis Mobile Wallet or Softcard: The bank was the first to issue U. S. telcos’ Isis mobile wallet, which has recently changed its name to Softcard.

Assisted service counters: This service allows the automation of routine banking transactions to simplify the whole process. Their personal contact is kept with the staff. This process helps in saving a lot of time.

• Evaluating the impact of these strategies:

The following are the effects that the strategies that Barclays Bank PLC had devised in order to deal with the challenges:

• The resources that the bank has invested on research and development, it has successfully provided protection to the customers, employees and clients. The company has specialised in cyber security developments such as Barclays Accelerator programme and Barclays Cyber Academies, which strengthens the future cyber security as well (Rossi, 2014; Barclays, 2015).
• The bank has innovated new technology through extensive research and development, to make banking process simpler and a pleasant experience for the customers. The bank has successfully used payments apps and has automated routine banking transactions. Barclays has even come up with methods like Barclays Blue Rewards, where the bank pays the customers for online banking and using its mobile banking apps. Such methods have increased the usage of online banking services by the people (Flinders,2015; Rossi, 2014) .
• Recommendation

The top challenges that the banks are facing these days are:

• Expectations of the customers: The customers, with the increased use of technology, are becoming demanding. The level of customer satisfaction is one of the keys of success in the banking industry. The banks are feeling pressure to deal with this challenge. Even large banking firms like Barclays Bank PLC, are undergoing the same pressure.
• Increased competition posed by FinTech corporations: Financial technology (FinTech) corporations are financial firms that use various software, in order to provide financial services. The simplicity and efficiency that these firms provide the services with, make them very popular amongst the new generation of customers. The traditional banks are facing this as a challenge to compete with these firms. Even after being into the banking sector for more than 300 years, Barclays Bank PLC is finding it challenging to compete with these firms.
• Regulatory pressures from various regulatory bodies: The regulatory measures have changed to a great extent in the past 5 years. Barclays Bank PLC has seen to its regulatory reforms focusing on the financial and Euro zone crises.

The Bank can use the following steps in improving the banking services to deal with present challenges in the banking sector:

• Barclays Bank PLC should try to incorporate newer technology to offer customer centric services for providing loans, credits etc.
• Incorporating the unused data in real time application such as at the point of sale. Huge amount of data that usually go unused, should be brought into usage. This will not only save the company in retaining some valuable information, but also use it for targeted and personalised offerings.
• The bank should try to develop a personal touch to its banking services. Keeping a personal touch with the customers will help the company in developing its relations with the existing customer base, which may be help for future business.
• The company should try to expand to international markets. Although the global economy is experiencing instability, the company should try to make its presence known in the international market, in order to stay ahead of its competitors. Understanding the economy in other countries, can help Barclays Bank PLC come up with successful strategies to expand into those markets.
• The bank should focus more on developing a new approach to provide services. It should also be aware about the innovative changes going on in other industries. This will help it in discovering innovative technology that can be sued in the banking sector for better services.

Though these strategies will help the company to enhance its performance in the banking industry, there are potential challenges in implementation process. They are:

• Before receiving approval for loans, the customers are assessed for their credibility. Human intellect is the best judge in this case, as any defaulters would only add to the burden of the bank.
• Keeping highly confidential information about the customers requires a high level of security. Any negligence in security may lead to precarious consequences. Any such circumstances would only threaten the credibility of the bank.
• Starting operations in an international market has its own consequences. The moment there is a crises in the global market, its effects can be experienced in the home country as well. Also, different nations have different regulations, which should be thoroughly studied before entering into an international market, in order to avoid legal issues.
• Conclusion

A few banks dominate the banking sector in UK, which are Lloyds Groups, Barclays Bank PLC, The Royal Bank of Scotland. After experiencing a period of growth in the past few decades, the UK banking sector is faced with certain challenges which led to financial crisis. Innovation plays a key role in the banking sector. Many banks these days are using digital technology to transform their operations in order to save time as well as make the banking process much simpler. Although digitalisation is a remarkable step towards revolutionising banking sector, it has raised certain issues regarding security. In the analysis we saw how Barclays Bank PLC has always given significance to incorporate innovation into its operations. The company has faced challenges in the past, regarding technology and regulations. We also saw the present innovation strategies that the company has in order to deal with the present issues regarding innovation. Also, various strategic changes that can be implemented to deal with issues, were recommended.

