Finding the right mix: Innovation in financial services with Vakifbank 27 October 2021

Sait Şener is Innovation and R&D manager at VakıfBank. He discusses how innovation is a common good at his institution.  

This interview series was conceived by the Efma Future Innovation Community team to speak with those on the inside who are driving innovation agendas at leading financial institutions. 

The role of innovator inside financial institutions is not an easy one. Many factors need to be taken into account, from regulation to internal legacies, competitive forces, new technology developments, and evolving consumer demand. It is a long list. How do they arrive at the right answers? How do they know what to prioritize in a changing landscape? Where is the industry headed in coming years? 

In these interviews, innovation leaders share their views on these important questions. Their experiences are valuable as there is no silver bullet or crystal ball when it comes to innovation. And while everyone must chart their own path, we are not alone. We can leverage learnings and experiences from those around the globe who are working on the same problems. This series will provide the type of insight that community members will no doubt find valuable in their own innovation quest. 

The role of innovator in banking is not an easy one - how do you personally approach the challenge? And how does your institution think about innovation with all of the existing challenges, threats, and legacies in the industry?

When we think about banking in general, most of the existing business models are really not that new or innovative in terms of technology, security, products and services, in comparison to other businesses. Technology that is being used – the mainframe core systems – is from the mid-20th century. Products such as credit and bank accounts are from the 14th and 15th century. The security approach, the signature, is from the 4th century. In terms of services, the first bank branch model goes back many centuries. 

However, financial services are on the precipice of a great transformation. As the pace of change has dramatically increased, the need for innovation becomes more important day by day. Less than 15 years ago, banks were only competing with one another. As technology improved and digital solutions surfaced, banking products and services are no longer provided by only banks. In this new world where banking is still necessary, but banks are not, fintechs began popping up. Well known and established technology companies also started delivering financial products and services. 

In the midst of this fierce competition, the cultivation of a continuous innovation environment and establishing an innovation culture within the bank is necessary. On the other hand, VakıfBank doesn’t see all of those fintech companies as rivals or threats. In order to meet our challenges, VakıfBank seeks cooperation with fintechs in terms of finding solutions to enhance the capability of bank services and also decrease the cost base by using different technology providers. Growing together with fintechs is the general strategy of the bank. 

At VakıfBank, we have an innovation portfolio approach. Within the scope of incremental innovation, we focus on improving existing products and services and more than 60% of our innovative ideas belong to this category in order to survive and not miss the market opportunities. Within the scope of sustained innovation, we focus on the design of new digital products and services, especially in the mobile application area. 30% of our innovative ideas belong to this category. Within the scope of radical innovation, we focus on design of products and services that can change the bank’s business model, way of working, and its presence in the market. This represents the final 10% of our innovative ideas.

Digitalization is one of our priorities. In addition to enhancing existing products and services on the digital side, we launch new products and services beyond the core business portfolio that have a greater added value from a digitalization perspective. Again, in addition to improving channel coordination and performance, we transform channels to match customer behaviors in order to understand customers better and offer the best products and services. In order to stay competitive and not fall behind, we place strategical importance on both optimizing existing models as well as creating new models.

The main challenge encountered in sustaining innovation capacity and implementing innovation is the alignment among diverse groups within an organization and making them a partner in the innovation journey. In order for innovation activities to take priority among work carried out on many different topics such as legal regulations, bank priorities, customer priorities, unit priorities, and quick acquisitions, we apply a strategy that aligns innovation efforts with the overall business strategy.

This requires effective communication and establishing new mechanisms as a process. At VakıfBank, we have an innovation strategy and a process that was established to use the common mind rather than personal preferences. At the end of this process, innovative ideas are evaluated with the participation of many senior executives. In order to make innovative ideas meaningful and to reveal the direction of the industry, we research innovation and technology trends and regularly report them to both the bank and senior management. In this sense, it is very important that everyone believes in innovation and sees it as a value.

As financial institutions build their digital agenda, it is imperative they find the right mix between fintech cooperation, innovations labs, open programs and internal processes. How do you approach this in your institution? And how do you see this evolving in the coming years - will we see more innovation plugged into banks from the outside or innovation built from the inside? 

