Finding the right mix: Innovation in financial services with Akbank 23 November 2021

Selim Yüksel, Vice President of Innovation Center at Akbank, talks about how collaboration with fintechs is important for success in innovation. 

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?

We are all familiar with discussions about the increasing importance of digitalization; the pandemic accelerated the need for digitalization for almost all sectors, especially ours. So, to stay relevant in this digital age, being innovative is at the core of our transformation journey. 

Banking is a sector known to be traditional and very structured. And innovation, by nature, is disruptive and fast paced. Challenges are natural when the two meet. I think the most important part of this role is never to give up, but to look for the next best thing. Hundreds of innovative products are being released every year to enhance the customer experience while minimizing costs, increasing convenience, and streamlining processes. Banks may provide these kind of innovative funding products to the customers. But we need to have a different and agile approach to manage this business. We cannot efficiently manage such platforms with our traditional processes. We may need to have a different evaluation process and set of criteria, a different level of risk appetite and different return expectations. In that sense, most mainstream financial institutions are rapidly embracing the disruptive nature of fintech and forging partnerships in efforts to sharpen operational efficiency and respond to customer demands for more innovative services. 

It is widely understood that fintechs are targeting the market share of banks and this may be seen as a threat to those banks. This may be a threat for the banks in the short run, but if banks learn from these companies and even cooperate with some of these innovative businesses, they will also benefit from their presence. In fact, fintechs have been pushing banking to a tipping point. But the relationship has been very much mutual. To build differentiated customer experiences – with a focus on personalization, speed, relevance, and seamless delivery – banks and fintechs should work together. This is how we see fintechs; parties that we can learn from and - with smart partnerships - that may create a competitive advantage for us.

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? 

We defined a structured internal innovation management process starting in 2016. The Akbank Innovation Center “Akbank LAB” was established with a view towards developing innovative projects and cultivating innovation. More than 500 Akbankers have gotten involved in ideation processes since 2016, in line with one of the objectives of Akbank LAB, which is disseminating an innovative culture across the organization. 

To produce valuable outputs from the innovation process, building effective partnerships with fintechs has proven to be a major success factor. We are always looking for partnership opportunities with fintechs and startups. To support this approach, we are trying to build and maintain close relationships with universities, technology transfer offices, and ecosystem hubs. We aim to establish partnerships with well-known accelerator centers in order to meet the expectations of the corporate and consumer customers and catch up with the changing trends. Different lending options and methods, non-consumer digitization, open banking, next-gen payments, sustain-tech and blockchain-based secure and fast solutions will be some of the hot topics for these collaborations.

We strongly believe that integrating innovation management processes within the company culture is the key to success and strengthening “innovation from the inside” holds a major importance in our agenda. For that, we share Akbank LAB know-how across Akbank, support business units to develop their own innovative ideas and implement them, run an entrepreneurial mentorship program, and organize an annual intrapreneurship program.

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? 

We should be aware that most traditional banks have their own challenges as well as their advantages. Advantages are existing trust, their customer base and brand value, as one might guess. On the other hand, their challenge is to keep pace with all the younger actors in the ecosystem without any legacy on their shoulders. In such an ever changing environment, it’s important to make and implement accurate investment decisions while effectively managing risks in order to deliver strong financial results in the short term.

At Akbank, IT is a major enabler for the business. Business is the technology, technology is the business. Therefore, the borders between business units and IT are fading out. Our agile way of working makes this possible. Besides cloud transformation, we have several other strategic initiatives, they are not owned just by IT, but by all the stakeholders in the organization. Lean IT, open banking, and AI are some of these initiatives.

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?

Our Akbank LAB Innovation Center is project-based and out of the 23 projects that went through PoC, 11 are alive. We covered many focus areas such as; chatbots, machine learning / advanced analytics, and blockchain. It is important to note that our main aim is not testing a technology but testing a valid use case and customer acceptance. We ideate, go through PoC fast but thoroughly, then decide if the project should be adopted. Entrepreneurs would agree that there is no ‘perfect idea’ to begin with. Innovation is a journey full of learning, improving, adapting, and moving on to the next idea. For a financial institution to be successful in innovation, the key is to integrate innovation as a pillar of the company.  Some banks, like us, are already working with fintechs to exchange business know-how for technical expertise, while others work with partners to begin a transformation journey. There are multiple options for banks to choose from, but maintaining the status quo is not one of them.

We, as Akbank, cultivated many partnerships with fintechs and startups such as: 

· ZestFinance - We made a partnership with an analytics company from the US to improve our credit evaluation processes. Now, we have used machine-learning technology since mid-2019 to evaluate our consumer credit applications. We see that this capability will help us both to increase the credit volume and to decrease the NPLs. We have expanded this technology to other additional models such as collection and credit cards.

· Ripple - We are also a part of Ripple network to use their blockchain-based international money transfer system.

· Personetics - We are providing smart insights to our customers via our mobile application. You can see it on the upper part of the screen and it gives you alerts and insights that make your life easier. For example; you get periodic analysis regarding your spending habits, or an alert for upcoming payments.

Today, we are in contact with over 200 fintech and embedded finance companies in Turkey and abroad that serve as our solution partners; we jointly work on visionary projects focused on fostering innovation and creating added value.

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

It is fair to say innovation is now the driving force of our world, regardless of the sector. In banking specifically, fintechs with products for SMEs will start growing at a fast pace. Until recently, consumers were the dominant customer segment for many institutions but digitizing SMEs and improving their reach to digital services may be the new area to focus on for all companies operating in the financial services industry.

We have undertaken a new initiative across the bank to support the digitization of corporate customers. Akbank will help SMEs to discover, manage, resolve and grow their businesses and get the support they need financially and non-financially throughout their journey on our newly designed, dynamic, and people-centric digital channels. 

Join Selim Yüksel 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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