• Reference List

Banking Technology, 2015. Five challenges for the banking industry in 2015. [Online] Available at: <http://www.bankingtech.com/270792/five-challenges-for-the-banking-industry-in-2015/> [Accessed 3 June 2016]

Barclays Capital, 2011. Overview of Barclays. [PDF] Available at: <https://www.penser.se/Global/Strup/Grundprospekt/Overview%20of%20Barclays%20August%202011.pdf> [Accessed 3 June 2016]

Barclays, 2013. The Barclays Way. [PDF] Available at:< https://www.home.barclays/content/dam/barclayspublic/docs/AboutUs/Purpose-Values/the-barclays-way.pdf> [Accessed 3 June 2016]

Barclays, 2015. Developments in cybercrime and cybersecurity. [PDF] Available at: < https://www.barclayscorporate.com/content/dam/corppublic/corporate/Documents/insight/Banks-Cybercrime.pdf> [Accessed 3 June 2016]

Barclays, 2016a. Our History. [Online] Available at :<https://www.home.barclays/about-barclays/history.html> [Accessed 3 June 2016]

Barclays, 2016b. Purpose and Values. [Online] Available at: <https://www.home.barclays/about-barclays/barclays-values.html> [Accessed 3 June 2016]

Barclays, 2016 c. Barclays internal structure. [Online] Available at: <https://www.home.barclays/careers/barclays-structure.html> [Accessed 3 June 2016]

Barclays, 2016 d. Technology. [Online] Available at: <https://www.home.barclays/careers/our-roles/technology.html> [Accessed 3 June 2016]

Cooper, G., 2008. The Origin of Financial Crises: Central banks, credit bubbles and the efficient market fallacy. Hampshire: Harriman House Limited

Deloitte, 2015. The Impact of Innovation in the UK Retail Banking Market. [PDF] Available at: <https://assets.digital.cabinet-office.gov.uk/media/55ba0461ed915d155c000013/The_impact_of_innovation_in_the_UK_retail_banking_market__2_.pdf> [Accessed 3 June 2016]

Finch, G., 2016. Barclays Probes Alleged Money Laundering at South Africa Arm. [Online] Bloomberg. Available at: < http://www.bloomberg.com/news/articles/2016-03-01/barclays-probes-suspected-money-laundering-at-south-african-unit> [Accessed 3 June 2016]

Flinders, K., 2015. Barclays pays customers to bank online. [Online] Computer Weekly. Available at: < http://www.computerweekly.com/news/4500244429/Barclays-pays-customers-to-bank-online> [Accessed 3 June 2016]

House of Commons Treasury Committee, 2009. Banking Crisis: dealing with the failure of the UK Banks. [PDF] Available at: <https://www.publications.parliament.uk/pa/cm200809/cmselect/cmtreasy/416/416.pdf> [Accessed 3 June 2016]

Mbele, L., 2016.Why is Britain's Barclays Bank pulling out of Africa? [Online] BBC News. Available at: <http://www.bbc.com/news/business-35695601> [Accessed 3 June 2016]

Rossi, B., 2014.How Barclays is restoring banking trust with innovation. [Online] Information Age. Available at: <http://www.information-age.com/it-management/strategy-and-innovation/123458397/how-barclays-restoring-banking-trust-innovation> [Accessed 3 June 2016]

Scott, M., 2012. Barclays’ Profit Falls as New Regulatory Problems Emerge. [Online] Dealbook. Available at: <http://dealbook.nytimes.com/2012/07/27/barclays-profit-falls-amid-rate-rigging-scandal/?_r=0> [Accessed 3 June 2016]

Vater, D., Cho, Y. and Sidebottom, P., 2012. The digital challenge to retail banks. [Online] Bain & Company. Available at: <http://www.bain.com/publications/articles/digital-challenge-to-retail-banks.aspx> [Accessed 3 June 2016]

• Appendices

Appendix 1

Corporate Structure of Barclays Bank PLC

(Source: Barclays, 2016 c)

Appendix 2

Technological Structure of Barclays Bank PLC

(Source: Barclays, 2016 d)