In order to find the right balance, we look at every aspect of innovation that you just mentioned. On the internal side, we design internal idea generation challenges, collect and evaluate customer and employee feedback, execute innovation committees, facilitate design thinking workshops, and share knowledge within the bank using knowledge management and innovation management tools. In addition, we have an internal R&D lab to support innovation and experience technology. 

On the fintech cooperation side, we bring new solutions from startup and fintechs into the bank. The main motivation here is to form “coopetitive” strategic alliances with startups and fintechs to compete and cooperate at the same time. We are going to see both of those approaches in the upcoming years because both approaches have their own strength. Fintechs have the technological know-how, flexibility, and agility in their processes. They have niche expert knowledge on specific areas. Banks have the market knowledge, great customer database, and their scale. 

There is a clear trend of fintech startups becoming the new digital tech providers for banks, replacing current tech suppliers. Do you see the same trend in your institution? How do you think IT departments need to evolve to accommodate this?

In particular areas, VakıfBank is working with fintech startups. For example, VakıfBank is working with big tech supplier companies in call center management, and within their wide range of solutions, there may be inefficient and inadequate functions and modules. For those areas such as text to speech, speech to text, or speech analytics in general, there are fintech startups that VakıfBank has been working with. In order to enable cooperation with fintechs, we have commissioned more than 130 banking services on the open banking platform. New services are also constantly being introduced. 

Moreover, as a bank who wrote our own main banking software within a distributed architecture with our own resources, we develop the core development internally. Relying on fintech companies on core systems is really difficult at the moment. Legacy systems are not easily replaced by a new fintech solution in the field of banking where service cuts affect millions of people. However, some fintechs will gain trust over time and our IT departments should be ready to transform the legacy systems by working on transformation roadmaps. It is also important to learn how to work together with a fintech company by aligning the working models and getting the know-how from the fintech to the bank. 

Testing and piloting is one thing, bringing innovative solutions to market is far more complex. What is your experience and opinion based on how your institution delivers solutions? In your opinion, how can financial institutions succeed in bringing real innovation to the core business?

Bringing innovative solutions to market requires competency on observation and execution skills. We saw that many ideas that seem to be great have failed on execution. Many ideas failed even though they are executed well because they are not observed carefully due to lack of a real need on the customer side, or the market is not ready yet. From a banking perspective, we place a lot of importance on understanding if an innovative solution is both feasible, desirable, and viable. Unless we convince ourselves in those three areas based on the testing and piloting phase outputs, we don’t move on. 

In order to understand viability, feasibility and desirability, we utilize bank resources to achieve the most realistic potential output. Although we have resources and units allocated to innovation management, our approach is to make every member a potential innovator in the bank. In order to do that, our priority is to develop innovation capabilities, competencies, skills and behaviors of the whole bank staff. 

As the core team, we respond to business suggestions by evaluating technologies and ideas as they arise. By determining the strategic impact of emerging technologies through scanning, evaluate and determine which projects are worthwhile. We also guide senior management on emerging technology issues and potential trends which will lead the bank to take strategic actions.

Last, but not least, we remove systematic obstacles to innovation by encouraging and mentoring distributed innovation activities. At the end of the day, in order to have success in bringing real innovation to the core businesses, you need to utilize every member of the company and bring their strength to the table to achieve synergies.  

In what areas do you think we will see the fastest innovation applied to mainstream services? Retail? Commercial? SME? Private Banking? And why?

At the moment, retail takes the lead in terms of digitalization and bringing personalized solutions when compared to the Commercial and SME side. However, there is great potential in those areas too. The real needs of a company are not satisfied by only financial institutions or fintechs. However, as the combined solutions emerge, the acceleration effect will increase. With the increased amount of customer data and the development of AI technology, more personalized, innovative services will come to SME and commercial customers. 


Join Sait Şener and his peers in charge of innovation at financial institutions. Contact Dorota at dorota@efma.com to join the Efma Future Innovation community.





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